Cold Stone on hot streak: 77% growth

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It's 10 p.m. on a balmy Thursday night before the July 4 holiday and 70 eager customers are waiting to get into the Cold Stone Creamery in Naperville, Ill. The story is much the same on the Upper East Side of Manhattan, where the line for the "Stone" snakes out the store and down the block-even Yankees superstar Jorge Posada is waiting.

Cold Stone is riding high on this popularity. Founded in 1988 in Tempe, Ariz., by Donald and Susan Sutherland-who sold their first franchise in 1995 in Tucson, Ariz.-Cold Stone ended 2003 with 552 stores and expects to add 469 this year. If it achieves that goal, the private company, run by Chairman-CEO Doug Ducey (also an early franchisee), will double 2003 systemwide sales of $150 million.

Admittedly that revenue ranks only 6th in the $5.6 billion ice cream restaurant segment, and leaves Cold Stone a country mile behind Berkshire Hathaway's $2.4 billion ice cream gorilla, Dairy Queen. But with a 77% revenue growth rate last year and a 10% rise in average unit volumes, "Stone" is attracting attention.

an experience

Cold Stone's Joe Kendra, chief brand officer, likened the store to an early Starbucks, achieving the same reaction in consumers' minds and with the same focus on product and in-store experience.

In the Naperville store, it's easy to see what Mr. Kendra means. Ice cream is made fresh daily in the back of the store and each "Creation" is hand-mixed on a frozen granite stone with as many as 70 different options. Scoops range from $2 to $4 and cakes range from $23 to $39. One year, the chain sold chocolate-covered crickets to tap into the "Survivor" hype.

Over the din of chatter and laughter, the crew behind the counter break out into a customized version of "Zip-A-Dee-Doo-Dah" as a patron drops a tip into a jar on the counter. "We sing for tips as appreciation, but also if nothing's happening and we want to liven up the place," said Susan Landgraf, VP-training.

More like bartenders than soda jerks, Cold Stone crew members have to be fun and engaging besides being able to remember 30-some line songs, 70 total mix-in ingredients and 34 Original recipes. And they make cakes.

Also, like Starbucks, Cold Stone doesn't do much in the way of traditional advertising. Mr. Kendra cited a study that showed 80% of Stone customers came from a recommendation and the rest came from radio. None of the visits were promotionally driven, he said, so Cold Stone doesn't use promotional calendars but relies on word of mouth. "Our greatest marketing tool is our ice cream," Mr. Kendra said. "A coupon doesn't build a relationship with anybody."

Of the 3% of funds contributed by franchisees for marketing, the majority is spent in the local market. "To us local store marketing is all about building the relationship with key influencers," like churches, schools and clubs, Mr. Kendra said.

drops, not ads

"A $300 ad doesn't necessarily work as well as 300 drops of ice cream," said Linda Querry, the franchisee owner of the Naperville shop.

So what's the next step for Cold Stone? Well, beyond the new stores, and an aggressive play for the ice cream cake business-with flavors, ganache frostings and intricate designs that could put J. Lo's wedding cake to shame-there's always the possibility of a sale.

A Cold Stone spokesman acknowledged a lot of interest in the brand but insisted it won't sell anytime soon: "We're not going to turn our back on any opportunity, but are we actively pursuing any? No."

An international expansion is in the cards, however, with the company reporting considerable interest from potential overseas franchisees. "It looks likely we could easily have a huge announcement about international expansion later this year," said the spokesman.

In the meantime, Mr. Ducey has his own goal. "Our vision is that the world know us as the ultimate ice cream experience," he said. "We wrote that in August 1999. We don't believe in growth for growth's sake. Growth is about keeping up with demand."

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