June 1, 2010
It’s about 8 p.m. on a chilly, drizzly April evening in northeast Portland, Ore., and the YoCream International retail shop is abuzz with more folks than you’d think would be craving frozen yogurt on a night like this.
But Suzanne Gardner, director of marketing for the Portland-based company, says it’s actually sort of a slow night for the shop that has far exceeded expectations since it opened a little over a year ago. “This will be a million-dollar store this year,” Gardner says of the store whose primary aim is to train entrepreneurs to start their own frozen yogurt shops, plus solicit consumer feedback on new products and flavors. In fact, Gardner says YoCream management figured on the store just breaking even.
Not that success really should be a surprise, what with a dozen unique flavors of frozen yogurt rotated daily, served in cups or atop fresh-baked waffles, crowned with freshly cut fruit, sauces, nuts, candies and other toppings.
“This is the best marketing tool in the world,” John Hanna, chairman and chief executive officer, says of the shop. “We’re not going to compete with our customers by opening a bunch of these stores, but we’ve gotten so many leads [for new business] through this store.”
YoCream’s business, first and foremost, is manufacturing mixes for soft-serve frozen yogurt to foodservice operators. Chief among the company’s clients is club store chain Costco, leading a growing list of quick-service restaurants, convenience stores and independent yogurt shops that have found it good business to leverage the YoCream name for the treats they sell.
That’s because, as Hanna and his team are quick to note, YoCream’s frozen yogurt really is yogurt of the highest order, with culture counts of 100 million per gram or higher. The National Yogurt Association only requires a count of 10 million for frozen products, and the industry at large has no requirement – something Hanna is bent on rectifying.
“We have enjoyed the growth and we have responded to it in a manner recognized as responsible and promoting the industry in general, not just ourselves,” says Hanna, whose company – with sales of $50.7 million in 2009 – experienced double-digit growth during the latest recession. “We like to carry the banner for what constitutes real frozen yogurt.”
Already, 2010 is shaping up well. Sales for the second quarter increased 11.4% to $14 million, compared to $12.6 million for the same period last year. YoCream reports “robust” sales of frozen yogurt to the foodservice market, at a growth rate of more than 52%.
YoCream was the first frozen yogurt manufacturer to earn the privilege of having its products carry the “Live and Active Cultures” seal from the National Yogurt Association for frozen yogurt. “It recognizes we’re holding to a high standard,” Hanna notes.
Live and activeThe company appears to be holding to a higher standard in more ways than one, based on its thriving during a time when most companies have struggled just to hold their ground and others lucky enough just to stay in business.
Beyond offering high-quality products, Hanna names several factors for YoCream’s fiscal health during tough times.
“We stayed in the game. We kept our full line of products in place as frozen yogurt matured. We maintained our key personnel and accumulated people with great experience in the industry,” he says. “When the surge of interest hit again, we were ready to respond. That, combined with the growth in avenues of probiotics … Since then, public awareness had intensified.
“I attribute a lot to the energy of our team to keep responding to the market quickly and responsibly. I believe anyone who’s enjoyed a degree of success in business has to acknowledge that what’s called good luck is always a factor. You have to be there to take advantage of the breaks as they come.”
And this, YoCream has done, from tapping the growing interest in healthier treats to diversifying five years ago into frozen carbonated beverages, marketed under the Jolly Rancher and Jarritos brands. Ironically, this foray into products many would consider less healthy than yogurt has opened new doors for the company’s core products. As quick-serve restaurants and other foodservice operators have come under pressure to offer healthier menu items, YoCream’s slushie customers have been starting to add frozen yogurt and smoothies.
This has led to YoCream’s current expansion of its QSR client base, as restaurants have become interested in some type of frozen yogurt concept. “Our mainstays have been venues serving soft frozen yogurt in its traditional form,” Hanna says, noting that QSRs have been asking YoCream to develop products for their existing equipment or devise a product around a proposed concept.
The company’s first success in this arena: Jack in the Box, for which YoCream launched a smoothie concept in just five months. “It’s a successful menu item and exciting for us to learn from them,” Hanna says.
Matt Hanna, senior director and John’s son, adds: “The reputation we built with them has filtered through the QSR world.”
John Hanna continues: “It’s an avenue we want to play in responsibly and profitably. There are pressures of commodity pricing but we don’t consider our products commodities. We have proprietary products. That said, we understand the advantages of a major chain. A company like us with a great turnaround time and great R&D, we can do lab batches, then quickly put a small run into production. We’re a great vehicle for major companies to obtain these products.”
For such collaborations, YoCream develops an exclusive formula for each customer and maintains ownership of each recipe, Matt Hanna explains.
Other fast-casual restaurants are approaching YoCream as well. “It’s a different type of market, but we’re pleased with it because it shows the versatility of cultured dairy products,” Gardner says. “We see that as another indicator of the popularity of cultured products.”
This comes after the growing success of a new wave of frozen yogurt chains nationwide, like Red Mango (a YoCream customer) and Pinkberry, as well as YoCream’s new co-branding test with Ben & Jerry’s at its scoop shop in New York City’s Rockefeller Center.
“It’s gratifying that companies are coming to us and saying, ‘We want the best – help us develop it,’” Hanna says.
Yogurt educationYoCream expects to be working on many more such ventures, to the extent that the company last summer launched YoCream University, aimed at schooling entrepreneurs in the business of frozen yogurt. Using YoCream’s retail shop as its campus, “Yo-U” offers an intensive two-day seminar led by company executives. Students – mostly experienced entrepreneurs sold on the idea of frozen yogurt as the next big thing – are taught about the health benefits of frozen yogurt, how it’s made, the basics of starting and operating a shop and how to deliver the treats in fun and innovative ways, as well as the advantages of investing in this sector.
The company launched Yo-U in response to a deluge of calls from people interested in starting their own frozen yogurt businesses, Gardner explains. “The self-serve concept is driving this segment right now,” she says, noting that stores YoCream serves generate annual sales ranging from $250,000 to $2 million. “In California alone, there are over a thousand frozen yogurt shops that we’re serving.”
Some of Yo-U’s student body are seasoned franchise operators in other restaurant and business concepts. “Because they’re experienced, they recognize the value of having the real product and the brand,” Gardner says. “It’s exciting to see this kind of business acumen coming into this industry.”
Hanna adds: “And this is another reason why we see frozen yogurt in for the long haul – the kind of people getting into the business.”
Students are trained right in the yogurt shop. “We’re very transparent,” Gardner says. “They can take pictures in front of the house and back. They can learn in a healthy environment how frozen yogurt can work for many occasions.”
To date, about a dozen stores have been opened by Yo-U graduates, all from varying business backgrounds but none with previous foodservice experience. If they choose to co-brand exclusively with YoCream, the company will help promote their stores.
“We anticipate there will be 20-plus stores opened by the end of summer by Yo-U grads,” Gardner says. “We believe this is a sustainable practice – by helping successful operators open successful businesses, to help them be good stewards of cultured dairy products and successful business operators. We think it’s really important because it helps to move the industry forward. Our whole senior team feels it’s our responsibility to help the industry recognize the significance of frozen yogurt.”
Gardner says the company is considering a retail location on the East Coast to minimize travel for Yo-U students from that side of the country.
Meanwhile, consumers continue to pour into YoCream’s shop, part of an upscale development of retailers, hotels and restaurants, anchored by an IKEA store. “It’s become a social environment,” Gardner notes. “We can get consumer feedback instantly.”
YoCream also tests marketing concepts, like gift cards, school events and coupon drops; Gardner says coupon promotions done in partnership with the NBA’s Portland Trailblazers have yielded high redemption rates on thousands of coupons issued.
“We go through 150 cases [of yogurt mix] a week, so it’s nice being so close to the factory,” says store manager Thomas Lenz, who gave up being a Quizno’s sandwich shop franchise operator, franchise consultant and new store developer to join YoCream. The shop’s compact kitchen makes strategic use of vertical space, Lenz demonstrates, and a sliding window allows customers to watch fresh fruit and other toppings being prepped.
And as YoCream helps the segment expand here, the company is observing new frozen yogurt franchises opening in Japan and elsewhere around the world. “We’re calculating our success in foreign markets and will approach it carefully,” Hanna says.
But as successful as YoCream has been during the recession, the company was not free of challenges, especially with the pre-recession spike in fuel prices.
“We were able to maintain efficiencies so there was only one small price increase we had to implement and that was before the economy really got tight,” Hanna says. “Fuel surcharges were a challenge to manage. … Long-term alliances [with shippers] enable you to work together on solutions.”
YoCream worked to combine more cross-country loads to avoid higher LTL rates and moved its Midwestern shipping hub from St. Louis to Oklahoma City when the former struggled to meet the company’s needs.
“Strategically, it was better, and there was a cost advantage by partnering with this shipper,” Matt Hanna says. “Because of our ability to do that, despite higher fuel costs … we’ve economically been able to keep producing from this plant and shipping east.”
YoCream has also realized costs savings through its sustainability efforts, which in a historically “green” city like Portland have come to be expected from most companies.
In particular, YoCream has invested in energy reduction initiatives, especially for its freezers and refrigeration, which has been converted to a glycol system. “It costs a little more upfront, but it’s worth it for the cost savings over the years,” Hanna says.
Issam Khouri, director of manufacturing operations, adds: “It doesn’t run 24/7 – it kicks on when you need it.”
The company also has strived to purchase ingredients from local suppliers and has changed the ways it receives those ingredients. “We’ve made major efforts to qualify local suppliers,” says Terry Oftedal, director of supply chain operations. For example, “Ever Fresh Fruit Co. is now one of our biggest suppliers and they’re just 15 minutes away.”
YoCream now gets some of these ingredients in reusable totes with plastic liners rather than drums, Oftedal notes. “We also did away with tens of thousands of bags per year of granulated sweeteners by converting to liquids,” he adds.
In the past four years, YoCream has made capital expenditures to reduce its carbon footprint by 1.1 million pounds per year, Oftedal says, “or the equivalent of planting 152 acres of trees. We bring in a lot of ingredient powders from the Midwest and cocoa from Europe, and we’re transporting them across the U.S. now more by rail rather than truck to further reduce our carbon impact.”
Glycol cooling is also used at the retail shop, along with biodegradable spoons, cups and trash bags. “That was a good message for the operators that you can be successful and a good corporate citizen,” Gardner says. “Over half of the operators [graduating from Yo-U] are going with biodegradable products with their flatware and a glycol cooling system.”
Most important is that these sustainability measures make good business sense, Oftedal says. “It makes sense from a sustainability standpoint and helps us to control costs,” he says. “All our programs have made sense economically and help save money for our customers.”
The real thing
With its business flourishing, YoCream is in a good position to compel the overall industry to take a firm stand on frozen yogurt.
Active in the National Yogurt Association, YoCream has worked with the NYA in what has become a 10-year petition process with the FDA to set culture-count standards for cup yogurt. “The latest word from FDA is they expect a final ruling at the end of 2010,” says Dr. Ted Whitehead, food safety and quality assurance manager. “The petition includes a minimum level for frozen yogurt of 10 million [cultures] per gram. That’s lower than the NYA’ LAC [Live and Active Culture] Seal Program requirement, but at least it’s something.” The hope is that by partnering with NYA through the FDA petitioning process for yogurt, the groundwork will be laid to pursue a federal standard of identity for frozen yogurt.
With products already far exceeding the proposed minimum for cup yogurt, YoCream has also pushed for a standard within the industry through IDFA but a consensus could not be reached. “Some companies did not want a standard at all,” Whitehead says. “Some companies making ‘frozen yogurt’ have no equipment for the fermentation process.” Many companies, he adds, also didn’t want to be subject to additional regulations.
But the YoCream team continues to push for stricter standards. “We found a lot of yogurt shops around the country displaying the NYA seal even though not all the products they sold would qualify,” Whitehead says. “To combat this misinformation, we raised the issue with the NYA, which subsequently adopted a guideline requiring that use of the seal only be used on materials developed by the approved manufacturer.”
And the team is proud to take this stand. “The consumer is really the one who benefits from that so they know what they’re consuming,” Gardner says. “People should know there’s a difference between ice cream and frozen yogurt, and be able to make that choice. And consumers are more interested in their food, wanting to have more control over what they eat.
“Yogurt wasn’t always a mainstream part of the American diet – it is now. Having true cultured dairy products has become a way of life.”
The official history told on YoCream’s Web site - featuring a cameo-style photo of “Mama Hanna,” whose recipe inspired the company’s products - just scratches the surface in telling the story of how the three Hanna brothers got into the frozen yogurt business more than three decades ago.
“It was kind of a fluke,” says CEO John Hanna. “My brothers and I were looking for something else to do from a business investment standpoint. We went back east and explored this frozen yogurt concept that was emerging. We walked around Wall Street and saw the little shops that were going up and people were standing in line - seven, eight, 10 blocks, waiting for a cone or dish of frozen yogurt. We thought this could be the next big franchise idea.”
So John and older brothers Dave and Jim founded the International Yogurt Co. in 1976. They began with a company store in Seattle’s University District; by the end of the 1970s, the company had about 30 owned and franchised locations.
Then an economic downturn led the Hannas to discontinue franchising and focus on distributing their frozen yogurt through foodservice channels. Their original product was an old-style tart product replicated today with YoCream’s Original Tart. Joining it were products more consistent with the American palate at the time, more like ice cream but with the benefits of yogurt.
The new product line, launched in the early 1980s, was dubbed YoCream. “We did the trademark research and found out that General Mills had warehoused a host of ‘Yo’ names to protect Yoplait,” Hanna recounts. General Mills acknowledged they weren’t using the name, according to Hanna. “So we started with this name and got it out there quite a bit,” he says. “Then in 1986, General Mills called and basically said, ‘We decided to use the name. You guys quit it.’”
General Mills sued and YoCream eventually won, bringing the smaller company national attention and free publicity. The resulting buzz helped YoCream get established on a national level, so much so that Norpac, a major Oregon-based food-processing company, approached YoCream about selling frozen yogurt through its marketing system. Ten years later, YoCream opted to take on sales and distribution internally.
To help finance their entry into manufacturing, the Hannas took YoCream public in November 1987. Growth has continued since then, with a major spike in the past three years.
Of the three Hanna brothers, John is the most involved as CEO. Jim continues to serve on YoCream’s board of directors, while Dave has retired from the company. John’s son, Matt, is the company’s senior director who, with six other key directors, form the senior management team.
The YoCream Family of Products
YoCream International offers a host of dairy and non-dairy frozen treats aimed at the foodservice sector.
Leading the pack are its high-culture frozen yogurt products. YoCream’s main yogurt line encompasses some 40 flavors, in nonfat, premium and no-sugar-added varieties. New YoCream Select features flavors inspired by Hershey brand candies, including Kisses, Reese’s and York Peppermint Patties, helping give these brands a healthier profile.
All of the company’s frozen yogurt, including Original Tart and new EuroTart, contain high levels of beneficial live and active yogurt cultures, including S. thermophilus, L. bulgaricus, L. lactis and L. acidophilus.
In Original and Green Tea Varieties, Original Tart has a smooth, creamy texture and a sweet, tangy profile accented with a hint of lemon. The National Yogurt Association requires frozen yogurt to contain 10 million cultures per gram at the time of manufacture; Original Tart contains more than 400 million. Also highly cultured, EuroTart has a light and frosty texture with a cool refreshing taste and fresh dairy notes.
In plain and strawberry flavors, new High Culture frozen yogurt is made with the addition of Danisco’s Howaru L. acidophilus NCFM culture system. “This will probably be a two-plus-year launch to educate operators about the benefits of carrying this full line,” says Suzanne Gardner, director of marketing. “It will probably move into the health care and college markets first.”
Rounding out YoCream’s dairy offerings are frozen custard, ice cream and shake mixes.
The company also makes concentrates for frozen “slushie” beverages in a rainbow of brightly colored flavors; these products are co-branded with Jolly Rancher and Twizzlers. Also in the non-dairy line are Fruitquake fruit-based smoothies and sugar-free Ice Breakers frozen beverages. Concentrated fruit and dairy mixes are sold to foodservice operators looking to make custom drinks at point of sale.