The hot trend of frozen yogurt may finally be softening, at least in Los Angeles.
Shops that sell tart “fro-yo” desserts started in Los Angeles four years ago and opened furiously since. But now, local heavyweights Pinkberry Inc. and Red Mango Inc. have been trimming back a few area stores and are more cautious about opening ones here. The chains are concentrating expansion plans outside the L.A. market.
Several independently owned shops have closed, including Svelte in Silver Lake, Tutto Tutti in Hollywood and Blue Mango in West Hollywood.
The proliferation of frozen yogurt stores in the L.A. area may have led to saturation in the market. Internet research yielded more than 250 individual shops that sell fro-yo in Los Angeles County.
“The frozen desserts category is not growing and is flat at best, and the premium segment the Cold Stones and Pinkberrys has tapered off,” said Darren Tristano, executive vice president of food industry research and consultancy company Technomic Inc. in Chicago. “In these recessionary times we’re not going after those indulgences as much. People consider McDonald’s to be recession-proof. I don’t think people think Pinkberry is recession proof.”
Dan Kim, chief executive of Red Mango, said his company is still planning to open 40 stores this year, the same number it opened last year. (Pinkberry would not say how many sites it plans to open.) But the company will franchise most new shops and make sure the locations are selected more carefully.
“We’re looking at how to operate better,” Kim said.
Red Mango closed four stores in January, including one on Miracle Mile. The others were in San Diego; Las Vegas; and Portland, Ore.
Kim said those stores weren’t in the right locations for the brand.
“There’s a natural slowdown in the winter as one would expect with frozen yogurt, so we don’t know if it’s because of the weather or the economy,” he said.
Sherman Oaks-based Red Mango has 43 stores in California and seven other states; nine are in Los Angeles County. The company is focusing its expansion outside of the L.A. area, with plans for stores in Santa Barbara and Del Mar. Beyond California, the company has its sights set on Texas, Arizona, Utah and Indiana. Only one new store, in City of Industry, is planned for Los Angeles County.
Pinkberry, with headquarters near the Miracle Mile, has 72 stores in California and New York; 41 are in the L.A. area.
The company closed two stores recently, one in Santa Monica and the other in Brentwood. A Pinkberry spokesperson called the stores “suboptimal real estate choices” and said the company overall is doing well, but declined to provide specifics.
Last month, Pinkberry opened stores in Santa Barbara and San Jose. Red Mango also opened a store in San Jose in January, just across the street from Pinkberry’s.
Big players
Pinkberry emerged as the first big player in the U.S. fro-yo industry when it opened its first store in West Hollywood in 2005. Red Mango started in South Korea in 2002 before establishing a separate U.S. branch in 2007. Pinkberry’s founders, Korean-Americans Shelly Hwang and Young Lee, said they got the idea from visits to an Italian gelato shop and a Hawaii pineapple plantation.
Both Pinkberry and Red Mango serve two core flavors, plain tart and green tea. Pinkberry introduced, then dropped, a coffee flavor. Both recently introduced a pomegranate flavor. Customers can choose from a variety of toppings, including fresh fruit, cereal, chocolate chips and mochi, or Asian sticky rice balls.
But the sweet-tart treat doesn’t come cheap. The average price is about $5 and climbs quickly for each topping added.
As a result, the chains are facing new competition. Yogurtland founder Phillip Chang started a self-serve concept in 2006 in Fullerton with 16 flavors, sweet and tart. Customers get to mix flavors themselves and dish out the toppings in their desired quantities. They pay by weight: 30 cents an ounce.
“This concept pushes capabilities back to the consumers,” said Scott Shoemaker, Yogurtland’s director of product development. “We have a culture now that we can do everything ourselves.”
Yogurtland, with 33 stores and 11 in Los Angeles County, has emerged as the biggest competitor in the self-serve segment.
Shoemaker said the Anaheim company plans to open 90 stores this year and already has 13 under construction. Most will be franchised.
Other self-serve concepts have popped up around Los Angeles County, including Yogurtiers in Burbank, Toppings in Beverly Hills and Yogurt Stop in West Hollywood.
Will Pinkberry and Red Mango be able to hold market share against the self-serves?
“The price points are going to have to be lower,” said food analyst Tristano. “The high-income population is not insulated in this economic downturn.”
Red Mango is introducing value-priced options. It is testing bargain prices for the combinations its customers order most. Kim declined to give specific prices.
He also said the company recently introduced a customer loyalty program that rewards every 500 “Mango Points” with a $5 coupon. The points are earned mainly by referrals and purchases.
But Kim maintains that Red Mango and Pinkberry are in the “premium” frozen yogurt category and that self-serve targets a different consumer.
“The self-serve concept is more focused on variety and value, not on premium,” he said. “The customers that we cater to and the customers Yogurtland caters to are different. Ours are looking for higher quality and the experience that you can’t get at a self-serve model.”
Boom and bust
This isn’t the first time a boom erupted in frozen yogurt, and it wouldn’t be the first time if it were to slow down. In the mid-1980s, a sugary-sweet precursor of today’s fro-yo became popular as a healthier alternative to ice cream. TCBY, Golden Spoon, Penguin’s and the now-defunct Heidi’s opened stores all over the country. TCBY, the largest of the chains, grew to 1,200 locations in seven years.
But by the early 1990s, the boom went bust as fast-food restaurants and even gas station convenience stores began offering their versions of the frozen treat. There was no longer a reason to make a special trip to the local fro-yo shop.
The past may be a guide to the future. Some cafes and convenience stores have already added Pinkberry-style desserts to their offerings.
“It’s going to be hard to compete with places that don’t specialize in frozen yogurt but will start to offer it,” Tristano said. “Every store is going to steal share away.”
He likened the concept to that of McDonald’s offering good quality coffee at a cheaper price than Starbucks, which has been struggling to keep customers buying its $4 lattes.
Kim believes Red Mango will be able to stave off adverse effects of the recession thanks to a $12 million investment in August from John Antioco, former chief executive of Taco Bell Corp.
Pinkberry received a $27.5 million investment from Starbucks Corp.’s Howard Schultz in 2007.
“This new category of frozen yogurt is different,” Kim said. “We’re focusing on a healthy product in a great retail experience. Well-capitalized companies will be able to weather the storm, and I think Red Mango is in a good position to do that.”
