Segment Evolution: How Sweet it Is

With aggressive growth plans, frozen dessert concepts battle for sites and customers.

By Donna Hood Crecca, Contributing Editor -- Chain Leader, 3/1/2004

Despite the current warnings of rampant obesity and diet-related diseases, we all really do scream for ice cream.

Mix-in concepts such as Marble Slab Creamery (above) and Cold Stone Creamery blend candies, nuts, fruits and cookies with ice cream. The preparation verges on performance art.

More than 90 percent of U.S. households consume ice cream and frozen desserts, according to ACNielsen. Fifty-four percent of Americans will eat ice cream in the next two weeks, reports The NPD Group. Americans spent $21 billion on ice cream and frozen treats in 2001—the last year for which the International Dairy Foods Association has data—with $13 billion spent away from home.

Those figures have held steady for several years, according to IDFA. What’s new is the number of choices. New scoop shops, custard stands and soft-serve stores are popping up almost as quickly as coffee shops did in the 1990s.

Without consumption growth, the only way for the frozen-dessert segment to thrive is to avoid the mistakes of the yogurt chains of the ’90s, according to Dennis Lombardi, executive vice president of Chicago-based Technomic. “Frozen yogurt became ubiquitous, and there were issues around quality and flavor. Ice cream can exist at different levels and can be done with or without a bit of showmanship,” he says.

As venerable chains like Dairy Queen, Baskin-Robbins and Carvel continue to grow, defending their territory with updated products and brand tweaking, new players are heeding that advice as well.

Mix-in Mania
Mix-in concepts are leading the growth trend. The patrons’ choice of candies, nuts, fruits and cookies are mixed with freshly made ice cream on surfaces such as granite or marble, then rolled and served in waffle cones. The preparation verges on performance art.

A new prototype for Marble Slab Creamery in Canada features a “slab theater” design, where the brisk activity is the focal point. Workers at Cold Stone Creamery are known to burst into “I Love Waffle Cones,” sung to the tune of Joan Jett’s “I Love Rock ’n’ Roll,” as they blend and roll the ice cream and mix-ins.

“The ice-cream-with-theater concept is something we haven’t seen since the fountain shops of the 1940s and ’50s,” says Lombardi. “With this idea of show, these brands are moving swiftly to stake out their turf. The volume isn’t there for individual markets to support multiple brands. This is a battle for real estate and share of stomach.”

Houston-based Marble Slab was first on the mix-in scene in 1983. Heavily concentrated in the Southeast, the 350-unit chain will open this year in the Northeast and on the West Coast. Up to 120 locations will open in 2004 and as many as 150 in 2005, according to Chris Dull, vice president of development.

The “slab theater” design of the 1,200-square-foot prototype speaks to consumer desires for customization and interaction, says Dull. “First they choose from flavors they can’t get in the grocery store, then from the many mix-ins. They see it mixed and rolled and placed in the freshly made waffle cone,” he explains. “They’re involved in the process, there’s entertainment value and a product they can’t get anywhere else.”

Sweet Cream ice cream mixed with fresh strawberries is the favorite at Marble Slab, but customer creations have included pumpkin ice cream with marshmallows and chocolate chips, and black walnut ice cream with pineapples and peanut butter cups. Checks average $3.75; unit volumes average $260,000 annually for in-line stores, $325,000 at mall locations. Same-store sales are up 3 percent.

Fresh Focus
Like its competitors, Cold Stone makes its ice cream, waffles and some mix-ins daily on site. Though customers can design their own treats, the menu offers creations like Apple Pie a la Cold Stone, with sweet cream ice cream, graham-cracker pie crust, cinnamon, apple-pie filling and caramel. Checks average $6.15, generating average unit sales of $379,000 annually.

Launched in 1988, the Scottsdale, Ariz.-based company plans to open 450 units this year, mostly in markets east of the Mississippi.

Joining the duo is Columbia, Md.-based MaggieMoo’s International. Decorated with a whimsical heifer theme, MaggieMoo’s stores continually introduce new flavors, such as Better Batter ice cream, based on cake batter. Its Dark Chocolate is a consistent favorite, as is Cotton Candy among the younger set. Unlike its competitors, MaggieMoo’s also offers customizable shakes and cakes, which drive checks into the $5.75 to $8.75 range. The company will not divulge unit sales but says same-store sales increased 12 percent in 2003.

Founded in the early ’90s and acquired by Olsten Venture Capital in 2001, the 110-unit chain will double in size in 2004, hopes to have 1,000 units globally by 2008. Former Panera brand chief Jonathan Jameson joined MaggieMoo’s as CEO in December to lead its growth.

On the Lighter Side
Several low- and no-fat concepts are also expanding. Like their full-fat brethren, they are adding new elements and a focus on quality and flavor to attract customers.

After doubling in size during 2003, New York-based Tasti D-Lite now offers its 99 percent fat-free, all-natural, dairy-based soft serve at 39 locations in New York City, five in New Jersey and one in Florida. Expansion plans call for the chain to double again in 2004 with new units throughout the Eastern seaboard, plus California and other Western states.

French Vanilla and Dutch Chocolate are available daily at Tasti D-Lite stores, along with four rotating selections from the chain’s 100 flavors, including such favorites as Peanut Butter ’n Jelly and Blueberry Cheesecake.

With eight stores in New York and installations at Kennedy Airport and 30 corporate cafeterias in Manhattan, CremaLita has served low-calorie, fat-free soft-serve ice cream since 2001. The chain recently opened its first franchised location in Philadelphia and three in Southern California. By the end of 2004, more than 50 Crema-Lita stores should be in operation, along with additional corporate dining installations.

Customers spend an average of $3.75 for the skim-milk, soft-serve dessert; average unit volume is $350,000.

Offering more than 70 trendy flavors like pumpkin and espresso has broadened CremaLita’s appeal beyond the 20- to 40-year-old weight-conscious women initially considered the target customer. “As customers found out that it tasted good, word spread, and we’re now frequented by teens to middle-age men and women,” says CEO Jeffery Britz.

Add a Little Egg...
While some concepts focus on better-for-you, frozen custard is also gaining ground. Prairie du Sac, Wis.-based Culver’s has a strong Midwestern presence with 225 locations. Joining the chain in offering the eggy treat are 41 Shake’s Frozen Custard stores in the Midwest and South. Units feature a double-drive-thru, double-walk-up window format with no seating. By the end of 2004, the Fayetteville, Ark., franchisor anticipates operating 75 units in 15 states, thanks in part to an association with Wal-Mart Realty.

A new store design featuring updated trade dress and placement of the custard production in view of patrons opened in Fayetteville in September. President and CEO Corey Osborne, whose parents founded the chain in Joplin, Miss., in 1991, reports “dramatic” same-store-sales gains in the past two years. Unit volumes now average $420,000 annually, based on checks of $5.23.

The Last Scoop
With all these companies pushing rapid expansion plans, even the players predict market saturation. “The growth will continue for about five years,” says Marble Slab’s Dull. “There are still a lot of markets out there without strong brands. Then, there will be some fallout.”

The key to long-term success, says Technomic’s Lombardi, is to “continually pique the consumer’s interest and make it a sufficient indulgence to ensure reasonable frequency of visits. Make the calories worthwhile.”