What business to start in 2012: Frozen yoghurt
With the UK only just beginning to discover this US phenomenon, this sector holds opportunities for independents and franchisees alike
Why is it so promising?
Having first risen to prominence in the 1980s, frozen yoghurt is very much back in fashion. Seen as a less calorific alternative to ice cream, ‘froghurt' is also touted as a means to alleviate indigestion, and an all-round healthy snack.
The big retailers appear reluctant to stock frozen yoghurt, so there are obvious gaps for small, cult eat-in stores, or for aspiring franchisees of the big global brands that are beginning to make headway in the UK. Because of the perceived health benefits, if you provide great customer service there's no reason why loyal consumers won't come back for their favourite yoghurt again and again.
In Britain, annual sales of frozen yoghurt are currently around £4m, but the potential is huge. In America, the market is worth around £4.9bn, and the UK market is forecast to reach £150m in value by 2013.
At present the market is concentrated in London, based around five market leaders: SNOG, Tutti Frutti (currently the world's largest frozen yoghurt franchise), Frae, Pinkberry (a successful US brand which has launched two franchises in London), and Yuforia.
However, word is spreading, and the big players are preparing to move with it. Yusri Othman, the master franchisee responsible for the UK arm of global frozen yoghurt brand Tutti Frutti, told us: “In terms of expanding, I have a couple more outlets in Manchester coming up next month, and we want to partner with major brands such as Harrods.”
What are the specific opportunities?
Although the UK market is young and full of promise, there are three key questions you must ask yourself before you can enter it. The answers will determine the specific type of business you create.
First, you must ask yourself how you will cope with the pronounced seasonality of a frozen yoghurt business. Demand tends to soar in summer before contracting sharply when the weather gets colder, so you'll need a plan for when the shop is empty. Some market leaders have begun selling waffles, or soup, to get through the winter months.
Then you'll need to ask yourself how you plan to enter the market. Fitting out a stylish, roomy store, of the type pioneered by SNOG and others, can be extremely expensive – one expert we spoke to said it costs between £70,000 and £110,000 to furnish a frozen yoghurt store, on top of £8,000 for each dispensing machine.
If this sounds like your dream business but you don't have the funding required, franchising may well be worth a look. It can often be easier to raise bank finance for a franchise business than a conventional company, as you are buying into a proven brand and business model that has already been profitable elsewhere, lowering the risk of default.
If you want to do it more cheaply, you could enquire about concessions in nearby shopping malls – however you should be prepared to cede a huge chunk of revenue to the mall bosses every month. At the same time, with a number of shops on UK high streets currently standing empty, 2012 may be the ideal time to negotiate favourable deals on rent, which would not have been possible before the downturn.
Finally, you should ask yourself how you plan to stand out. Frozen yoghurt is synonymous with colour and vitality, so your brand needs to reflect this. In addition to the three staple flavours (vanilla, chocolate and strawberry), you should explore more exotic alternatives such as blackberry and mango, which have both performed well for existing retailers. And you should also think about how you present your service. The name of your company, the uniforms of your staff and the furniture arrayed around your premises will all play a key role in sculpting your brand image.
“Demand tends to soar in summer before contracting sharply when the weather gets colder, so you'll need a plan for when the shop is empty”
Who's doing it?
David Packham, Samba Swirl
“We launched our first store last April, and we now have two premises, in Islington and Battersea, with a third on the way. I've previously worked in the City, but my business partner comes from the US and she's very familiar with the frozen yoghurt market there.
“We're self-service, unlike brands like SNOG and Pinkberry which are based on you going to the counter and people serving you the product. Our self-service is designed to be more than just a machine. It's a whole experience, with all manner of different flavours and toppings, a fresh fruit counter, and dispensers all along the wall.
“We've actually found that January has seen a revival in business, but that's partly because the previous month was so quiet – in December people are treating themselves and not worrying about healthy eating in the run-up to Christmas. In general, though, we've found the weather plays a huge part in demand. We saw a huge spike when we launched in April, because the weather was so hot, and business fell around five-fold between summer and winter.
“To offset demand, we're promoting high-end coffee and healthy snacks, fitting in with the brand image of frozen yoghurt as a fat-free ice cream and giving us an alternative revenue stream. And, because we're self-service, we can go down to a single member of staff at quiet periods, reducing costs.
“Business is going really well. We're currently outperforming our revenue forecasts by around 20%, and it seems that a few companies are trying to imitate us, which is some compliment!”