Getting into the Ice Cream Retail Business

Ice Cream

Ice Cream shop. This one is in Denmark, but it's a great photo. Photo cred Addison Berry http://www.flickr.com/photos/add1sunhttp

These seems like a great business to get into.  We have decided to combine the ice cream, frozen yogurt, and smoothie businesses into one article because they are similar.  Not a lot of complicated equipment to buy, and not too much technical skill unless you are making the ice cream.  And you are focusing on one product line.  You have probably taken your kids out for ice cream and wondered why the mark up was so high.   For the cost of a few ice cream cones, you could by a couple gallons of ice cream.  What would it take to get into this business?  We aim to look into these questions.

Over the past thirty years it seems like the number of OC ice cream shops or ice cream parlors has been decreasing as the population has been increasing.  This is due to several factors.  Residents of Orange County have become more health consensus.  That means less trips to the ice cream shop.  The number of doughnut shops also seems to be decreasing and community big pancake breakfasts draw very few people.  Frozen yogurt shops and smoothie shops have been popping up as it is perceived healthy alternative to ice cream.

As with other businesses, it seems like people want to go to a place they know.  That is why franchises work so so well.

Margins

Each Serving or scoop of ice cream is about 4 ounces, and a gallon has about 128 ounces.  So that means you can get about 32 scoops/gallon.  But some scoops might be a bit larger, it's hard to get ice cream out of the bottom of the container, and some ice cream will just go bad.  So it would be better to assume that each gallon will yield 28 scoops of ice cream.  Each scoop would be about 1/2 a cup a respectable serving size.

The retail price per scoop of ice cream can vary from Thrifty Brand (It's still around even though Thrifty's is not.) at $1.29/single scoop to $2.49/triple scoop serving (=$0.83/scoop).  So we can ball park the retail price at $1.00 per serving since most people just have a single serving.  If you are in a good location and up charge for toppings that don't cost much, you can get maybe $3.00/scoop.

Assuming a 2.5 gallon container of ice cream costs $22.  It could yield 70 servings.  So if you sold for a low price of $1.00/serving you could make $48 on that container.  Or a (48-22)/22= 118% mark up.  If you sold you product for $1.50/serving your could make $80 on a 2.5 gallon container which is a 277% mark up.  And if you sold it for $3.00/serving you could make a $188 profit on that container which is a 755% mark up.

Editor's note, this is a gross mark up that does not include packaging or cones.  We need to confirm the cost of $22 per 2.5 gallon container.  This was based on cost in Pennsylvania.

 

Location

The conventional wisdom is that Ice Cream, Frozen yogurt, and to some extent Smoothies are not a point of destination for most customers.  Shops succeed when they are in an environment where  they have the right demographic who are at or between destinations.  So conventional wisdom would hold that a stand alone shop that is out of the way for your customers would not work well.   A shop in a busy place frequented by customers would work well.  A smoothie shop might work out next to a health club, and an ice cream shop might work out if it is next to a school, movie theater, or in a busy mall.  They might also workout in a location that has a lot of restaurants.

 Education and Associations

 Attend a Trade Show

The two big ice cream retailers have trade shows ever year.  These are the places to learn about what you need to buy to get into the ice cream business, and what trends are "hot" in the business.  The International Association of Ice Cream Distributors seems to have shows in the west while the National Ice Cream Retailers Association seems to have shows in the mid west.  And remember to save your receipts because your fees, hotel costs, plane tickets ... are (or should be in our opinion) Tax Deductible.

 

NICRA's 78th Annual Meeting & Trade Show.  The seem to have conventions in the Mid-West

This is a commercial for the International Ice Cream Distributors and Vendors Association.  They seem to hold their conventions near OC. like Vages.    

  • International Association of Ice Cream Distributors and Vendors.  This organization brings together people who sell ice cream carts, temporary stands, and vehicular sales with the companies that supply equipment and distributors.
  • National Association of Ice Cream Retailers www.nicra.org
  • Ice Cream Shop Business Plan  This is a business plan written circa 1995 to obtain a loan and it must not have a copy write as we have founded on several internet sites.  We are not really sure who wrote the plan, if it was for an actual business, an MBA project, or if it was actually funded.  This is from a set SBA business plans that have been made available on the internet.  But it give you some interesting ideas.  (One thing to note, the figures are based on one ounce scoops of ice cream, that means you get 128 scoops per gallon.  So that's the size of a shot glass.  We had assumed 4 ounces above.  That's about 1/2 a cup. )
  • OC Weekly article about an independent  successful Ice Cream Shop.

Ice Cream Whole sellers and suppliers

Long Beach Ice Cream.  They deliver 3 gallon containers and have a wide variety of flavors.  They also have ice cream treats.

DeeLight Distribution in Fullerton.  http://www.deelitedistribution.com/home.html They sell all mannor of ice cream bars and popsicles.  Basically the stuff you will find on an ice cream truck.  But sometimes customers may want a one of these special treats.  

Brothers International http://www.brothersdesserts.com in Costa Mesa

Restaurant Depot in Fountain Valley.  restaurantdepot.com  They sell a variety of supplies and Ice Cream.  The thing is RD is a real wholesaler for businesses.  They don't go for the people willing to save money by buying in bulk.  You will need a resale permit and proof that you own your business to shop at RD.

 

Ice Cream Franchises

As with other food businesses, franchises seem to be the most popular way to go.  You pay a lot, but they have name recognition.  And they have economics of scale in marketing.  Customers prefer to go to a place they have heard of or been to before.  They know what they will be getting.  Think about how successful Subway Sandwiches are.  But the ratio of independent sandwich places to well known chain stores is small.   That's because paying for the franchise marketing plan and reputation brings customers in the door.  The question you have to ask is it worth it?  Basically, the franchises force you to pay for marketing; and they make sure you have enough start up capital.

But other people argue that they force you to buy their equipment, charge huge royalties, and limit what you can do.

Get Professional Looking Supplies Without a Franchise

Okay, one of the reasons that people prefer to shop at franchises is that they serve food in branded containers that look great. It shouldn't matter; but it does. Customers know that they are experiencing a premium product and not some cheap stuff you picked up at Wall Mart. (Okay, their ice cream is actually pretty good.) To help your customers understand that your ice cream is worth a premium price, customers need to be presented with a premium looking product. So how do you get your logo on containers? One company Carry-Out Supplies in the City of Industry can put what ever you want on the cups. One color or multi color. There is a 20.000 minimum and it takes a couple of months; but if you're brand is important that's the way to go.

Yogurt Containers, Ice Cream Cups...  Samples of their printing.

They also have the little spoons and other nick-nacks.

Baskin Robins

This is probably one of the best known ice cream brands.  According to  Wikipedia, the chain started in 1953 two stores merged and opened the first Baskin Robins in Glendale CA, and now claim to be the worlds largest ice cream franchise.  The big thing they were known for back then was having having 31 flavors which meant you could have a different flavor every day of the month.  And they had more than their competitors.   The company was purchased by United Brands Company which also owns Togos and Dunkin Donuts.  That's why you see these brands in the same location.  Don't think that BK stopped innovating in the 50's.  They are coming out with new flavors and they have more than 31.  They are innovating to keep up with the competition.  [See oc register story]

In terms of new franchises, they state on their website that they are looking for people who can operate multiple locations, are well financed, and have business experience.  To open a single location, you need to have at least $125,000 in liquid assets and $250,000 in net total assets.  But there are a lot of existing franchise out there.  Your best bet might be to buy an existing franchise.  You can find information about franchises for sale on their for sale website.  BR must approve the sale and approve the buyer as a franchisee, but we assume BR also have to consider the fact that you will need less capital in an existing customer base and they cannot make it too challenging for an existing franchisee to get out of her investment.  So the requirements to purchase an existing franchise are different than it takes to start one up.

Note, this much talked about CNBC story is from 2011, we don't know if this situation still exists. This is a though business to go into regardless of whom you franchise with; and the people in the the story had an incentive to talk down the franchise opportunity as they may have been pressuring the company for a favorable settlement.   The takeaway from this is that the ice cream business is not a sure thing, and you should be aware of the risks.

 

Cold Stone

 

This is a very successful ice cream concept.  Goodies are combined with your ice cream on a cold stone so the ice cream does not melt.  To open a new franchise, Cold Stone estimates you will have to spend at least $294,250 including the $42,000 franchise fee.    Their area director Mr. Shaw jrobershaw@coneheadinvestments.com  will pre-qualify you to own a franchise and help you select a good location.  Another alternative is to buy an existing franchise.  Again, the Cold Stone will have to qualify you to be a franchisee.  You may be able to get in at a lower cost than starting a new location.  Current owners who wish to sell advertise here .

As with virtually all franchising opportunities, some franchisees did not feel they got a good deal.  You should investigate their experiences and discuss it with the area director before you invest.    These sites popped up on the web:  WSJ Article    WSJ Comments  Web Blog 

 

This was the opportunity featured on ABC's Shark Tank January 2013.  The ice cream concept is similar to Cold Stone's in that each customer gets a customized product.  They didn't get any of the shark money, but the appearance was about promoting the  business concept.  The idea is that you make fresh ice cream in front of the customers using cream/milk and fresh ingredients.  Un like all other ice cream franchises, you do not need a freezer.  That's because each ice cream served is made by hitting the fresh ingredients with liquid nitrogen which is -320F.  In a couple of seconds--zap--you have ice cream.  (Going off memory)  The Shark known as Mr. Wonderful brought up the question of customer throughput (serving time), that is your sales will be limited on busy days because it takes a long time to serve each customer.  And on the show they said that they could make an ice cream in 15 seconds.  But it looks like it might take a bit more time to serve each customer on the video.  They said that you could set up a shop for $125,000-150,000, and they have expanded into California.  (They have a store near the OC, 2091 Madera Rd Ste E Simi Valley, CA 93065if you want to check it out.)   Based on their website, they have a Franchise fee of $30,000, and they take 6% of gross sales.    We don't know how the cost of liquid nitregin compares to traditional freezers.  www.subzeroicecreamfranchise.com

 

Soft Ice Cream

Tasty Freeze

According to their website it might take between $40,000 and $900,000 to build out a new location.  It depends on your location.  On one hand it might be a bit higher in Southern California, but on the other hand a lot of the stores in the Southland just serve ice cream while back east they serve a whole menu of burgers, fries, pork sandwiches ... There is a $20,000 franchise fee for the full restaurant and $10,000 for the desert only restaurant, and they take a 5% cut of gross sales as a royalty, 1% for their national advertising, and at least 3% for local advertising.  But their franchise agreements are not forever.  They only run 20 years so the number of franchises for sale might be limited.  We did not see any existing franchises for sale on their website.  Click here for info about finding a franchise.

Dairy Queen

As with Tasty Freeze, they operate locations with a full grill.  But these are more popular back East.  In so cal the desert only stores seem to be popular.  Your best bet might be to buy and existing franchise.  They must approve you as a franchise owner.  According to their website, the best way to find a franchise is to "You may contact owners directly or a local real estate broker for assistance."   That must get a bit annoying for the franchise owners.  The minimum requirements to purchase is less than other franchise opportunities.  You need a net worth(not including your house) greater than $75,000 or 50% of the purchase price, liquid assets grater than $30,000 or 20% of the price, and at least $25,000 or 20% of the purchase price in operating capital (we think the mean cash).  These requirements go up if the lease is running out. (They want to make sure you can qualify with the landlord for a new lease.)

There newer franchise concept combines Dairy Queen and Orange Julius brands into one location.  see  http://www.dairyqueen.com/us-en/own-a-dq/dq-orange-julius/  This increases sales as the two concepts are complementary.  Perhaps ice cream for the kids and fruit smoothies for the parents.  And it would seem to be less seasonal than an ice cream only store.  They are aiming to put this into strip malls, and other busy locations.  the requirements are about the same as for an desert only store.

Rita's Italian Ice Custard 

This East Coast chain is expanding into California.  They have three area developers.  www.ownaritas.com They would like you to have 300,000 in net assets and at least 100,000 in liquid assets. They currently have more than 550 stores.  We didn't notice franchise costs or startup costs on their website.

Gelato

If you haven't tried it, this is Italian ice cram that's hand made.  It is a bit richer than what we are used to eating.

Frozen Yogurt Franchises

 

Korean-Pop Yogurt  This trend started in Korea, and has been exported to the United States.  Three chaines offer frozen soft-serve ice cream style yogurts in exotic tart flavors like green tea and mango.  And you can load up on the toppings.  They do not have that icky after-taste that you think you associate with soft-serve frozen yogurt from the '80s.  All three concepts have plastic furnature and a color schemes that have been described as Hello-Kittyesq The trend seems to have been originated by Red Mango, and was followed up by Orange Leaf and Pink Berry.  This Red Mango video shows how these chains have taken a bla product and turned it into a health and fun concept aimed at affluent families in suburban America.

Red Mango

This chain offers traditional stores and Self-Serve stores where customers can make their own.  You can expect to pay a bit over $400,000 to get started.  www.redmangousa.com/franchise/qualifications According to their website, they are planning to expand to California soon.  (Franchise Commercial)  (See a Red Mango Store)

Orange Leaf

Orange Leaf is franchising from the mid-west and expanding west to California; and Pink Berry is going the other way.  There are already 4 Orange Leaf locations in Arizona.   ;;;;;;;;;;;;;;  Orange Leaf has a lays out their franchising costs on their webpage http://orangeleafyogurt.com/franchise  Basically it costs about $400,000 to open a new store, and you will pay a $15,000 franchise fee.  And the company will take about 5% of your gross.  You also have to buy their supplies.  Click here to see what an Orange Leaf yogurt shop looks like 

 

PinkBerry

This is currently the in place.  It would be hard to describe the reason for their success in a mathematical equation or business plan that's easily replicated.  It's a style thing.  And yes the product is not bad.  They are franchising.  But our guess is that they do not have a shortage of people who want to open one of their stores, so they have a high threshold for potential franchisees to cross.  So they are obviously looking for people who will do a good job representing the brand image; and have the financial resources to succeed.

Based on the questions they ask on their website application, they are looking for someone with at least $400,000 in liquid assets and at a net worth of at least $800,000.  They want people who can open at least two stores, and have business leadership experience.  According to their FAQ's, they take about 10% of sales: 6% for a royalty, 2% for general marketing, and 2% for local advertising.  And there is a $45,000 licence fee to start up.  Franchise Website   And as with virtually all food franchises, there is the issue of the product mark up.  You will need to buy virtually all your product and supplies from the franchisers company.  They make a bit of profit on this, but this markup is a closely guarded corporate secret.

TCBY 

It looks like they are taking following PinkBerry's  in providing a stylish yogurt experience; and they could very well beat their rival at it's own game.  If you haven't checked this chain out in a while, you will be surprised.  They started in the 1980's, and tried to take on the ice cream industry with a product that was supposed to be more healthy than ice cream and taste great.  They have an updated look and now focus on the positive nutricional benefits of yogurt.  They will be coming out with Greek yogurt products soon which are higher in protein.  And it isn't chocolate or vanilla that tasted kind-of chalky any more.  Thy have a bunch of new flavors including trendy ones like Fat Free Mountain Blackberry and Red Velvet Cake.  Website 

But the new look comes at a price.  They estimate on their franchise website that it will cost between $200,000 and $350,000 to get a new franchise off the ground.  They charge about 9% of gross sales for advertising and the royalty fee.  They are looking for people with business experience.  They have an orange county location in South Coast Plaza and Laguna Niguel.

Ice Cream Business Resources and More Information

The Ice Cream Bloke icecreambloke.com  This is a website that looks at the trends in the ice cream business.  It is meant as a B2B site, and a site for people who love ice cream.  The host does store visits to highlight the latest trends from around the US.  The host Steve Christensen also has a You Tube channel where you can see what he has discovered https://www.youtube.com/user/Theicecreambloke?feature=watch

 

 

 Editor's Note 

We are still working this article, but we thought we might as will put up what we had.  If we waited until we were finished the site would be empty.  Please let us know what you think and let us know what's wrong or missing.  This article is based on general information we noticed on the internet.  To be honest, we have no expertise in this business.

 

 

 

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