Yogurt Bubble

For some reason, Phoenix is in the midst of frozen yogurt wars.  A few years ago a store opened with a new concept - they set up about 12 self-serve frozen yogurt machines so you could fill your own bowl, and then gave the customer direct access to heaps and heaps of toppings (e.g sprinkles, chocolate sauce, m&m's, gummie bears, etc).  At the end, you weigh your bowl and pay based on weight, exactly as one might do in one of those salad bar restaurants.

Over the last few years, the market has exploded with new stores in the same model.  We must have at least 10 different chains.  We have about 6 within a short drive of our house.  Already, the price per ounce they charge has fallen by over half.

I have learned from my out-of-town visitors that this is not a concept that is common in other parts of the country.  Which leads me to ask why so many restaurants with the same concept are piling into Phoenix.  Is it just people in the local market thinking it is a great idea and deciding to copy the idea in their neighborhood? I can sort of see the appeal - these stores were (initially) popular, had low barriers to entry, and probably elicit dreams of creating a franchisable concept.  Which leads me to two questions:

  • Why is the tenth or twentieth incremental store being opened in Phoenix?  I would find some place like Georgetown or Harvard Square that has not seen this concept yet and open it there.  Or even better, open one on Sand Hill Road or wherever retail investors work.
  • Seeing the low barriers to entry and the quick proliferation in this market, combined with sagging visitation as the novelty wears off and steeply falling prices, why is anyone attracted to this at all?  One guy will probably get out ahead on this and establish a national brand, and everyone else will likely get slaughtered  (and the first mover will probably go bankrupt anyway as many fast-growing franchise model from Jiffy Lube to Boston Chicken have).  Is it the lottery value?  Or am I too much like the joke about Milton Friedman, who refused to pick up a twenty dollar bill on the ground because he argued that the money couldn't be real since in a free market someone would have already picked it up.
  • http://www.landofgraciousliving.com Loren Nason

    It really isn't a new concept. The concept of rows of machines with a bar of toppings happened in the mid 80's in Orange County. Then the Yogurt fad went away.

    Now it seems the fad is back. We had a proliferation (or infestation) of Yogurt shops last in in Yorba Linda. 5 that I can think of (maybe more).

    Maybe its 35-45 yr olds that still have some money left over but have no job so they are taking a stab at business idea that they remember from their childhood? I'm 38 and these stores were EVERYWHERE when i was in my teens and franchise stores popped up, then they all but a few closed up shop.

    Pinkberry is a franchise yogurt store that has come out in the past couple of years with a cult following (over-rated IMO)

    Why all the proliferation of yogurt shops (again for me) happening? No idea, but i would bet for ours at least only 1 out of the 5 will make it through another 2 years and maybe none will make it.

  • Amie

    We have these in Las Vegas too, and they are also mushrooming. I don't know about falling prices, since I haven't been in one.

    Maybe it's a (snicker) climate thing? Vegas and Phoenix are both hotter than average in the summer, and warmer in general year-round.

  • Bill Lever

    Frozen yogurt. 10 franchises in Long Beach, CA (city pop. about 400,000) and 9 in Bakersfield (city pop. about 400,000)

    Your readers understand that your personal preference might run to horrible barriers to entry, like multi-government permits, leases, and regulation. And that's just for starters.

    One long-standing yogurt franchiser is TCBY. A quick google search shows a start up in the early 80's in Arkansas. Interestingly, both TCBY and another Arkansas company, Walmart, hired the governor's wife, Hillary Clinton, to be on their boards of directors, for whatever benefits she could bring. How many states have a governor's wife you can pay for benefits like that?

    The new wave of yogurt franchisers Include Pinkberry, Yogurtland and I'm sure more. The franchise applications online begin by asking if you have a significant net worth.

    My plastics company has helped a non-franchised yogurt shop with their cute signage and decor. I hope they do well.

  • Bob Smith

    Sand Hill Road? Why would a bunch of VCs be interested in yogurt shops?

  • Sean

    The innovative are followed by imitators who are in turn followed by idiots. This pattern has been around for quite some time hasn't it?

  • Tom Kelly

    I live in Dallas and have been in the food industry for years. Two years ago my cousin from New Orleans calls me with an "opportunity" to invest in a yogurt concept I had not yet heard of. I explain to him that, if he is successful, the concept sounds so easy to duplicate that profits won't last long, except for maybe the machine makers, though even they will overextend themselves and lose on the back end of the boom what they make on the front end.

    Two years later Dallas is crazy covered with multiple machine yogurt shops, most pioneer units for wannabe chains. The one with arguably the best location in the entire region just shut down a few weeks before Christmas as others in "C" locations are just now getting ready to open. So I'm working on a restaurant concept that will be able to move right into shuttered yogurt locations, there will be a lot more of those.

    In Dallas, the incubator of food chains, we have seem this same pattern over and over. Bagel stores, mix in ice cream stores, fancy bread stores, sandwich stores, pizza stores- all went from a few successes to over saturation in what seems like months. The equipment auctioneer sure stays busy.

    The other big category that is doomed here is "big ass" burgers and fries. There are at least 10 chains with multiple locations that are fighting it out- Five Guys, Burger Girl, Mooyah, JC's Burger House, Gazebo Burger and quite few more. A friend of mine opened one of these and was doing great for the first 6 months in a "B" location and then another chain opened 2 blocks away in an "A" location and I doubt my friend's place will survive.

    Another new niche is "tell them what items you want and they make it for you salad bars". Three of these, all fledgling chains, have sprung up with a few miles of my house in just the last 6 months. I'm starting to think that strip center companies come up with these concepts themselves in order to fill space.

    Unless you are a first mover and/or have the bankroll to outlast competitors to be the survivor in a new segment, keep your day job.

  • http://dailytechnology.net/ Brian D.

    As others have pointed out, this isn't really localized to just Phoenix. It seems to be mostly limited to urban areas, though. I've seen the same thing in New York and Nashville.

    I suspect impending doom for these yogurt places, as well as the cupcake stores that are in a similar situation.

  • Dan

    I wonder how many of these chains are truly independent of each other. It seems to me the money to be made in this type of business is in manging the supply chain to as many front ends as possible. Let the franchisees duke it out over what the front end retail concept should be, while you lease them the machinery and provide the mixes and toppings. If nine of the 10 in Phoenix go bust, package up the equipment and move it to Denver next year. It's the Franchisees who have to deal with the former employees and the real estate companies.

  • Scott G

    Westwood and West Los Angeles near UCLA (90025) have been having a frozen yogurt boom over the past three years also. This is an area dense in apartment buildings.

    Now a similar boom is happening in San Jose in an area dense in apartment buildings (95130).

    I wonder if this is another unintended consequence of big government? Since the children of baby boomers are not willing to buy into the housing market we are instead living in apartment buildings, and after a hard day at work and commuting, like to venture out for a walk around the block and maybe out for a bite to eat. The weigh-your-own yogurt shops ease our disappointment caused from high taxes, crowded freeways, stifling apartments, minimum-wage regulated restaurants and need for eco-health-friendly treats.

    I'm only being half serious.

  • http://evilredscandi.blogspot.com Evil Red Scandi

    They've been all over San Diego and the surrounding communities for some time now - to the point where we're near the end of the cycle and many have already gone out of business. It's nice to see how many people immediately understand what went wrong - I thought the world had gone crazy. Loren nailed it - people who don't know anything about small business or retail are being sold on franchise "opportunities" that have horrible prospects.

  • http://togetrichisglorious.blogspot.com/ Colin

    I live in DC and there are two frozen yogurt joints within a 10 minute walk of my place. The two biggest fads in food seem to be frozenyo and cupcakes.

  • ElamBend

    A lot of these restaurant trends also start in NYC (Big Ass Burgers, Cup Cakes). Here in Chicago, the Big Ass burger joints and cupcakes joints are just about to reach the idiot stage (cupcakes maybe already). One cupcake entrepreneur has an interesting way of entry. She has no store, just a truck; which she will park within a block of some stores and sell to the street (she also does large orders for parties; the real money for cupcake makers).

  • http://abtinforouzandeh.com Abtin Forouzandeh

    Just FYI, these stores are all over the place in the bay area. Cupcake shops are popping up everywhere too.

  • MGW

    I am also in DC and can confirm that FroYo is a fad here. There are several places within a few blocks of my apartment.

    Cupcakes are also in the same boat. There are cupcake places everywhere. My friends and I are taking bets about how long the cupcake place in our building will last. So far it's gone a year, with is 11 months longer than I would have guessed.

  • John Cunningham

    My girlfriend and I live in Cincinnati, and the Froyo has not reached here yet. we were on vacation in Hawaii in early November, and ran across a Yogurtland in waikiki. we loved it, then found one in Kona on the Big
    Island. I hope they reach Cincy soon, it is a massive treat for not too much $$.

  • IgotBupkis, President, United Anarchist Society

    > Another new niche is “tell them what items you want and they make it for you salad bars”.

    Actually, this is a fairly good concept. People love all you can eat salad bars, but the primary problem with them is spoilage due to scattering (someone drops cherry tomatoes into the salad dressing) and mis-use of utensils (someone drops a dressing spoon into the lettuce bin) and so forth.

    I know from my own experience in the restaurant software industry that this rather substantial spoilage is the main barrier to profitability, and why so many places that used to feature open salad bars (Wendy's, for example) dropped them.

    Hence, I'd suspect that there is room in any market for one or two franchises that do this, based on the Subway model. Then it's just a war between competitors for effective business practices.

    =========
    P.S., my own experience with observing the many businesses and varieties of industry I've worked in is that most people don't grasp that one of the primary business tenets is that you can spend Cash Flow like its water in the Mississippi Delta, but you should spend Reserve Capital like it was inches off your penis... If you don't ABSOLUTELY need it, you should not be buying it from reserve capital.

    This failure-to-grasp has been a major factor in almost every business failure I've seen, and that's a fair number over the last 30 years.

  • Doug

    Unaware of any frozen yogurt places in Wisconsin. The frozen custard places would run them out of town.

  • spiro

    There is a cupcake store in the "upscale" area where I live, I went there once and I have no idea how it stays open. It is tucked in the backside of a shopping center on a 1-way 3-lane busy road, the cupcakes are $3 a piece, and they don't even taste that great. The only advantages I can see is that it is the only show in town, it's trendy and the cupcakes are fancy looking.
    It's funny though, I ran into 2 friends of mine at the gym last month and in talking with them I found out that they were getting themselves all worked up about starting their own cupcake business. Both are moms with part-time jobs and husbands who work and both are hanging on to the bottom end of the middle class financially. When they asked me (as someone who had a successful business...up until late 2009) what I thought of their idea, it went something like this:
    Me: how much will you charge for your cupcakes
    them: about $3
    Me: will you set up shop here in town?
    them: yes
    Me: what will be unique about your cakes or your shop that will make you successful?
    them: ??
    Me: you know, secret recipe? gluten free? low calorie? organic? only cupcake tops (no stems)? What is your trademark?
    Them: we make yummy cupcakes.
    Me: You know, most families in this town make less than $50,000, and live on budgets. they will know that they could make a dozen of their own cupcakes with a mix for a little over a dollar. What will you provide to convince them to pay 3 times that much for 1 of your cupcakes? And at $3 a sale, how many customers do you need to cover costs?
    Them: whatever. we'll bust our butts and make it work. cupcakes are hot right now and we have a lot of friends that say we should do it.

    If I'm not mistaken, one of them had a short-lived career as a real estate agent about 5 years ago. :-)

  • http://southbend7.blogspot.com/ SB7

    Here's a report from The Customer is Not Always Right of a similar business in San Luis Obispo, CA.

  • DensityDuck

    Stuff like this is popular because it's easy to fit into a tiny, tiny retail space, and it's probably a turnkey franchise--you pay X-thousand dollars and the company does everything for you, renovating the space, installing the equipment, buying and shipping feedstock, everything but flipping the "open" sign in the morning. All you need is the startup cash.