Connecting the Dots

by James Dudlicek
A franchise network and unique marketing help Dippin’ Dots continue to grow.
Coming soon to a theater near you: Dippin’ Dots — and not just at the concession stand.
They’ve already shared the silver screen with Steve Martin and Harry Connick Jr., and are next expected to be enjoyed by a live-action version of a 1970s cartoon favorite.
For more than 15 years, this unique flash-frozen ice cream treat has worked its way into popular culture, and its dominance in malls, theme parks and other entertainment venues suggests it’s here to stay.
And it has been something of an American success story, growing from a garage operation to a $36 million business because its creator believed people would like it ­— and they do.
With a 16-acre manufacturing facility in Paducah, Ky., Dippin’ Dots Inc. began in the late 1980s as an experiment by Curt Jones, a research microbiologist. Jones reasoned that instant freezing by cryogenics would lock in more of ice cream’s flavor and freshness. The process yields tiny frozen beads of ice cream, offering a distinctive taste and texture.
Under the slogan “Ice Cream of the Future,” Dippin’ Dots have gained a following at festivals, fairs, theme parks and sports arenas, wherever people out having a good time are looking for something fun to eat. “The fact that it’s a little bit different gives you a little twist in the market,” says Jones, company founder and president. “We just feel really fortunate to have come up with something that people enjoy.”
Cool Reception
It has been a gradual ascent for Dippin’ Dots up the ice cream ranks, starting with the first market research that offered samples to consumers out of a storefront in Lexington, Ky.
“When my wife and I first opened the store, everything was really slow,” Jones recalls. “I think the biggest thing is, nobody knows what your product is, even though you may have a great product. The thing I always went back to is, if I gave the product out to 10 people, at least nine of them usually liked it, so I always felt like it’s got to be able to make it in the marketplace if I could just hang on long enough and figure out where it goes.”
Those first few years were spent establishing the brand and getting people familiar with it. Nashville, Tenn.’s Opryland was the first theme park venue for Dippin’ Dots, and it wasn’t an immediate success.
“It actually failed the first couple of years because we were just selling it to the park, and they were setting it up kind of when they had time and tried to sell it, but had no real vested interest in it,” Jones says. “When we were able to take it over and run it, then we were able to sample people, and we noticed that first year we did a lot of sampling, but by the second and third year, it became an easier and easier sell because obviously you had a group people who knew what it was.”
Today, Dippin’ Dots are sold in all Six Flags theme parks, as well as Universal Studios in Orlando, Fla., and numerous water parks and sports venues across the country. It’s also become a staple at local and regional fairs, festivals and carnivals. In addition, franchisee-operated storefronts and kiosks are popping up at shopping malls and movie theaters nationwide.
The company has even built on its futuristic image by selling a line of Dippin’ Dots called Space Dots to visitors at NASA’s Kennedy Space Center in Florida and Space Center Houston.
“We’ve evolved from what we saw as our base area several years ago, from the theme and amusement park business to the franchise network that we have now,” says Ed Fritz, director of international marketing. “We were heavy into the amusement and attraction business, and from that we branched out. We pretty well do about 90 percent of the theme and amusement parks on the domestic side. From that, we’ve gone into what we consider secondary markets. Stadiums are major attractions as well, but they’re more cyclical, more seasonal. Anything that’s going to attract a crowd is what our market thrust is. On the international side, we started that whole process again. We started in malls and open-air markets; theme and amusement parks are a very small portion of the business there.”
The company maintains distribution centers in Hawaii and Ontario, Calif., and is looking into constructing a manufacturing plant in Canada. With a huge following in North America, the company is negotiating its entry into Brazil as its first South American venture. In 1995, Dippin’ Dots started shipping ice cream from Kentucky to Japan. Last fall, a licensee opened a manufacturing plant in South Korea to supply the Pacific Rim’s appetite for Dippin’ Dots. Forays into Europe have been less successful; a distribution facility in Belgium was recently closed, but the company expects to have another go at consumers there in the future.
Meanwhile, Dippin’ Dots continues to grow at home, particularly among the younger set.
“It’s a cult-following product,” Fritz says of the company’s youthful clientele. “It’s one of those things that kids just absolutely carry forward into their whole mantra. They go and search out Dippin’ Dots. We’ve built that whole product awareness and brand identity around that. It’s carried over a lot to adults.”
On the franchise side, Dippin’ Dots has aimed national marketing efforts at Seventeen and Nickelodeon magazines, where “we’re really hitting our core audience,” says Terry Reeves, corporate communications director.
“Kids love our product,” Jones says. “It’s kind of unique, still somewhat of a new product in a lot of areas. So that always gives you a little bit of an advantage. And of course, it’s quick to serve, whether it’s in a prepacked form or we’re dipping it. If you just take conventional ice cream, for example, you can imagine how much faster it would be to dip up a cup of Dippin’ Dots. So if you’re in a real busy location, you can get some good lines going. So our vendors, our theme parks, can turn over quite a bit of money in a pretty short period of time, which is what makes it kind of nice.”
Growing Network
The company oversees its franchise operations through its Dippin’ Dots Franchising (DDF) division. DDF routinely holds training sessions for its franchisees, who come from across the country to Paducah to receive guidance in all facets of the retail business.
One session at a recent two-day workshop with Dippin’ Dots officials discussed promotions, including grand openings and appearances by the company mascot “Dotman”; advertising budgets (franchisers and corporate contribute to a fund for franchisers to purchase advertising); dealing with local media; and how the corporate office is always available to offer help.
In fact, this closeness is part of the draw for franchisees. “You feel like they’re here for you,” says Cheryl Hiller, who runs a 1,000-square-foot Dippin’ Dots outlet in a Valencia, Calif., strip mall with her husband, John.
The couple were in Paducah for their second franchisee training session. “That was my biggest worry — that we’d be left on our own,” Hiller says. “Every time we call, they’ve answered our questions.”
Echoing that sentiment is Michael Reinheimer, at the training session to represent a franchisee from Marino Valley, Calif. “They’ll actually call if they haven’t heard from you in a while,” he says, noting that the home office will even help franchisees negotiate leases for retail space.
“Our franchise market is doing very well right now,” says Jones. “It’s just one of those things that takes a while to really catch on, and people believe in it and they want to invest in it. So I think the franchising side of our business will be a good growth area for us as well.”
Dippin’ Dots most recent annual sales figure of $36 million does not include revenue generated by franchisees, who set their own prices on serving sizes after the company sells them the ice cream. Retail prices are typically $2.50 to $5, depending on serving size and venue; for example, prices are typically higher at sports arenas than at mall locations. But based on the popularity of Dippin’ Dots, consumers don’t seem to have a problem paying premium prices for such a unique specialty item.
“Our manufacturing costs are high, so obviously that’s the reason for high prices,” says Fritz. Meanwhile, with commodity prices at record highs, the company recently raised its prices by $1 per gallon of ice cream, says Reeves. “Plus we had the double whammy of fuel prices going up as well. We sincerely told all of our customers this would be a temporary increase,” he says. “We’re hoping the market will stabilize and we can go back. It had been many, many years since we had a price increase.”
Apparently, higher gasoline costs have not kept enough people away from theme parks to adversely affect sales. “We’ve actually seen a rebound on the attendance at parks over last year,” says Tammy Wilson, director of sales. “Attendance is up and sales are up at the theme parks.”
Due to the unique nature of its product, Dippin’ Dots uses little traditional advertising. “We do some advertising in brochures, programs, park guides, things like that, for some of our bigger customers,” says Wilson. “We’ve been fortunate that people seek us out — they expect us there.”
Reeves elaborates: “Pretty much when people think of beaded ice cream, we’re synonymous — that’s Dippin’ Dots. We do more point-of-sale type things. We’re heavily into signage and sampling — that typically is our number-one advertiser. From the franchisee side, they have an ad fund that’s very structured.”
A recent successful campaign was a prize package offered in partnership with Universal Studios in Orlando, Fla. “They sell a lot of Dots, but we love the exposure that we get at the location,” says Reeves. “So they were able to work with us on a prize package — trip to the park, airfare, hotel. Then we purchased the advertising and did all the contest administration. That was probably one of the best scenarios of how the whole company worked together to market the brand in general.”
Dippin’ Dots also has what Reeves calls a “Hollywood agent” — International Promotions Inc. — to seek product placements in motion pictures. “Just recently, we were in ‘Cheaper by the Dozen’ with Steve Martin. There’s a birthday party scene that’s got a Dippin’ Dots pushcart and an umbrella in the background. And I just got this in last night,” says Reeves, calling up a still photo on his computer screen from the new live-action “Fat Albert” movie currently in production and due out this Christmas. The image shows the Fat Albert character eyeballing a Dippin’ Dots pushcart.
“We won’t know until December 25 whether we make the cut or not. That scene could disappear entirely, or it could be a major scene in the movie — you just never know until you see the movie,” says Reeves. “We’ve been in several deals like that where we’ve been teased with a photo and then the movie isn’t released. We were in a couple movies that, for whatever reason, got delayed for two or three years. There’s a movie out now called “Mickey” — it stars Harry Connick Jr. and it all has to do with Little League baseball. They shelved the movie, and it just came out April 30 of this year. We have a great scene where Harry Connick is sitting back contemplating what’s going on down on the field, and behind him, people are lined up at a Dippin’ Dots cart.”
The company is also benefiting from a recent appearance by founder Jones on Oprah Winfrey’s television talk show. The Dippin’ Dots story caught the attention of a show producer who invited Jones on for a segment called “Quirky Ways to Get Rich.”
Jones, standing behind one of the company’s familiar teal-and-white carts, served Winfrey no-sugar-added chocolate and vanilla. “This stuff is good — really good,” she mumbled, her mouth full of Dots.
“We reached an entirely different demographic that day,” Reeves says. “Oprah’s fans like what Oprah likes, so we had quite a mid-week sales spike after the appearance.”
The impact has been international in scope, Fritz says. “Oprah airs at different times throughout the world, and every time it hits, we’re getting hundreds of e-mails,” he says.
Overall, the company’s key strategy is to convince more and more venues to carry Dippin’ Dots. Apparently, most are eager to sign on. “We don’t have to convince a lot of them,” says Fritz.
But with the rise of locations outside of entertainment venues, such as shopping malls, does Dippin’ Dots plan more traditional advertising or couponing?
“In some recent market research that we did, that was a pretty important item to a lot of people – the price point, and asking us to coupon it,” says Reeves. “We choose to go in a different direction, like ‘buy one, get one free’ more so than discounting the product, because if you discount the product, obviously that kind of lowers the bar. It is a premium ice cream. It’s not by definition the 14 percent butterfat premium (it’s 10 percent), but because of the uniqueness of the production process, I think we can safely consider it a premium product, something you’re not going to get at every convenience store, every place you buy ice cream. And people understand that. So we really haven’t dived into the coupon thing. As grand opening specials, they might offer a 10 percent discount or buy-one-get-one-free sort of thing, but that’s certainly a more market-specific type of advertising.”
Staying Fresh
With such a unique product, Dippin’ Dots’ main competitors are other festival-type treats that locate in the same venues. There has been a challenge by a similar beaded ice cream product whose maker recently won a patent challenge against Dippin’ Dots, a judgment the company is appealing. But for the most part, Dippin’ Dots prefers to grow by continuing to offer a high-quality, fun product.
“I think our competition is just anybody who can come in with a novelty-type product and rent space — it’s not necessarily just ice cream,” says Jones. “Luckily, because we’re fairly unique, we can stand out. If you’re in a busy location, you want a lot of products to draw more people to your area anyway. So we really don’t spend a lot of time worrying about competition. Our focus is more on just trying to keep our product high quality and keep our service up. I think the accounts we’re in are really appreciative of the service we provide. If they run out of product with the weekend coming up, we go to all lengths to get them product.”
Part of staying high in the minds of fun-seeking consumers is offering new flavors and unique ways to serve Dippin’ Dots. The company averages 21 flavors at a given time, plus seasonal flavors such as Candy Cane at Christmastime.
“We’ve gotten a little more structured in the way we select flavors and add them to the queue,” Reeves says. “Now we have a full-time flavor committee that represents all facets of the company. They meet and take suggestions, take input from the Web site and our customers and develop new flavors. Plus, they watch the sales trends of the existing flavors.”
All flavors are available in bulk bags for retail sales, while eight come in prepacks for vending. The company also has introduced a line of precupped Dots — a standard 5-ounce Dippin’ Dots cup heat-sealed with a foil lid.
“Since 2003, Banana Split has been our number-one flavor, barely beating out chocolate,” Reeves says. “Cookies ’n Cream with Oreo is now in the number-three slot, followed by vanilla and mint chocolate.”
Fritz says favorites run more exotic in the international sector. “The fruit flavors, tropical fruits, things that sometimes people don’t recognize here, are very popular,” he says. “We’re flexible enough to be able to put together an offering for any of the international customers as the market demands it.”
But the most exciting recent innovation at Dippin’ Dots, Reeves says, has been inclusions. “Prior to last year, it was just Dots, and any inclusions had to be added at the point of sale,” he says. “But now, with added equipment, we’re able to do the inclusions already mixed in the bag. Cookies ’n Cream was our first, followed by Chocolate Chip Cookie Dough.”
Because of the specialized processing involved, adding inclusions to Dippin’ Dots wasn’t as simple as with standard ice cream. “When you’re freezing something at 360 below, what does that do to an Oreo cookie or a piece of chocolate chip cookie dough?” notes Reeves.
Many of the ideas for flavor and inclusion innovations have come from customer feedback, Fritz says. “We look a lot from our customer base because of the attributes of the product,” he says. “You can mix it, layer it, shake it and do different things with it, and they come up with some amazing little things — confetti, chocolate cake, things that are very localized.”
The newest offerings are some interesting mixes. “We’re rolling out Cherry Berry Ice — it’s three berry flavors — and we’re doing a rollout on Root Beer Float. It’s root beer ice mixed with vanilla ice cream, that’s just awesome,” Reeves says. “Also, we’re at a stage kind of like last year when McDonald’s rediscovered some of its original recipes. We’re going through that process as well. We’re reviewing all of our existing flavors and asking people who were with us in the beginning, ‘Does this taste like it used to?’ And we’re finding a couple of things needed tweaking because of production efficiencies and things over the years.
“For instance, we kind of went through a ‘New Coke’ phase as well a couple years ago — we were going to go from liquid chocolate flavorings to powdered flavorings. Well, we instantly found out that it just wasn’t a fit for our production. Our customers told us about it really quickly — it was definitely different.”
The next big thing on the drawing board is something tentatively called Dots in a Block, a treat that mixes Dots into conventional ice cream that will “insulate” the Dots and provide a unique flavor and texture combination. For example, Reeves explains, multicolored Rainbow Dots could be encased in vanilla ice cream for a confetti effect.
The company will be doing market research on this idea over the summer, and Dots in a Block could be ready for sale this fall. If successful, it would allow Dippin’ Dots to enter the mass-market retail sector for the first time. Up to now, Dippin’ Dots could have provided supermarkets with special freezers cold enough to handle its product, Reeves says, but “the cold chain would end when the consumer took it home.”
Reeves describes Dots in a Block as “Dippin’ Dots for adults.”
“We’re banking on the fact that we’ve made a very high-quality product for years and we’re going to extend that,” he says. “We’re hoping people will continue recognizing Dippin’ Dots as synonymous with quality and fun.”
Jones expects the company to grow at a steady pace. “A lot of our expansion over the next couple of years will be more of the same,” he says. “In the markets we’re in, we want to continue to make inroads, in the theme parks, and the ball stadiums especially — there’s still a lot of room for growth there. I think movie theaters are a big market — we can continue to grow there as well. But probably to really see some new growth, anything above the 10 to 15 percent you hope for each year at least, we’ll probably going to have to get into some new products, some new markets.”
That, Jones acknowledges, will mean going beyond just selling more Dots. “We’ve tried to stay focused on what we do and we feel like there’s a pretty big market out there that we can still get into,” he says. “But at some point, we’re going to want to get into other products, and hopefully play on our name and our concept a little bit. So whether it’s novelties that include Dots, or a Dots in a Block-type project, we feel like that could open up new markets. The main thing with Dots in a Block or a novelty is that it could open up the grocery store market.”
Growth and Challenges
Acquisitions thus far haven’t been a factor in the company’s growth, but Jones doesn’t rule them out. “As we become a little bit bigger, there may be some available cash flow to maybe try to acquire companies that might have a distribution channel we’re interested in or something on the supply side,” he says. “It’s something that could happen in the next four or five years.”
Jones credits the company’s gradual growth for its strength and ability to take on innovative projects. “We chose to grow it one cup at a time, one account at a time,” he says. “The first three or four years were really difficult. We were always looking for cash, trying to figure out how to pay for things we needed. Once we got into the fourth or fifth year and got a cash flow established, we’ve been able to do what we want to do with our own internal cash, plus bank loans. We can take assets we have and mortgage them, so if we have to put in a new freezer or whatever it might be.”
This gradual ascent appears to be working for Dippin’ Dots. “Our growth up to this point has been fairly steady,” Jones says. “We have not tried to go out and triple our business in one year. Even though that might be possible with something like we have, we’ve just chosen to let it grow at its own pace. It’s not been a slow pace — there were years when we doubled in sales each year, then kind of tapered off to 50 percent, then 20 and 15. But it’s been a good growth rate for us because we really want to provide good service to our customers, and I think if you grow too fast, you can kind of get yourself in trouble sometimes.”
Still, Dippin’ Dots is contending with high commodity costs like most in the industry, leading Jones to mull possible remedies. “I grew up on a farm, and I have toyed with the idea having some control of our own dairy, whether we set up some kind of co-op in the southern Illinois-Western Kentucky area or whatever,” he says. “I’m not looking to do this in the next year or two, but certainly we’ve thought about that to try to have a little bit more control over our supply, and also our quality. Our biggest thing is, we’ve got a real novelty product — we really want a high-quality product as well. I’ve kind of toyed with that idea a little bit but not gotten serious about it too much. We have a good co-op that we purchase from now — not really any problems other than this fluctuation in price.”
Golden Rules
In this age of Enron, with many vilifying the corporate world, Jones provides a breath of fresh air. “I feel like our management philosophy has always been to treat people the way we want to be treated,” he says. “That’s been our corporate philosophy even in sales. If you look at all the theme parks we’re in right now, our contracts for many years with a lot of the parks have just been verbal. It’s been, hey, the day that we’re not selling enough product or doing you a good job, you just need to call us and we’ll come get our equipment. That’s just the way we are. We don’t want to be there if we’re not helping, if it’s not a win-win situation. Really, I say win-win-win sometimes, because we want the consumer to win, too — we want them to have a good-quality product that’s something they enjoy.”
Dippin’ Dots has been a major benefactor of Give Kids the World Village, a 51-acre non-profit resort in Kissimmee, Fla. The resort offers a respite for children with life-threatening illnesses who wish to visit Central Florida attractions like Walt Disney World and others.
With more than 300 contributing companies, Give Kids the World Village offers accommodations at its child-oriented resort, plus attraction tickets and meals for a week-long cost-free vacation for ailing children and their families.
Meanwhile, Jones is taking the first steps toward creating another mechanism for sharing. “We are very close to setting up a Dippin’ Dots foundation,” he says. “We do a lot of local donations. But we want to set up a foundation to do some things like scholarships and possibly building some homes for low-income or young families. We’ve got a lot of ideas we’re kind of kicking around right now to get a more organized approach to what we want to do in the community.”
So whether it’s spreading joy through innovative ice cream treats or charitable giving, Jones seems satisfied his invention has been a success.
“We feel we’re in a good position with Dippin’ Dots because, on the one hand, it’s still a fairly new product. There’s a lot of people who have seen it for the first time just in the last year or two,” he says. “But yet there is a real organization of people who have known about it for a while. So if we do come out with some new products or variations on what we have, then there’s a good chance people will go ahead and try those in a much shorter time frame then they would have when we started the business 15 years ago.
“I don’t know if we really sat down and thought about how hard it was to do what we did, but I think we’re really lucky that people just really do like our product. It hasn’t been easy, but there’s been a lot of reward with it. I’d hate to be selling something that people didn’t like. We’re just fortunate to be selling something that people really do enjoy.”