A recent Wall Street Journal article examines the problems faced by Cold Stone Creamery, the ice-cream chain that was one of the hottest expanding concepts a few years back.
The article says that 100 stores closed last year and that “one list on a Cold Stone Web site recently had 303 stores for sale — more than 20% of the company’s 1,384 as of December.”
Among the problems that the chain is apparently facing are a high-priced, $4 scoop in a challenging economy, over expansion and tough margins that have put the squeeze on franchise owners.
We seem to remember similar problems taking place with other higher-end ice cream concepts like Ben & Jerry’s. Cold Stone did expand awfully fast, and at least in certain parts of the country, we would think that demand for ice cream from November through well into March is pretty low.
But is Cold Stone and its segment of food retailing alone? Starbucks has cut back its domestic expansion plans. Can you think of any other food-related chains from which we will hear similar news?
What we are seeing is the tip of the iceberg that we hit a few months back.
Cold Stone’s product is a non-staple food peole can do without. The $4 for a cone is going into the fuel tank instead of going into Cold Stone’s till.
Rita’s Water Ice (http://www.ritasice.com/) has been expanding rapidly from its base in Philadelphia to locations up-and-down the east coast. It takes a more affordable, no-frills approach to the frosty-treat market and it seems to be working quite well.
Lower cost summer refreshment options like Rita’s might be the recession-proof option in this segment.
I would expect Jamba Juice to take a huge hit in the coming year. The margins on the product I’m sure are great for the owners, but you could get a decent breakfast for the cost of one of their drinks.
Same old story, different name. This happens every time there is a downturn. The real world deflates a high-flying repeat concept (meaning it’s been done before) that had everyone scratching their heads as to why it was expanding so fast. Was there something incredibly unique about Cold Stone? No, the prep-it-in-front-of-you concept has been done many times before. Is the ice cream so much different than the competition? No, it’s good ice cream, just like all of the other premium ice cream players. Is the “eater-tainment” factor enough to bring people back over and over? No, it’s actually kind of annoying to have to wait 4 minutes to get your ice cream when there is nobody in line; and far longer when there is a line. So what did this new wave of ice cream shops have going for it that was going to change the frozen dessert business? Hype! Just like Krispy Kreme was going to change the donut business. Just like TCBY, Everything Yogurt, I Can’t Believe It’s Yogurt, Yogen Fruz and countless others were going to change the frozen dessert business. Just like Boston Chicken/Boston Market was going to change the quick serve/home meal replacement business. The franchise business road is littered with dead concepts that took an established idea, repackaged it, hyped it and sold franchises and then went down in flames (remember all of the cookie concepts that followed Mrs. Fields, or the fresh potato chips concepts that lasted about 6 months, or the 100-flavors-of-popcorn concepts?) It’s sad to see franchisees get hurt in these situations, but in the business everyone with a brain saw this one coming. There was no differentiating factor with this concept; nothing to get you to drive past a Maggy-Moo’s or a Ben & Jerry’s to go to a Cold Stone. It’s a concept based on customization (which is also possible at almost every other ice cream shop) and a little bit of entertainment (which, after 30 seconds, becomes boring and my kids don’t want to wait more than 30 seconds for anything, let alone 16 minutes if there are 3 people ahead of you in line). It also is an indulgence item, something nobody needs, something you treat yourself to when you feel you deserve and can afford a treat, something that clogs your arteries and makes you fat. Do Americans like indulgent items that clog your arteries and make you fat? Oh yes, no doubt about it! But should you invest your life savings in a franchise that only sells one small slice (ice cream) of a niche product (desserts) that costs $4 per scoop AND makes you fat while clogging your arteries? I wouldn’t invest my money in it. But the real red flag in this business is the rapid expansion of such a concept. The day Cold Stone announced they were going to double their store count in a few years, and then double it again a few years later, was the day everyone I know in the business started taking bets how long it would last until they go Chapter 11 or 7. This kind of rapid expansion never goes well; the systems needed to support a franchise network that large never seems to keep up with the store count and franchisees start to drop like flies.
It’s a shame it happened, again, but you would have to be pretty clueless not to have seen this coming.
These stores had a very high breakeven number to start with. Add to that a very seasonal sales profile in nothern / north eastern areas and you have a tricky business to keep alive. The price is the highest of high end and deemed a luxury by many. Enter the reccession of 2008 following the over expansion of 2002 to 2007….you don’t have to be a rocket scientist to guess what happens next.
Who is next though…??? Yes the juicers may be up for some hard times too. Oh to go the route of just another Bubble tea…lol.
The problem with the Coldstone stores isn’t the price of the product as much as the poor location of many of the stores, high labor costs, high costs, tight margins, and an “ok” ice cream for the price.
Competition in premium ice cream is intense, the average working family is hurting these days and can’t easily afford premium ice creams, (Rita’s is a poor man’s treat) and high imbeded costs to the franchisee….However, kids will keep driving parents to ice cream stores…and the high price of gas might keep people closer to home…and the local ice cream store…Most of Coldstone’s problems seem particular to that company.
For a while the answer seemed to be to team up with that other losing franchise, Original Soupman. At first glance, it made sense to team up with a complimentary product that could help offset the decline in ice cream sales in winter months in the colder climates and contra-decline in soup sales in summer months. However, both products are over-priced and while arguably better than the rest, left the masses wondering what they just paid for…as a former customer of Cold Stone, my family of four never left the shop without having incurred a $30 price tag…not my idea of an inexpensive desert for the kids! And the soup, great product but poorly managed. $10+ for a bowl of soup??? In this case, 1+1 does not equal $3. Sorry Team Kahala!
Just went to Coldstone tonight just because I had a craving for ice cream even tho it is totally against most of my present diet.
They had some sort of flavor that had choc. fudge etc in it and sounded really good for $3.29 for the “like it ” version. Of course you can really pig out for $6. or so; I am an older person who is trying to stay healty but I will occasionally pay premium prices for something special. But when I went up to the counter, was it $3.29; no, it was $4.29 even tho I had not ordered anything extra.
She said something goobledygook which made no sense, so I just dropped a $5.00 and left. Will I go back anytime soon, no. Will they care, probably not unless they have some intelligence.