Founder and CEO Solomon Choi opened the first store in Manhattan's trendy East Village in 2008. It now has 37 locations across six states through franchising. It plans to more than double that amount by the end of 2014.
16 Handles has some big shoes to fill though. Frozen yogurt sales topped $760 million in 2012 with TCBY, Red Mango and Pinkberry controlling half of the industry, according to IBISWorld.
IBISWorld forecasts that while industry will see 4.2% growth in revenue over the five years between 2012 and 2017, margins are eroding, given the rising cost of milk, consumers' finicky preferences and competition.
Choi is optimistic about the company's prospects. He says 16 Handles was actually the first store to implement the popular self-serve model whereby customers create their own frozen dessert by pulling the "handle" of one of the store's 16 daily flavors. Self-serve models now make up the largest segment of frozen yogurt stores (at just under 40%).
16 Handles welcomed TheStreet to its Murray Hill location (which ironically had a Tasti D-Lite down the street) for our weekly Test Kitchen.
An edited transcript of the conversation follows.
With 37 stores now, what are the plans for growth?
Choi: The plan for growth is we'd like to be at a 100 stores by end of next year and at 150 stores by 2015 and also in a couple different countries at that point.
Let's talk about that self-serve model. It's one of the big parts of the resurgence of frozen yogurt. Why do customers love it?
Choi: I think people love it because of the personalization and the customization factor. We all have our different needs and our wants, whether they be dietary restrictions, whether they be satisfying a different type of sweet tooth, so I think having 16 different rotating flavors along with 50-some odd toppings, the combinations are endless depending on one's mood. Maybe I came from a workout and I want to treat myself or I'm really watching my weight and so I want to have something healthier -- people like to be in control of what they intake.
Other competitors also do self-serve now, how is 16 Handles able to differentiate itself versus your competitors?
Choi: Our differentiator is our message of "Flaunt Your Flavor," and that's inside and outside the cup from a standpoint of personalization as well as personality. We all come in different sizes, shapes, forms, have different taste preferences when it comes to music and fashion. It's really about embracing that lifestyle energy and that concept behind what we do on a day-to-day basis and how that changes with us. 16 Handles is about celebrating that and so I think that's what sets us apart in the market place.
Can all of these competitors compete at this point? What will we see in a few years in the frozen yogurt market?
Choi: My projection would be that in the next 18 to 24 months there certainly will be a shake out. As a matter of fact, it's starting to happen now. There're only a finite number of retail spaces in every market and ultimately it's the consumer who decides in casting their vote with their wallets on which brand they want to engage with. And so I really feel like the brands that focus on that specifically and can control their costs and their labor as well as create new and innovative products are going to be the ones that remain in the long run. And the other ones unfortunately are just going to be yogurt shops that will kind of go on by the wayside after a while.
How does social media play into brand development?
Choi: Social media has been a huge component of our success. It's the way that we engage with our guests and really allows us to have that two-way form of communication. Traditionally in the past it's always been one way -- whether it be print or radio or TV - just an outward message, whereas the beauty of social media is we can get the customer's voice sent back to us and we can have that dialogue. I think that's been extremely helpful for us.
Being able to understand what is it that the customer likes, what is it that they want to see changed and then being able to respond to that, I think that's what separated us in the marketplace.
We're able to also have a voice beyond just print, which you know, obviously still necessary to do advertising, but I think social media allows us to connect and engage with our customers in a very real way and real time as well, which I think is a very important part for any brand that's looking to grow, they really need to have that connection and a relationship with a customer.