Frozen Yogurt Franchise Surge: Still Room for Dessert?

Tart or sweet, toppings or plain, self-service or full-service, Greek or traditional. While the combinations at frozen yogurt stores seem endless, analysts say the industry’s growth is not.

Red Mango yogurt
Source: Red Mango
Red Mango yogurt

But forecasts for an increasingly crowded and competitive market have not deterred “fro-yo” companies from embarking on ambitious expansion plans to capture an increasingly health-conscious U.S. consumer.

Although frozen yogurt revenue grew at a 5.9 percent pace during the past five years, it is only forecast to rise 2.4 percent annually for the next five years, according to estimates from a November 2011 IBISWorld report.

“It had been growing for the last three years, and as long as people continue to keep building units, we might continue to see that demand,” said Bonnie Riggs, a restaurant industry analyst at The NPD Group. “I’m not sure there’s that much demand for frozen yogurt.”

Frozen yogurt servings increased 11 percent to 128 million for the year ending in December, Riggs said. But the challenge is retaining these fro-yo tasters as repeat buyers.

New franchise locations of aggressively expanding companies are driving this growth, Riggs said. Still, the rapid location growth could be limited in the future, IBISWorld said.

“The number of stores is anticipated to shrink starting in 2015, as the market for frozen yogurt becomes overly saturated and small players struggle to remain open,” the report said. “Larger operations will survive, while unprofitable ones will likely consolidate operations or exit the industry altogether.”

One company that is bullish on the staying power of the industry's growth, Red Mango now has about 160 open locations and another 160 to 200 stores in varying stages of development.

With a focus on the health-conscious consumer, the company has served yogurt since 2007 in full-service stores, self-service stores and kiosks.

The company’s founder and chief concept officer, Daniel Kim, is a former investment banker and financial analyst who also worked in consumer branding before he launched the company in Los Angeles. The vast majority of the company’s locations are franchises.

“The frozen yogurt space as you know is a very competitive space,” Kim said. “Franchising has been a very fast way and efficient way to really get the brand out to consumers across the country.”

The company’s founder called the renewed fro-yo enthusiasm a re-invention of the frozen-dessert category that is being driven by the consumer.

“We don’t think this is a category that is going to go away again,” he said.

Despite Kim’s conviction, the industry’s biggest player, TCBY, has been on the fro-yo scene long enough to see the dessert’s profitability wane and rise again.

Begun in 1981, the company quickly ballooned to more than 3,000 locations before scaling back significantly to its more than 600 locations.

Menchie's Fruit & Sprinkles frozen yogurt.
Source: Menchie's
Menchie's Fruit & Sprinkles frozen yogurt.

Around three to four years ago, competition in the frozen yogurt space really started heating up, said Greg Allison, TCBY’s senior director of marketing, insights and innovation.

Despite the increased competition, the company plans to add about 100 stores this year in the U.S. and another 20 to 30 internationally. Allison attributed much of TCBY’s recent growth to its rebranding strategy, which included a new logo and a self-service option.

“To be honest with you, before this new redesign and self-service design, there were plenty of other options out there, and [customers] were going there,” he said.

Menchie’s also has its sights set on an extensive expansion this year. The company currently has 165 open locations and another 246 in development.

The company’s CEO Amit Kleinberger touched on another reason for frozen yogurt’s popularity — price.

“Interestingly enough, we actually thrived,” he said. “When the recession started, we started growing — we became what we are during the recession.”

While turbulent economic times can lower the sales of discretionary items, such as frozen yogurt, this does not seem to have occurred in recent years.

Instead, IBISWorld analysts found that the recent bleak economic climate actually boded well for fro-yo sales.

“Despite low disposable income and consumer sentiment, consumers indulge in inexpensive luxuries like frozen yogurt and other comfort foods during gloomy times,” the report said.

Still, Riggs sees price as the biggest challenge for stores trying to encourage repeat buyers.

“You may be getting a little scoop, and you put a little of this on and a little of that and next thing you know, you have a $5 or $6 frozen yogurt,” she said.

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