Up for the Count
July 1, 2007
Up for the Count
by James Dudlicek
YoCream intends to ride the wellness wave with its high-cultured frozen yogurt.
There’s “frozen yogurt,” and then there’s frozen yogurt. John Hanna is quick to point out that his company’s products are the real deal, but beware of imitators looking to make a quick profit as probiotics pick up speed.
“We’ve always prided ourselves in achieving a very high culture count in our manufacturing process so that it’s real yogurt,” says Hanna, chairman and chief executive officer of Portland, Ore.-based YoCream International. “We have some concerns about what’s still going on in the industry. The feds and states imposed a rigid standard on what really constitutes frozen yogurt. Oregon tried … but they kind of backed off. Hopefully, competitors will be forced, because of the awareness of probiotics, to abandon saying ‘this is frozen yogurt’ when it’s essentially ice milk.”
And it’s not just conjecture. YoCream tests competitors’ products alongside its own, and says some log in culture counts of less than 1 million per gram, versus the 200 million to 600 million of its own frozen yogurt.
It’s that commitment to a “true” frozen yogurt that endears YoCream to many of its customers — in particular, Costco, the warehouse club store chain that serves YoCream frozen yogurt exclusively at its locations nationwide, as well as many other foodservice accounts across the country.
And it’s that commitment that has kept the company going for more than three decades (the last two as a manufacturer). With annual sales of $22.4 million and growing for an extensive product line that includes more than 40 flavors of soft-serve frozen yogurt, ice cream, mixes and non-dairy frozen beverages, YoCream sees itself playing a major role as consumers’ attention continues to increasingly focus on health and wellness.
“We see it as a very significant opportunity for us,” Hanna says. “We’ve prided ourselves on producing a product that is beneficial to human health. We’re proud of our core products that have a high culture count. To see this awareness emerging as it should is very gratifying. At the same time, it opens additional opportunities for us to promote, along with other responsible companies, the effects of a high culture count on health and well-being.”
Yogurt and More
YoCream produces a broad line of products for the foodservice market, including fast food, full-service restaurants, business and industry, health care, college and university, military and convenience stores. The company’s products are distributed through associations with more than 240 domestic distributors, including national and regional broad-line distributors, specialty distributors and dairies.
A direct sales force is supported by qualified foodservice brokers, an inside sales and customer service team, and telemarketing staff. The company’s logistics department coordinates national and international distribution with national and independent carriers and consolidators using cross-dock locations and a hub in St. Louis. “We have seven outside sales people, two inside and a network of about 35 foodservice brokers across the country,” says Tyler Bargas, director of sales. “We do some exporting to Japan, Korea, Taiwan, Italy, Mexico and the Middle East.”
This network is charged with moving YoCream’s extensive product line, which includes soft-serve frozen yogurt; ice cream, custard and sorbet; hard-pack novelties; frozen drink and smoothie mixes; shelf-stable dispenser smoothies; and frozen beverage dispenser slush.
Heading up the portfolio is the soft-serve frozen yogurt, with more than 40 flavors in non-fat along with low-fat and no-sugar-added varieties. “Our YoCream soft-serve is sweet, creamy and flavorful, and incredibly high in live, active yogurt cultures,” says Suzanne Gardner, director of marketing. “We’re upwards of 200 to 600 million, depending on the product and the flavor, per gram of probiotic cultures. That’s something we really pride ourselves on, that proprietary process of growing cultures. We also offer a less-expensive line called Yogurt Stand that is geared more toward institutional customers.”
The folks at YoCream are particularly jazzed about their new Original Tart Frozen Yogurt, a non-fat product that replicates a flavor profile from the 1970s that appears to be back in vogue. “We’ve seen a resurgence in the tart flavor profile of frozen yogurt, especially out of California,” Gardner says. “It really dates back exactly to what we started with. This has an extremely high culture content.”
Original Tart is designed to be served with toppings such as fresh fruit, nuts or granola, each of which Gardner says bring out different aspects of the yogurt’s flavor. “It’s a nice healthy alternative,” she says. “We’ll also be positioning it as a smoothie base as well. It gets dairy and probiotics out there in a convenient, portable format. It’s something that has really taken off. We can’t keep up with the manufacturing, because it’s sold before we can get it out. It’s spreading a lot faster than we thought it would.”
Among its non-cultured products, YoCream offers ice cream at 5 and 10 percent butterfat, along with custard and sorbet. “Our frozen custard is a true frozen custard,” Gardner says, “which is required to have 10 percent butterfat and 1.4 percent egg yolk solids by weight.” The non-dairy sorbet can be served twisted with ice cream and yogurt. There’s also a hard-pack single-serve line for institutional customers.
Frozen drink mixes are sold in one-gallon bags for use in beverage dispensers, and can also be mixed with frozen yogurt. “They present a lot of possibilities for operators,” Gardner says.
YoCream’s latest project is a deal to manufacture and sell frozen beverages under the Jarritos brand in the United States. The first national soft-drink brand in Mexico, Jarritos are made from natural fruit extracts. YoCream’s lineup of concentrated frozen mixes includes mandarin, fruit punch and pineapple flavors.
Jarritos are a fitting follow-up to the Jolly Rancher-branded slushes launched about a year ago. YoCream entered this segment to get a piece of a category that otherwise would be competing with its yogurt in an adjacent dispenser. “We found we were competing for this position,” Bargas says. “The product tastes just like the hard candy.”
The green apple and watermelon flavors — found at Target, 7-Eleven and other major retail and c-store chains — have actually helped YoCream get a foot in the door for its yogurt products at new locations. “This product ironically gives us an opportunity to expand our core business,” Bargas says.
YoCream is working to add candy brands to its frozen yogurt lineup, too. “It’s exciting for the candy companies because we can bring them into a healthier, “better-for-you” product, possibly into schools,” Bargas says, “so they can get their brand out there again.”
While continuing to develop its offerings, YoCream has a brisk custom manufacturing business as well to help support its own product line. “The excess capacity that we’ve had up to this point has allowed us to bring in custom manufacturing business,” says Matt Hanna, director of administration and custom manufacturing, and John’s son. “We do private label for several companies. For one company, we do a coffee-based concentrate that’s an iced beverage that has dairy added to it. We also manufacture a dairy-based hard-pack product that goes into a 12-ounce cup.”
YoCream maintains a full-time R&D staff to develop line extensions and new flavors, as well as product development for customers. “This separates us from a lot of our competitors in that we can actually work on custom opportunities,” says Terry Oftedal, director of supply chain operations. “It has allowed us to diversify and move into some new areas. The drinkable yogurts and the frozen beverages are some of our strong areas for growth.”
Matt Hanna adds: “What’s attracted people to us is our ability to react, our reliability, our technical experience, the quality we put into what we produce. We get numerous requests, but we need to balance that with our own brands.”
Getting It Out There
Meanwhile, as demand for its products grows, YoCream is struggling along with the rest of the industry in dealing with the upward-spiraling cost of energy and raw ingredients.
“The impact has been quite significant,” John Hanna says, noting that the company has chosen not to impose a fuel surcharge on its customers thus far. “The first thing we always look at is how we can obtain additional efficiencies so we don’t have to pass on increased costs. We have attacked that aggressively for our major customers — in fact, elicited their cooperation. Through careful work, we were able to arrange, in many cases where we were shipping LTL [less than truckload] to move into full-truckload shipments, which reduced costs significantly.”
Further, YoCream has given customers the option of picking up product themselves instead of having it delivered, to save on shipping costs. “Beyond that, it’s been a very aggressive effort to build in efficiencies here in our processes and logistics activities,” Hanna says.
For cross-country shipments, YoCream has sought partners with similar needs. “We’ve partnered with multiple outside third-party carriers, coming up with a team of carriers who each have their own strengths and interests, and wherever possible, teaming up with people who are looking for freight out of Portland to other parts of the country,” Oftedal explains. “If somebody has a lot of business coming to the West from the Northeast, we’d like to make a deal with them going from Portland to the Northeast. We actually have no trucks ourselves. All of our product is hauled by third-party carriers that we pay by the hour or by the mile. We were shipping LTL all across the country out of Portland, and came up with a concept of putting a major hub in St. Louis, basically consolidating all our eastern LTL’s into full truckloads to St. Louis, where we crossdock and send off as LTL’s there so two-thirds of the miles at least on average become full-truckload rates. That helped with some of our costs.”
On the ingredients side, Oftedal says YoCream faces a “double whammy” from corn prices impacting raw milk (through feed prices) and corn-based sweeteners. “We are a member of the All Star Dairy Association, and they have an excellent program for buying corn directly and then subcontracting the milling and delivery, so we’re able to band together with other dairies our size and some much larger that us, so that we can work on the same playing field with our largest competitors,” he says, noting the dynamics of the ingredients market. “One year it’s cocoa, the next year it’s vanilla. We constantly have ingredient price challenges. Probably 80 percent of our spending on the materials and packaging side is on annual contracts so we can try to stabilize the prices on an annual basis.”
John Hanna and his team take every opportunity to drive home YoCream’s commitment to “real” frozen yogurt, and hope that strict standards will be implemented to ensure consumers are getting the genuine article.
And genuine at YoCream means culture counts in the hundreds of millions, compared to levels far less that Gardner says the company has discovered in its analysis of competitors’ products. “Less than a million really doesn’t give you a health benefit, but yet it’s marketed as frozen yogurt,” she says. “It would be good if there was a federal or state standard of identity for frozen yogurt. There’s some definite room for advancement in the category.”
California does have a very old standard, Gardner says, explaining that it’s the basis of a current class-action lawsuit in the Golden State against a maker of so-called yogurt.
And while Hanna is pleased to see a growing new interest in frozen yogurt, he’s worried consumers won’t know what they’re getting. “Our concern is that we’re so bent on it being a real yogurt, we’re concerned that competitors will get in the game with what is not really a high culture-count product,” he says. “From a processing standpoint, there’s an art to producing the product in such a way that it achieves those high culture counts. It’s a more costly process, but one that provides for real frozen yogurt.”
Hanna expects the increased awareness of probiotics and its role in wellness to play a significant part in the company’s growth in the coming years. “We’re enjoying double-digit growth and we see that trend continuing. That’s why we did an extensive expansion over the last couple of years, so we’re prepared for it,” he says. “We expect to be here, and we expect that growth trend to continue. Compounding growth in that way, if it’s all organic, I don’t think you could responsibly grow much faster, unless it’s by acquisition. And we’re always on the lookout for that opportunity, should it be the right fit.”
Beyond yogurt alone, YoCream sees significant growth potential in the beverage arena. “With drinkable yogurt the fastest-growing food category right now, we’re enjoying increased interest in serving our products as beverages,” Gardner says. “That’s very exciting to us because it meets today’s consumer demand for portability. We’re very optimistic about the new interest in the tart side, putting that into beverages. That’s something we’ve been working on for the past few months.”
It’s an advantage to customers, Gardner says, because it allows foodservice operators to diversify their offerings while using YoCream as a one-stop shop for their frozen treat needs. “We’re seeing very nice growth in our core line of soft-serve frozen yogurts and very fast movement of the tart,” she says. “The other thing is that, this isn’t something we just made up — this is our culture. This has been our business all along. We’re not new to this market. We pride ourselves on that production process and maintaining very high levels of probiotic cultures. At the same time, we’re always looking at additional cultures, and we’ve increased the levels in some of our products, such as the tart, making sure we have very high beneficial counts.”
Hanna interjects: “Public awareness of pre- and probiotic cultures may even out the playing field, to an extent.”
Gardner says, “It hasn’t yet, though …”
Hanna continues: “It hasn’t yet, but we’re looking forward to it, because of the increased awareness, buyers becoming more sensitive to whether this is a real yogurt product. It forces a competitor, who may not even manufacture his own product, to provide processing that assures high culture counts.”
Beyond the authenticity of the product, YoCream — and the entire yogurt industry, for that matter — has the current advantage of a consumer base more widely accustomed to eating yogurt, compared to three decades ago.
“Young people have been introduced to yogurt and accept it as a part of their lifestyle,” Gardner says. “We have an overweight population that is looking for tasty healthy alternatives. We can provide them with a product that has probiotics, is non-fat, is very tasty, and also provides fun and exciting branding. So you can hit all levels of consumers with that type of a product. That’s really exciting for us to have this.”
And the YoCream team is experienced in delivering a product that comes across as more indulgent than it actually may be. “We have recipes and stabilizer systems that actually perform well across a broad variety of dispensers. So when we do cuttings side by side with our products, besides having high culture counts, they have great mouthfeel,” Bargas says. “When you sample those non-fat soft-serves, a lot of people give us the reaction that they can’t believe it’s non-fat because it has such a great mouthfeel that tastes like premium ice cream.”
So, with a commitment to a genuine yogurt product, three decades of experience doing it and agile manufacturing ability, YoCream appears poised for continued growth. The icing on the cake is having the right team to make it happen.
“We’re very proud of our people,” Hanna says. “Growth is always exciting, but it creates operational pressures. To see everybody step up as they have with such excitement, almost glee, willing to extend themselves with extra effort to meet the demand, has been very satisfying.”
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 30 years ago.
“It was kind of a fluke,” says chief executive officer 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. “We came back here [to Portland] and had a lab develop the product. We weren’t food technicians,” Hanna says. “We got one of the major producers in the Northwest to produce the product for us, Darigold out of Seattle.”
The Hanna brothers began with franchise locations in Seattle’s University District. “By the fifth week, we hit the break-even point. Kids were lined up down the street,” Hanna says. “We became more and more excited. So we put up more sites.”
By the end of the 1970s, the company had about 30 locations. “Then a tight market hit and it got to be pretty rough out there,” Hanna recalls. “We owned about half of these locations; the other half were franchised. For the franchisees, interest rates skyrocketed.”
So the Hannas discontinued franchising and focused on distributing their frozen yogurt through foodservice channels. “We developed some companion products. The original product was a tart product [like old-style yogurt],” Hanna explains. “Then we began to develop some products that were 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. “Competition was emerging, too, and we were trying to get out there,” Hanna says. “We were in about 15 states, and when we came up with the name YoCream … we did the trademark research and found out that General Mills had warehoused a host of ‘Yo’ names to protect Yoplait.”
General Mills acknowledged they weren’t using the name, according to Hanna. “Our trademark attorney advised us to go ahead. So we started with this name and got it out there quite a bit. For us, being a small company and trying to grow, it was at considerable cost,” he says. “Then in 1986, General Mills called and basically said, ‘We decided to use the name. You guys quit it.’”
YoCream attempted to negotiate a business solution. Meanwhile, General Mills filed suit. “Financially, it almost took us under,” Hanna says, “[but] we ended up with an overwhelming legal victory. … It did give us national press. Peter Jennings picked it up on TV, a ‘David and Goliath’ story. We had fun with that and rode it for several years.”
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. “We cut a 10-year contract, and it did help us. They were good folks to work with,” Hanna says. “At the end of the 10 years, with existing momentum, we opted to take on sales and distribution internally. We developed a sales team to focus solely on our product, marshaled our forces and just kept going.”
To help finance their entry into manufacturing, the Hannas took YoCream public in November 1987. “I think we were the first company in the country to complete an equity offering after the [stock market] crash in October,” Hanna recalls. “Since that time, we’ve had growth. It’s been rough and tumble, with some stable years. But it’s a tough market. We’ve had a lot of fun along the way.”
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.
With major customers like Costco and growing consumer interest in probiotics, it’s easy to see why John Hanna is excited about the future of YoCream. “We’re presently into a new growth period,” he says, “with a number of new products.”$OMN_arttitle="Up for the Count";?> $OMN_artauthor="James Dudlicek";?>