They seemed to pop up almost overnight. In strip malls and on street corners across the country, frozen-yogurt shops suddenly offered an exciting new option for America’s collective sweet tooth, teasing at healthfulness and innovating with self service and customization. Once concentrated mostly in warm coastal cities or urban centers, fro-yo concepts spread to countless towns, suburbs, and neighborhoods across the country, with names like Pinkberry, Red Mango, and Menchie’s.

Fro-yo’s sudden hot streak appeared to threaten a mass melting of one of America’s tried-and-true dessert darlings: ice cream. Indeed, some of the nation’s top ice cream concepts took a beating with fro-yo’s arrival. Between 2009 and 2011, Cold Stone Creamery’s annual sales dropped to $366 million from $430 million, and its store count dropped to 1,086 from 1,198. Baskin-Robbins, meanwhile, saw sales drop to $496 million from $570 million and store counts tumble to 2,457 from 2,597 in that same time period.

But ice cream brands say they’re nowhere near ready to surrender.

“Ice cream is so entrenched in the American culture that it’s not really even close at all to being transplanted as being what people want, whether it’s after dinner or after seeing movies,” says David Wild, director of franchising for South Florida–based Sloan’s Ice Cream. “I don’t think that it really stands a chance of being overthrown, just because it has so many roots in American culture.”

With the frozen-dessert market more crowded than ever, ice cream brands are finding new ways to stay competitive. Classic concepts are leaning on their popular product lines and loyal customer bases while rolling out new offerings. Many have learned from frozen yogurt’s use of novelty and are making their products more customizable than ever.

Ice cream newcomers, in the meantime, are adding their own unique twists to the dessert by tapping into the local-foods movement, handpicking artisan-quality ingredients, promoting healthier options, and innovating with new techniques and flavors.

Insiders say these shifts within the ice cream industry have poised it for a bounce back; many believe frozen yogurt has reached its saturation point.

“They come and go. But Americans will eat ice cream until the end of time,” says Michael Branigan, vice president of marketing for Pennsylvania-based Bruster’s Real Ice Cream.

Executives with Sloan’s say the brand is not just setting itself apart from frozen yogurt, but also from others in the broader, congested dessert arena. The sensory-overload stores are billed as a dreamland for kids and adults. Whimsically decorated shops are covered in bright colors and lit with twinkling chandeliers, and offer a variety of ice creams, candy, toys, chocolates, and baked goods.

“We are so unique and different that we really almost don’t have any competition,” says founder and owner Sloan Kamenstein, a classically trained chef turned ice cream proprietor. “Because there’s nobody that does everything all together in one space the way that we do it, with the fun atmosphere and all the excitement of coming to our stores.”

Kamenstein says the company will pursue an aggressive growth plan in the next few years. So far, 17 franchises are signed and the company hopes to open 200 stores within five years.

Some ice cream operators are taking a page right out of fro-yo’s playbook. Whereas that category has thrived on the self-serve model, in which customers can choose their precise portion preferences and toppings and be charged by weight, nearly all ice cream shops have relied on a model that set standards for portions and toppings.

But not anymore.

“One of the things the yogurt shops offer is control,” says Dave Guido, senior vice president of operations and franchise sales at Bruster’s. “So we promote the fact that you can customize your product at Bruster’s, the point of distinction being that we’ll do that for you.”

There’s no question that frozen-yogurt shops have encroached upon 200-unit Bruster’s territory. But executives don’t see fro-yo as a direct threat. In fact, the brand thinks its biggest competition comes from quick-service giants like Wendy’s, McDonald’s, and Burger King, which continue to experiment with dessert options. While those companies may not offer the same intense focus on dessert, they do offer a convenience and affordability that’s hard to match.

That’s what ice cream chain Dairy Queen sees as one of its key advantages. Most Dairy Queen stores have drive thrus, so customers can get popular items like Blizzards quickly in the size they want, while still choosing from countless combinations of flavors and add-ins.

“There’s no question that just the sheer number of outlets offering frozen sweets has grown,” says Dairy Queen’s executive vice president of marketing Barry Westrum. “But if you look at the trends in the ice cream industry—consumer demand for convenient single-serve options, their desires for eating on the go, portion size, customization, unique flavors—all of those trends really play into our favor.”
With 2012’s sales topping $2 billion, Dairy Queen’s 4,600 U.S. stores swallow about 40 percent of the frozen-dessert market, according to Technomic.

Westrum thinks frozen-yogurt customers will start to find the self-service model expensive and inconvenient. Brands like Dairy Queen, he says, can still develop fresh offerings mixed with a high level of customization. The brand continues to roll out new Blizzard flavors, including Chocolate-Covered Pretzel, Lemon Meringue Pie, S’mores, and Peanut Butter Brownie, as customers increasingly come to expect new-and-improved products.

“As you look at consumer trends in all forms of how they eat today, consumers love what they love,” Westrum says, “but they’re always looking for what we call ‘safe adventures’ in those popular items.”
That sense of adventure is being scooped into cones and dishes in many new ways across the ice cream industry. As customers develop more sophisticated palates, higher-end ice cream stores have started offering bolder flavors previously unheard of in ice cream, like bacon, avocado, and tomato. Others, like Utah-based Sub Zero Ice Cream, are experimenting with liquid-nitrogen freezing, hoping to spark a new frozen fad through science.

Ben & Jerry’s has integrated a swath of fair-trade ingredients, while Baskin-Robbins resurrected its flavor-of-the-month promotion. And Carvel joined forces with sister brand Schlotzsky’s to open up new daypart and demographic opportunities.

The competition with frozen yogurt isn’t necessarily new to these ice cream companies. Many outlasted the 1980s fro-yo boom, when brands like TCBY enjoyed explosive growth. But insiders believe today’s fro-yo success is stronger—and actually tastes different.

“It’s not frozen yogurt trying to be an ice cream alternative,” says Mary Chapman, director of product innovation at Chicago-based foodservice consultancy Technomic. “It’s frozen yogurt trying to be its own tart, yummy flavor.”

And while some fro-yo shops have closed in more saturated markets, the segment doesn’t seem to be going anywhere. New brands and stores are still opening up, especially in small and mid-sized markets.
“We’re still getting calls from smaller markets saying, ‘Who are all these frozen-yogurt chains coming into our city?’” Chapman says. “So the wave is still coming.”

Chapman adds that gelato concepts are also starting to pop up, which could spark even more competition for frozen-dessert business. Considering all this, she says, it’s vital for ice cream brands to think outside the box.

“I think consumers are always looking for something new and different,” she says. “The ice cream stores and the ice cream specialists that have maintained their sales have been the ones that continue to innovate, to promote and offer new treats. I think they’ll continue to stay competitive.”

SOURCE: QSR, June 2013

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