Cold Stone Creamery Opens Self-Serve Frozen-Yogurt Bars

But Can It Conquer Sluggish Category, Its Association With Indulgence?

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CHICAGO ( -- Cold Stone Creamery, known for its hand-mixed custom concoctions and fatty ice-cream indulgences, is going lighter and more casual with a new, self-serve frozen-yogurt line extension.

The Cold Stone Yogurt Bar concept consists of self-serve, soft-serve machines accompanied by a toppings bar. Pricing will be a weigh-and-pay structure. Initially, the flavors will be the "sweet and creamy" kind the company said it is known for -- vanilla, chocolate and cake batter -- but additional creamy flavors and tart flavors such as berry will be added later. All stores will carry frozen yogurt in hard-packed options, which is the style in which the chain serves its ice cream.

The Yogurt Bar is designed to be able to be a standalone concept, particularly in locations such as airports or military bases. Franchisees will have the option of incorporating the yogurt bars into existing stores as well as not-yet-built ones. A handful of stores in Arizona, California and on the East Coast will test the new yogurt concept over the next few weeks in preparation for an intended nationwide launch in the spring.

This isn't the first time Cold Stone has delved into frozen yogurt. The company in July 2008 rolled out its tart frozen yogurt to jump in on the tart craze, competing with Pinkberry and Korean company Red Mango -- companies known for serving plain, fruit or green-tea flavored low-fat frozen yogurt topped with fresh fruit or cereal toppings. Now, though, the company is looking at a broader lineup.

"The sweet and creamy base allows us to take advantage of what we do best: customization," said Dan Beem, president of Cold Stone Creamery. "It also allowed us to incorporate some of Cold Stone's most popular, signature flavors into a frozen-yogurt line."

Departure for company
The soft-serve concept is a departure for the company, which is known for hand-mixed ice cream cones and cakes. In the company's original model, customers choose from as many as 40 different add-ins, such as M&Ms. or Oreo bits, which are mixed into the ice cream by hand in-store on refrigerated slabs of granite. Cold Stone also offers sorbet, non-fat no-sugar-added ice cream and smoothies.

"It's become increasingly evident that the yogurt category is being driven by soft-serve, weigh-and-pay options. We heard from our customers and franchisees that this is what they wanted, and we wanted to deliver on what they were asking for in yogurt options," said Mr. Beem. He also said that the line extension will increase repeat customers, as customers "get yogurt more times per month than they do ice cream."

Cold Stone in 2006 hired Publicis Groupe's Saatchi & Saatchi as its agency of record, but Mr. Beem said the company now has an in-house marketing agency. Cold Stone historically is not a big advertiser; the company spent about $2.5 million in U.S. measured media from January through September 2010. It spent $3.3 million in 2009 and $2.6 million in 2008.

As for the company's 2011 marketing strategy, Mr. Beem said that Cold Stone plans to continue with "a high level of national support." But, he said, "we're really planning to get back to our roots and bring the power to local stores and really rely on the franchisees" to choose their own marketing campaign. He added that no national TV campaign was planned "until we get a large enough mass."

Bad timing?
The line extension comes at a time when the frozen-yogurt category may have already seen its best years. In particular, tart-style frozen yogurt gained traction in Los Angeles in 2006 and has since spread to other major cities including New York, Las Vegas and Chicago. But in recent years, its popularity began to wane as consumers tightened their purse strings in response to the recession. According to NPD Group, the number of frozen-yogurt servings sold in the U.S. for the year ended November 2010 was down 15%. The number of servings was up 3% in the year ended November 2009, up 13% in 2008 and up 1% in 2007, when the craze first started to spread.

Cold Stone's estimated U.S. sales were flat at nearly $429 million in 2009 -- just more than 7% of the total U.S. frozen dessert market-while its number of stores was down 6.6% in 2009, according to Technomic. (Data for 2010 were not yet available.)

The main culprits of the frozen yogurt category's recent decline are the recession and store closings because of market oversaturation. "Recession takes its toll on indulgent, highly priced discretionary purchases," said Bonnie Riggs, restaurant industry analyst at NPD group. "And anytime we see a trend like frozen yogurt, we see people trying to capitalize on it and competition becomes fierce as more stores open."

Ms. Riggs added that the recession isn't the only reason for store closings. The frozen-yogurt trend isn't all that popular in regions other than the West Coast. According to NPD, 45% of all frozen-yogurt purchases for the year ended November 2010 occurred in the western region of the U.S. Comparatively, 16% occurred in the east, 26% in the south and 14% in the central region. She also said that those in the 18- to 24-year-old demographic, which was a demographic hit hard by the recession, were strong patrons of the frozen-yogurt stores.

The category may have difficulty getting back to its 2008 level popularity. "I don't think it will get back to double-digit 2008-type levels. Part of that was driven by unit expansion. I think it'll get better than what we're seeing right now. But is it going to be strong growth? Demographics and regionality don't work in its favor," said Ms. Riggs.

Consumer confusion
Another issue is whether Cold Stone, a company that's been known for indulgent frozen products, can fare well in the frozen-yogurt category with this line extension. "Generally you're more successful in a new concept when you're first, and they're not first in [the frozen-yogurt space]," said Al Ries, chairman of marketing consultancy Ries & Ries. "Second, they're using an existing name that doesn't stand for frozen yogurt. They're known for highly caloric, high-fat desserts."

Mr. Ries added that Cold Stone could potentially face challenges should the company proceed with the standalone store concept. "That's going to totally confuse people. Adding the product to the existing stores is not really going to help or hurt them because it won't cost them. But starting to open franchised frozen-yogurt stores with the Cold Stone name doesn't make sense."

Still, he acknowledges that it does make sense to have some additional offerings in the store. "Having more frozen-yogurt options will take care of the 'veto effect.' There's a logic to their thinking." Even so, he said that logic does not always translate to the consumer. "To most people, Cold Stone is ice cream, not frozen yogurt."

In that, Mr. Beem doesn't necessarily disagree. "Cold Stone Creamery will always be known as the ultimate ice-cream offering. Adding the Cold Stone Yogurt Bar to our product line allows us to combat the 'veto effect' and also increase repeat customers to most benefit our franchisees."

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