As frozen yogurt stores pop up, some see top-out

“It didn’t kill us,” said Steve Shuler, franchisee of Menchie’s in Atlanta. “But it did affect our sales.”

Frozen yogurt purveyors might want to brace for more crowding. Frozen yogurt places supplying creamy and tart, self-serve and behind-the-counter varieties are popping up all over Atlanta.

“They seem to be everywhere,” said Mary Chapman, director of product innovation at Chicago-based Technomic, a research firm.

But as stores proliferate in Atlanta, there are signs of trouble across the country. Consumption of “fro-yo” has fallen on a nationwide basis. The number of “frozen sweets” locations in the U.S., a category that includes frozen yogurt, has dropped for at least four years, according to The NPD Group, a research firm. Units have closed in California, frozen yogurt’s epicenter.

Are we headed for a fro-yo glut? A toppings catastrophe?

“The big question when it comes to frozen yogurt is, how much can the market handle?” said Blair Chancey, editor of QSR, a magazine that covers the fast-food industry. “I do think it’s a bit of a fad.”

Atlanta frozen yogurt establishments are still popping up. Entrepreneurs say they see plenty of demand among moms, teenagers and kids for healthful desserts sold at prices of $4 or so in a previously untapped region.

Executives predict that frozen yogurt stores will close around the country, and eventually in Atlanta, as the industry levels out. Naturally, they predict the closings will hurt the competition, not their own companies.

Before 2008, frozen yogurt consumption grew fast from a small base, driven by new concepts such as Pinkberry and Red Mango and the attractiveness of low-calorie desserts. Sales increased 13 percent in 2008, according to data from the NPD. But then, the trend slowed. Sales rose 3 percent in 2009. And in 2010, they dropped 15 percent.

Shakeout in industry

Ron Graves, a former Air Force fighter pilot and venture capitalist who now leads frozen yogurt brand Pinkberry, says he is confident the network of 110 restaurants is well-positioned. The company started in 2005 in West Hollywood, Calif.

“Now there are many Pinkberry imitators, which is not surprising since success breeds competition,” Graves said. “As time goes on, you will see a shakeout in the industry.”

You wouldn’t know it if you counted new openings around Atlanta. Self-serve fro-yo restaurants, where guests pour their own yogurt and pay by the ounce, is one of the fastest-growing concepts in terms of number of units.

Lindsey Phillips, who opened The Yogurt Tap in Decatur with her husband in 2009, counts three competing stores on the short drive from Decatur to Emory Village. There are three on North Highland Avenue. “I never thought the yogurt business would be such a competitive market,” she said. “We can’t control what others do, but we can strive to be creative, healthful and good.”

Many smaller operators won’t survive the coming correction, predicted Roi Shlomo, founder of Atlanta-based Yogli Mogli.

“I don’t think that wave is going to last long,” he said. “The concept, when you look at it, it looks terribly easy to run. What a lot of people don’t realize is that it’s a big project.”

Smaller operators say they’re just fine, thanks. “If I’m going to bet on somebody, I can just get my head around the owner-operator model more than I can being part of a big corporation,” said Clay Harper, owner of Fellini’s Pizza and a yogurt store called Three on the Tree.

Both the big chains and the one-offs have fans who can border on the extreme. In pursuit of his favorite flavors, self-described “yogurt purist” Eli Zandman called Three on the Tree’s corporate office to ask staffers to stock the spiced banana variety.

“They couldn’t believe someone was calling them for that,” said Zandman, 23. “I would call and change my voice so I wasn’t acting like the crazy guy that was calling about flavors.”

Atlanta resident Ashley Tjader, 23, tasted fro-yo for the first time two years ago in California, but her appetite for more was not fulfilled in the Southeast. During a spring break in Boston, she pulled her friends into a trek through several miles of slushy snow to a frozen yogurt store on Harvard’s campus. “My doubting friends were converted to fro-yo lovers,” she said.

Not first fro-yo frenzy

This isn’t the first frozen yogurt boomlet. In the 1980s, TCBY came on strong. But Red Lobster and other restaurants put frozen yogurt in their soft-serve machines, and all of a sudden you could get frozen yogurt anywhere. Similarly today, there are many competitors and few barriers to entry.

“It’s a me-too industry,” said Bonnie Riggs, NPD restaurant analyst. “We watch what others are doing, and others jump on board, so your competition increases.”

Pinkberry opened its first Georgia store last summer near Cumberland Mall, a second in Marietta and plans a grand opening next month for a third, in Buckhead. Self-serve frozen yogurt franchise Yogli Mogli, which opened in Sandy Springs in 2009, now has 10 locations around Atlanta and wants to open two more in April and four in May. It plans to have five locations in Chicago by the end of the year.

Red Mango, which sells nonfat frozen yogurt and fresh fruit smoothies, awarded agreements for 147 new locations, opened 62 new stores and increased the network to 102 stores in 25 states last year.

“We’ve been able to grow aggressively because we do see that demand in the market,” said Dan Kim, founder of the Dallas-based company.

Yoforia, which has crept up the I-85 corridor from Atlanta to Charlotte, has 11 units now and six under construction. About a year and a half after opening its first unit, Yogurt Mountain opened its 17th, this one in Johns Creek. Seven Menchie’s stores are open now in the Atlanta area.

“Just about every other week, boom, boom, boom, we were opening a store,” Shuler said. “I called corporate and said we need more stores, as long as they’re good operators.”

Even Cold Stone Creamery is getting into the act, with a yogurt bar and toppings bar launching in some restaurants this year. It was not an open-and-shut decision, said Dan Beem, Cold Stone’s president. “It is an incredibly competitive sector,” he said of frozen yogurt. “We had serious conversations internally about that.”

Where are the guys?

Self-serve frozen yogurt is not distributed evenly over the country. Nearly half the frozen yogurt servings are on the West Coast, according to NPD, and three out of five customers are female. Frozen yogurt companies want to avoid being caught in a demographic box. One question for fro-yo sellers: Where are the guys?

“If they’re smart, they would hang out at Red Mango,” Kim said. “Seven out of 10 of our customers are women.”

Americans placed 123 million orders for frozen yogurt at restaurants last year, according to NPD. That might sound like a lot, but it’s small in the context of the U.S. restaurant industry. Americans made 59 billion visits to restaurants last year.

Tart or “Korean-style” frozen yogurt is purchased at about the same frequency as fried ice cream, according to Technomic. Three-quarters of respondents to a recent survey said they never purchase tart frozen yogurt and never make it at home.

“It’s a small category for a reason,” Riggs said. “It’s a discretionary product.”

Most leaders of frozen yogurt chains say they feel good about their own prospects. Typical is Luke Tashie, who previously worked in investment banking and now is chief executive of Yoforia.

“If we have the high quality and best service,” he said, “we can win.”

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