WEST HOLLYWOOD, Calif. (TheStreet) -- "I've been waiting all day for this.""Those raspberries look really fresh." "They used to charge you by the topping, but now it's unlimited." "Their flavors are all good." These are just a few of the comments made by patrons during a recent afternoon visit to Pinkberry's SoHo Manhattan location.
Pinkberry also has an impressive list of investors, including Starbucks ( SBUX - Get Report) CEO Howard Schultz and Highland Capital Partners. Experts say the combination of increasing consumer preference for healthy and natural foods as well as innovative gourmet flavors (Pinkberry just launched a salted caramel option) and high-quality toppings, think fresh fruit and organic candies, make for a successful recipe for the popularity of the product. It shows in the almost dizzying pace that stores are popping up across the country and abroad. Customers are also responding to improved store designs. Pinkberry's funky, high-end furniture and flat-screen televisions and Wi-Fi -- these stores are not your traditional ice-cream parlors. Social media is also playing a big factor to Pinkberry's following. Typical Pinkberry consumers are young, trendy and digitally savvy. "Being first doesn't really matter if you're not delivering on the experience every day -- the quality of the product, the quality of the store environment and the quality of our people," Graves says. "Those three things sound kind of easy but they're extremely difficult to deliver day in and day out across hundreds of stores across the United States and across the globe." The FranchiseHelp report notes that the experience these stores provide to customers allows for the bump up in prices. "Arguably the greatest advantages that the frozen-yogurt franchises have in the frozen-dessert market are its versatility and room for innovation," the report says. "The other major advantage that froyo franchises provide is that many of them are self-serve, which results in significantly lower labor costs when compared to most food franchises." Yet Pinkberry is not self-serve, nor does it plan to become a self-serve establishment. The company is bucking this trend (and the ability to sell more products at lower labor costs) in favor of the customer experience. "People build emotional connections to brand. Our goal is to exceed our customers' expectations every single day in every single engagement. In order to do that you have to listen to your customers and you have to be responsive," Graves says.
Though Pinkberry was launched by founders Shelly Hwang and Young Lee in 2005, the company found itself growing too quickly without a clear strategy. The company also found itself saddled with a class-action lawsuit in 2007 for apparently making misleading claims about the healthfulness of the product. (It ended up settling out of court by agreeing to pay a charity and a food bank, according to a 2008 New York Times article.) Three years ago, the company also stepped back to build "the right foundation, the right investment team, management team and the right board of directors, before we went back out to market and started to build stores across the country and globe," Graves says. (The CEO came on board then.) "Many companies in the past have grown for growth's sake without the right infrastructure in place." Running a food purveyor such as a frozen-yogurt store is a hard business, says Mary Chapman, an analyst at Technomic. "You have to have a lot of things working on the operations side," such as real estate costs, she says. "You have to rely on a lot of foot traffic, and sites that get a lot of foot traffic are expensive. There is a limited menu. It's hard to have a full-day's worth of sales with a narrow menu. You have to sell a lot of frozen yogurt to pay for a really good real-estate site," Chapman says. More recently there are signs that the niche market is becoming overcrowded. Selling an experience is the key differentiator in a market that some say is quickly becoming saturated. "We're not a frozen-yogurt company. We're in the entertainment industry. We're an experience company," says Menchie's CEO, Amit Kleinberger. "We don't provide just the product."
Menchie's just reached its 100th store, with another 100 in construction, Kleinberger says. "Everything in the store is designed to bring a lingering enjoyable experience," he adds. "If you're thinking of entering a hot space, you need to think of coming up with something that has a serious wow factor," writes Joel Libava, a franchise-acquisition consultant and author of soon-to-be-released Become a Franchise Owner! "Pinkberry is a franchise that's certainly done that. The design of their stores is like nothing out there. Their colors, their logo, everything portrays a high-tech atmosphere that also adds a dash of healthy goodness in all of its offerings," he writes. Still, others say the frozen-yogurt trend has a long way to grow. There is a large opportunity to expand "beyond these froyo-condensed locations," the FranchiseHelp report says. "In fact, there are a number of areas, both internationally and in the United States, that has yet to discover the latest froyo concepts." So what's next for Pinkberry besides continuing to expand? An IPO is not on the short-term horizon, Graves says. However, "you'll see product innovation, both in flavors and product extensions. Around our store designs you will see that evolve, it won't be static." --Written by Laurie Kulikowski in New York. To follow Laurie Kulikowski on Twitter, go to: http://twitter.com/#!/LKulikowski To submit a news tip, send an email to: email@example.com.