For a Portland company, frozen yogurt is hot
April 24, 2009
In an immaculate factory in Northeast Portland, a stainless steel packing machine squirts liquid yogurt into hundreds of half-gallon containers under the watchful eye of three white-coated workers.
It's another busy day at YoCream International, a company that offers a heartening reminder that not all in the business sector is gloomy. At a time of mortgage loans doomed to fail, of insurance that didn't insure, when the nation's financial best and brightest ran our economy into the ditch, some companies still make an honest, tangible and in YoCream's case, tasty product.
There are no toxic derivatives, no predatory loans, no bailouts.
Just frozen yogurt, smoothies and slushies.
YoCream's idea of an exotic asset is the minced kiwi it keeps on hand at its new retail shop as a frozen yogurt condiment.
And here's the news about YoCream that is as surprising as it is reassuring. After more than three decades of operation, during which the company, frankly, has never set the business world on fire, it is suddenly putting up numbers that would make a hedgefund huckster envious.
YoCream's annual sales surged 52% in 2008 to $42.9 million. Profits increased sevenfold to $4.3 million -- in the worst economic meltdown since the Depression.
At $3.50 a pop for a good-sized cup, frozen yogurt appears to be recession-proof -- an affordable indulgence in an era of downsized dreams. To a generation that made "wellness" a lifestyle, it is the ideal snack, full of millions of bacteria that aid digestion and offer other health benefits.
John Hanna, YoCream's 68-year-old CEO and chairman, is as understated and steady as his company. He just shakes his head at his company's soaring fortunes.
"We've gotten some good breaks," he said, noting in particular consumers' shift toward more nutritional food. "But being there to take advantage of the breaks, that was the important thing."
Humble beginningHanna and his two brothers, who come from a prominent Portland family of entrepreneurs, founded the company in 1977.
Google it wasn't.
They started the operation as a chain of yogurt shops but eventually moved to manufacturing and distributing. The company went public in 1987 and has operated ever since with a minimum of fanfare.
Sales grew slowly over the years, not topping $10 million a year until 1998. It was profitable in most years but often marginally so.
Hanna and crew were undeterred. And their passion for the business began to pay dividends.
YoCream outlived some of its competitors. It developed a reputation for selling a quality product and earned some big accounts in the foodservice industry -- fast-food restaurants, convenience stores, military bases. Among its largest customers is Costco, which sells prodigious amounts of YoCream products not from its retail shelves, but in its food courts.
The small Portland company was suddenly a very big deal.
"I don't want to say they own the market, but they certainly are a major player," said Kipling Peterson of Columbia Ventures Corp. in Vancouver, a major YoCream investor. "They have credibility because they stuck with it all these years."
The slushie decisionYoCream lives and dies with its core product: frozen yogurt. Its ice cream, frozen custard and smoothies long ago broadened the product line.
But in 2005, company executives proposed a dramatic diversification.
They pushed Hanna to enter what marketers call the "frozen carbonated beverage" sector, known and loved by juvenile consumers worldwide as slushies, or Slurpees.
Hanna was reluctant to do anything that took the focus off yogurt. But he eventually gave his OK.
The company launched the business in January 2006.
That year, there was little obvious evidence that the frozen yogurt market was about to boom. Sales had been flat in the preceding five years.
But YoCream executives knew that something was brewing. Yogurt was increasingly getting good press for its health benefits. Yogurt products with high counts of certain live, active bacteria have been found to be beneficial to the digestive system.
YoCream was the first of four frozen yogurt companies to get the National Yogurt Association's "Live and Active Cultures" seal, bestowed only on companies whose products boast high levels of beneficial bacteria.
But if a boom was coming, YoCream had a problem. It needed additional manufacturing capacity.
The company rolled the dice and spent $8.4 million expanding its plant by 40,000 square feet. It raised $6.7 million in a sale of industrial revenue bonds overseen by the Oregon Economic Development Department.
The expansion, completed in the first quarter of 2007, quadrupled YoCream's capacity.
The timing couldn't have been better. In 2007, the year the mortgage industry fell into disarray and the housing market slumped, YoCream's sales jumped more than 25%.
The boom intensified in 2008. Yogurt shops began to spring up again, initially in trendy Southern California and spreading from there.
The industry began to attract people like Hank Cartwright, a battle-scarred veteran of the retail game. After earning a fortune in pizza and video retail chains, the 70-year-old Cartwright is rolling out U-Swirl International, a chain of self-serve frozen yogurt shops.
"I'm old and tired, I didn't want to get involved," he said. "But I was sold on this concept."
Cartwright has opened three U-Swirls in Las Vegas and will soon start construction on three more. Patrons pick between 16 flavors of yogurt, pour their own cup or cone through a soft-serve dispenser and then sprinkle it with some of the 70 toppings.
After reviewing his options, Cartwright said it was an obvious choice to make YoCream his sole supplier.
It's impossible to say how long the current boom will last. It's hard to imagine that the company will weather the recession entirely unscathed.
But for now, its enviable challenge is coping with an explosion in demand. The company is now producing 100 million pounds of frozen yogurt a year. Yet, it is using only 50% of its expanded factory's capacity.
Workers' pay risesAnd that "frozen carbonated beverage" gamble three years ago? YoCream now is supplying 7-Eleven, Target and other significant retailers. Its carbonated beverage business topped $10.5 million in annual sales in 2008.
YoCream has ratcheted up employment to 100 (a 50% increase from two years ago) to meet the need. It also boosted workers' pay in an effort to share the company's good times, Hanna said.
In recalling the company's long history, Hanna said he's most proud of YoCream's "tenacity."
"It was tenacious concentration on something you value," he said. "We kept our sales force through thick and thin. Looking back, I'm proud that we were able to survive through the downturns. That's as important as taking advantage of the booms."
And, it's as surprising as it is reassuring.
Courtesy of The Oregonian
Jeff Manning: email@example.com