Friendly's Neighborhood

January 1, 2006
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Friendly’s Neighborhood
by James Dudlicek
Ice cream is the backbone of this regional sweetheart’s continued growth.
“I’ve never been involved with a brand that has this kind of customer loyalty,” says John Cutter, president and chief executive officer of Friendly Ice Cream Corp. “And it’s beyond loyalty — it’s ownership and love for the brand.”
Such is the affection that customers — particularly in its core New England market — feel for the Friendly’s brand, since 1935 for the ice cream creations and food items served by its chain of restaurants, and more recently for the packaged ice cream and ice cream cakes sold in the retail channel.
Wilbraham, Mass.-based Friendly’s racked up total revenue of $416.6 million for the nine months ending October 2, 2005, and though the brand is little known to consumers outside the eastern United States, the company is the eighth largest ice cream vendor in the United States, with nearly 20.5 million units sold in the 52 weeks ending October 30, 2005, according to Chicago-based Information Resources Inc.
That encompasses the company’s core 56-ounce packaged ice cream line of some 50 SKUs, plus the six-item Sundaes-To-Go sundae cup line, eight ice cream rolls and four sizes of ice cream cakes at retailers throughout New England and the Mid-Atlantic states — not to mention all the ice cream that goes into the dishes, cones, sundaes, Fribble® shakes and other indulgences available at more than 500 restaurants in a territory stretching from New England to as far west as Ohio and as far south as Florida.
“We looked at the number of ice cream creations — we had a mathematician look at it,” says Pete Bell, vice president of marketing, “and as far-fetched as it sounds, you actually get into the trillions of ways to eat ice cream, with all the toppings and variations of flavors.”
Working Together
Whether you see Friendly’s as a restaurant chain that makes its own ice cream or an ice cream manufacturer that owns a string of eateries, the synergies between the company’s retail and foodservice units are enormous. You might say it’s akin to blanketing an entire marketing area with year-round daily sampling events. Consumers say whether to make a featured flavor permanent — like the hit Hunka Chunka PB Fudge — or to nix something that doesn’t work.
It also doesn’t hurt to offer free sundaes with special food items. “We serve an average of 3,200 guests per restaurant per week, and they’re exposed to Friendly’s ice cream,” Bell says. “When they’re out in the supermarkets, they see the Friendly’s brand again, so there’s a tight correlation between what we do in retail and in our restaurants. It’s building awareness of the Friendly’s brand and products. Both are working together to make each business unit successful.”
Tim Hopkins, vice president and general manager of the retail (packaged ice cream) division, further explains the crossover. “The retail team manages product development and the production process of the ice cream. The product development for ice cream for the restaurants is done in conjunction with our executive chef,” he says. “They tell our R&D team what types of products they’re interested in for the restaurant menu and we go out and create the appropriate ice cream flavors. On the retail side, we do our own product development for the retail packaged products.”
The effort to expand decorated cake sales, Hopkins says, is a good example of driving awareness and trial for both sides of the business. Director of retail marketing Eileen Mastrio elaborates: “For retail packaged goods, we look at a customer-focused marketing approach. Most women with children are going to buy 56-ounce containers or sundae cups during a shopping trip. But cakes are different — they’re for a special occasion. There’s a large group of people who will buy them at the supermarket, but there’s a large group who want them decorated in a special way with a special message, and you can’t get that customization in the supermarket. As far as cakes go, we’ve worked to create a global awareness campaign, with radio, sampling and coupons in the paper. We’ve done some things in the restaurants such as an activity book; kids are coloring a [picture of a] big birthday cake, but we have a coupon in there for Mom.”
But Friendly’s finds television tops FSIs and other media in delivering its marketing message, and spends more than $12 million annually on TV spots, with all dining promos featuring ice cream to promote the synergy. “It shows people using the product, eating the ice cream, having fun together around the ice cream. Visually, you’ve got the appetite appeal of the ice cream,” Bell says before playing a video of a recent commercial, over a cover of Chris Kenner’s “I Like It Like That,” depicting families with kids — the company’s target market — enjoying outdoor summer activities and ice cream. “Carry-out windows in the restaurants are open. Kids are out of school. It’s a fun, upbeat spot not talking about any product specifically but talking about the fun of ice cream and the fun people have with the Friendly’s brand.”
That fun is evident as well in Friendly’s Team Xtreme products, targeting kids with dynamic graphics, plenty of distinctive inclusions and flavors like Pink Kahuna, a pink lemonade sherbet.
Segmentation like that is among the factors Hopkins names as key factors for continued growth of the brand, continuing with the new Smooth Churned light flavors, no-sugar-added offerings and the ever-popular sundae-inspired flavors like Caramel Fudge Nut Blast and Royal Banana Split.
The latter concept — basically putting sundae ingredients in a 56-ounce carton — continues with the Friendly’s sundae cup line, recently relaunched with great success as Sundaes-to-Go.
“Friendly’s is one of the only companies that can really pull that off with credibility because we have over 515 ice cream shops where you can get fresh sundaes any day of the week,” Mastrio says of the cup line that jumped 50 percent in sales this past year. “Just with the packaging change we did for a product that was old and tired — we’ve had trouble keeping up with the demand.”
Rolling On
Friendly’s is putting a lot of new energy into developing its line of ice cream cakes at retail, and has high hopes for the future of its ice cream rolls — festively decorated ice cream extrusions — of which consumer awareness is minimal outside the company’s New England core.
“We have developed a phenomenal ice cream cake business in New England,” Hopkins says.  “We designed a product lineup that’s appropriate to what consumers are looking for. We launched it in retail and really expanded our efforts in the restaurants. We’ve essentially doubled our ice cream cake business in the restaurants, and we’re at just about 700 retail outlets [for cakes; other Friendly’s products are in some 4,500 outlets].”
Marketing cakes took a new direction for the 2005 holiday season with a full-page back-cover advertisement in a national cooking magazine distributed in supermarkets, launching the new Chocolate Truffle Cake that was developed using extensive market research and consumer feedback.
“This ad runs in a lot of markets where we don’t have much [retail] distribution on cakes, like Ohio, Virginia and Florida. But we have these in our restaurants,” Mastrio says.  “The awareness that Friendly’s has high-quality cakes was our challenge this year. The ‘You and Me and Friendly’s’ campaign is something that plays out in everything we do. It’s about family, fun, good times. And what’s going to be present at that type of occasion? Certainly a birthday cake; 75 percent of ice cream cakes are used for birthdays.”
The goal is to expand eating occasions for cakes and rolls beyond seasonal special occasions into year-round events.  
“In the last four years, we’ve doubled that business,” Hopkins says. “Household penetration for this line is under 10 percent, so you can see the huge opportunity to drive trial and awareness.”
The Friendly’s Jubilee Roll is a winter holiday mainstay for die-hard fans of the brand, while summers call for the sherbet-based Wattamelon Roll, shaped and decorated to look like a slice of watermelon. Meanwhile, the new Party Roll is aimed at birthdays and other special occasions beyond traditional holidays.
Promotion stickers on ice cream cartons are a great way to increase awareness, Mastrio says. “Forty-five hundred supermarkets have our 56-ounce on their shelves. You walk through a landscape of ‘Try a Jubilee Roll,’” she says. “And we know with 10 percent household penetration, a lot of people still haven’t, even though anyone who lives in this area will say, ‘I buy it every year.’ Well, not everybody does, so that’s a huge opportunity.”
Growing and Growing
Continuous, consistent brand building is important for Friendly’s success, Hopkins says, “to continue to build the strength of the Friendly’s brand through marketing communications, focusing on our families-with-kids positioning.”
Innovation, too, plays a vital role. “I think what we are doing in the cake area is a clear example of innovation,” he says. “We are really targeting three segments: the traditional birthday segment, the spontaneous special occasion and the indulgent segment. It’s the latter two that bear the most opportunity for long-term growth.”
Mastrio names Friendly’s Royal Banana Split as a prime example of innovation for differentiation. “A lot of manufacturers have plain vanilla-chocolate-strawberry. We were really the first to do each flavor with either a piece of fruit, a nut or a variegate,” she says. “The idea was to put sundae creations in a 56-ounce container that’s convenient and ready to take home. I think today that’s why Sundaes-to-Go are so successful, that’s why Royal Banana Split is a top-five flavor.”
Hopkins says the umbrella strategy to the company’s innovations is to capitalize on things unique to Friendly’s, chiefly fun times and special occasions. “That’s where cakes fit in, that’s where our Party Roll comes in; our ice cream parlor image, that’s where Sundaes-to-Go come in,” he says. “So each one of our innovations has to leverage the key differentiating points of the brand overall. That’s a key growth driver.”
In addition, Friendly’s seeks to leverage its regional advantage by creating account-specific marketing programs with its retailer customers, many of which tap into the regional strength of the brand.
“As you see more consolidation of the retail channels, and as Wal-Mart moves into the Northeast, there’s going to be a need for traditional supermarkets to differentiate on other dimensions and tap into those local sentiments and leverage them,” Hopkins says. “Friendly’s is very well positioned to deliver that to our retailers.”
Friendly’s local feel is also evident in its corporate participation in community activities. One of the company’s main causes is Easter Seals, raising about $22 million for the organization over the past quarter century.
“Our philosophy is, we want to connect with the communities in which we operate,” Bell says. “Our restaurants get involved with sports teams at local schools; we support reading programs. We’ll do fund raisers in the restaurants where they come in and make money off sales for a particular night. We have a really strong bond with our communities.”
Forging Ahead
Cutter sees a host of challenges to doing business as Friendly’s moves forward, from commodity and fuel prices to getting top dollar for finished product.
“I think the biggest challenge with the core 56-ounce business is to be able to sell more of your product at full revenue, the challenge being the level of discounting,” he says. “Clearly, when ice cream’s on deal, purchases go up.”
Differentiation, Cutter says, is the key to growing full-price purchases, like segmentation and other unique offerings, as well as keeping up with trends like better-for-you.
Meanwhile, cream prices continue to vex the chief executive. “We built more freezer capacity, so when cream prices are low we can build inventory,” Cutter says.  
Michael St. Marie, vice president of production and distribution operations, adds: “We’ve done some hedging on butter options since ’98. But the market’s not liquid. We haven’t been able to offset the commodity increases with options. We’re going to look at futures.”
What’s the five-year outlook for Friendly’s? “With packaged ice cream, we want to be the dominant player in New England,” Cutter says. “We see our cake business growing a lot. The roll business has been growing 15 to 20 percent a year, and we want to keep that going. For the whole company, the primary growth is going to come through our franchise restaurants. This year [2005], we opened eight restaurants, but we’ll build up to where we’re opening 20 to 30 restaurants a year primarily through franchisees.”
For Cutter, the uniqueness of his company lies with the people who hold it close to their hearts. “Generations grew up with Friendly’s. You have kids in with their parents and their grandparents and their great-grandparents, and people have a special place in their memories for Friendly’s,” he says. “For a lot of people, it’s the first job they ever had. They celebrate good grades, winning a game and things like that. It’s part of the culture.”  m
Why They Buy
Tim Hopkins, retail division vice president and general manager, sums up Friendly’s selling points into four areas:
Brand: “We have a huge heritage and put consistent marketing support behind it. We occupy a unique space in the consumer’s mind in the retail setting from our competition in that Friendly’s is most closely associated with families and kids.”
Quality: “We’ve got a lot of tenure and expertise in the plant and on the R&D side. We continuously do product cuttings against the competition, and consistently our products come out on top in terms of consumer preference and product quality. We don’t skimp on ingredients and that’s a key selling point.”
Versatility: “We are a small company and we’re able to respond quickly to opportunities. For example, Waldbaum’s supermarkets [a chain in the New York metro area, owned by A&P] was looking for a unique product to help celebrate their 75th anniversary. We developed a roll product for them, with unique packaging, and were able to turn it around very quickly.”
DSD network: “Most of our business is delivered through direct-store delivery. That ensures very high levels of service to the retailer. It maintains product integrity and guarantees we’re going to have the best possible product getting into the consumer’s hands at the end of the day.”
Friendly’s History
Friendly Ice Cream Corp. began in 1935 when teen-age brothers Curtis and Prestley Blake opened their first ice cream shop in Springfield, Mass. They chose the name “Friendly” because they felt it best demonstrated the feeling they wanted to convey to their customers.
The Blakes operated the business for more than 40 years, building the company into a chain of several hundred casual-dining restaurants featuring a limited menu of ice cream and sandwiches. In 1979, they retired from the business and sold Friendly’s to Hershey Foods Corp. Over nearly a decade of Hershey ownership, emphasis was placed on broadening the restaurant menu and expanding the business into metropolitan areas in 15 states throughout the eastern United States.
In September 1988, Friendly’s was acquired by The Restaurant Co., the $348 million Memphis, Tenn.-based firm that owns the Perkins Restaurant & Bakery chain. Since then, Friendly’s has strengthened its position in the family restaurant segment by introducing innovative new menu items, upgrading the physical appearance of the restaurants and improving the quality of guest service. 
Friendly’s products are served and sold in more than 515 company-owned and franchise restaurants, as well as more than 4,500 supermarkets and other retail outlets in New England and the eastern United States.
John Cutter has been president and chief executive officer of Friendly’s since February 2003. Joining the company in 1998 as president and chief operating officer, Cutter’s resume includes leadership posts at Boston Chicken, Nanco Restaurants and Saga Corp./American Restaurant Group Inc.
CEO of Friendly’s from 1988 to 2003 and chairman since then, Donald Smith was CEO and chairman of The Restaurant Co. until his retirement upon its acquisition by private equity firm Castle Harlan Inc. in September 2005. Smith, who continues to own a minority stake in the company, is a veteran of the executive teams of Diversifoods Inc., PepsiCo., Burger King Corp. and McDonald’s Corp. Rounding out the corporate officers are Paul Hoagland, executive vice president of administration and chief financial officer; Gregory Pastore, vice president, general counsel and clerk; Kenneth Green, vice president of company restaurant operations; Garrett Ulrich, vice president of human resources; and Allan Okscin, vice president and corporate controller.  

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