“I’ve learned more about yogurt in the last six months than I’ve ever known in my life,” laughs James Franks, vice president of franchising for Red Mango.
Franks is fresh off a franchising event in Washington, D.C., and every now and then stops the interview to wave at one of the 182 potential franchisees that attended the meeting who are also at our restaurant. “Out of respect to our brand and to the franchisees we bring on board, we won’t bring them on board unless we know that we can support them and give them the attention that they need,” he says.
And lately that’s a lot of attention. The two-year-old frozen-yogurt brand finalized a round of development deals this spring with new and existing franchisees that will result in 128 new stores from California to Tennessee. To date the brand has about 50 locations open. Less than a week after the development deal was made public, the company also took a recession-defying step and announced its Store Buy Back Program. To date, no franchisees have tapped it, but the program allows partners to sell their store back to corporate for up to $275,000 if they’re not satisfied within the first six months.
“A lot of franchisees admit that that got them interested,” Franks says. “But they said that that’s not the reason they became a franchisee.” According to Franks, it’s franchising events like the one before our interview that really impresses potential store owners. Most valuable during these types of meetings is the end-of-day question-and-answer time when those interested in becoming partners can speak frankly and directly with the company’s CEO, Dan Kim. One visitor at the D.C. meeting used his moment in the stoplight to ask how Pinkberry, a competitor of Red Mango, was chosen over the Red Mango brand to star in a new American Express commercial.
Red Mango’s expansion plans, however, are nothing to laugh at. Despite the lack of available capital for most would-be restaurateurs, Red Mango is seeking out franchisees with their own funding, bypassing bailed-out banks and the bureaucracy of the Small Business Administration. And it’s finding them.
The company’s expansion strategy isn’t to work east to west or north from their hometown of Dallas like many companies plan growth. Instead, it’s building regional offices in places like New York and Seattle and working out from there, developing entire regions. Next on the company’s list is the Southeast, with Atlanta and Florida as front-runners.
“I would say in the next four years we’ll have about 500 stores open in the U.S.,” Franks says. “We’re not an every-corner business, so we’re not going to try to come in and just put them everywhere.”
But 500 stores is a lot for a company that hasn’t even been in the country 1,000 days yet. Before that, founder Kim launched the brand in South Korea in 2002, stacking the c-suite full of restaurant and retail veterans with experience from 7-Eleven, Jamba Juice, and the Dwyer Group.
“You take the experience we have, you take the capital, take Dan’s vision and you put the right people in place, and the reason we’re able to grow to this level is we surround ourselves with good people,” Franks says.
Red Mango isn’t the only brand with star power in the $175-million frozen-yogurt market, though. Pinkberry, the celebrity treat du jour, is a force to be reckoned with in the segment and recently expanded into Red Mango’s home turf of Texas.
“Our benchmark is one store at a time, one partner at a time to make sure each store maintains the quality reputation of Pinkberry,” said Pinkberry CEO Ron Graves in a statement to QSR.
Franks says he learned from the last frozen-yogurt wave 15 to 20 years ago that eventually brands that do not intelligently innovate their menus, launching items that are not natural extensions of their brand, will not survive.
“People are riding the wave and everybody’s liking yogurt, but when the consumers go in, if it’s an independent or regional chain that’s trying to grow and they haven’t really carefully thought it out, it could hurt them,” Franks says. “In two years I think there will only be really two brands standing.”
Graves, of Pinkberry, says there’s “absolutely” room for both brands to grow in the segment. “The frozen-yogurt industry is large and will continue to grow in the years to come,” Graves says. “Regarding our own growth, Pinkberry receives an overwhelming interest from the franchise community—to date, thousands have requested to become a franchisee.”
If frozen yogurt becomes as chic as another afternoon treat, the segment may get flipped upside down. McDonald’s, a new player on the specialty-drink stage, could easily change the segment as a whole if it chose to launch a line of probiotic frozen yogurt with natural toppings. And that’s a fact that’s not lost on Franks.
“They’ve sold soft serve ice cream for years,” he says. “You’d be naïve not to think that if all of a sudden they did want to get into that business that the segment wouldn’t change. If they wanted to and they formulated it correctly on the natural side, you’d have to be aware of it and be ready for battle no matter who it is.”
Competition might not be Red Mango’s only concern over the next five years. Mintel, a menu insights firm, predicts slow growth for the frozen-yogurt segment—only about 7 percent, to be exact, between 2008 and 2013. The challenge to the segment is posed by adult consumers who are shying away from calorie-dense food.
According to Franks, Red Mango is beating that perception through menu innovation. “What’s going to set us apart is everything that we do will be healthier for you, natural; you won’t see us roll out products that don’t fit our core brand messaging,” he says, explaining that brands within the frozen-treats category are often stagnant in their innovation or inconsistent with their brand’s message.
While adults are unlikely to be the source of big growth for the segment, the teen demographic’s use of frozen yogurt is more than 10 percentage points higher. Red Mango capitalizes on that fact by making its store experience enjoyable not only for teenage customers but for teenage employees as well.
“[The stores] are cool, they’re stylish, they’re hip,” Franks says. “We love the people we get to hire. In a local area everybody wants to work at our store. They don’t want to flip hamburgers, you know, it’s a cool place.”
But there’s serious work for employees at Red Mango locations. The tart, traditional yogurt the company sells is different from the frozen yogurt most American consumers are used to.
“In a lot of markets you’re also educating the consumer that it’s a tart flavor,” Franks says. “There are all the active cultures and probiotics in the yogurt, and Americans are actually some of the last folks to really learn about the power of just yogurt in general, not just ours but authentic yogurt.”
And it’s the health aspect of Red Mango’s product that keeps customers coming back, often multiple times in a week. According to Franks, consumers’ demand for the product led Red Mango to explore licensing opportunities. Recently the company signed a 10-year master licensee agreement with Sodexo, one of the largest foodservice companies in the world.
Not only did the company open its new licensing operation with the agreement, it also debuted the partnership at one of the most iconic buildings in New York City. Last month, the company launched the partnership with the opening of a location at the msnbc.com digital café on the second floor of the NBC Experience Store at 30 Rockefeller Plaza.
“We’ve partnered with Sodexo because of the size of the company and the respect of the company,” Franks says. “It doesn’t mean we’re going that course in every one of their facilities, but 30 Rock just opened, and we’ll be announcing some more with them soon.”
But as the company continues to explore growth opportunities from every angle, Franks is quick to emphasize that corporate is structured and controlled in trying to reach its 500-unit goal.
“We’re not going to have 500 franchisees,” he says of the future of the company. “Our average franchisee is being approved and awarded a territory for three to five stores. I go back to my original statement. It’s solid, controlled growth.”