Slabs Are Joining Scoops in Ice Cream Retailing

By KATE MURPHY

With Baskin-Robbins and Dairy Queen, not to mention thousands of independent scoop shops, there are plenty of places to satisfy a craving for ice cream. But three companies say there is still room for something different — their premium ice creams, served with a flourish.

The three are competing to be to ice cream what Starbucks is to coffee — a ubiquitous chain offering a high-priced, high-quality version of a relatively mundane product.

The companies, Marble Slab Creamery, Cold Stone Creamery and MaggieMoo’s International, sell various flavors of premium ice cream, which is defined by the industry as having more than 12 percent butterfat. Moreover, they allow customers to choose from an assortment of “mix-ins” like crumbled cookies, candies, fruits and nuts. Employees then blend the ingredients into the ice cream on a cold granite or marble slab before packing it into a cup or freshly baked waffle cone. The cost escalates with the number of mix-ins and can easily top $5 for a medium serving.

“These guys are all hoping to be the next Starbucks,” said Donna Barry, a dairy consultant who analyzes the ice cream industry for the market research company Packaged Facts in New York.

Part of the experience is waiting in line and watching employees prepare concoctions. “It’s entertainment,” Ms. Barry said. “I myself get intrigued by what other people order,” like peanut butter ice cream with bananas, marshmallows and brownie chunks.

But in an already crowded market, it remains unclear whether there is a sustainable niche for high-end ice cream, much less one that can support a store on every corner.

Following the Starbucks model, the three chains are densely situating their stores, particularly Cold Stone. Founded in 1988, with its headquarters in Scottsdale, Ariz., Cold Stone has 1,400 franchises in the United States, Japan and South Korea — most opened in the last five years. A former Procter & Gamble sales manager, Douglas A. Ducey, was named chief executive in 2000 to lead the expansion.

“I saw an opportunity to reinvent a stagnant category like what happened with coffee,” he said.

Marble Slab, based in Houston, and MaggieMoo’s of Columbia, Md., have also pursued rapid growth strategies in the last five years. Marble Slab, which opened its first store in 1983, now has 371 franchises in the United States, Canada and the United Arab Emirates, with another 220 under development. Started in 1989, MaggieMoo’s currently has 190 franchises in the United States with an additional 150 under development.

“These guys are definitely trying to saturate the market,” said Darren Tristano, managing director of Technomic, a food service research and consulting firm in Chicago. “It’s all a game of beating the other guy to the best locations.”

Americans spend about $21 billion a year on ice cream, according to the International Dairy Foods Association. That amounts to 1.6 billion gallons of ice cream, or 21.5 quarts a person a year. Almost two-thirds of that ice cream is eaten away from home.

“It’s not a small category,” said Harry Balzar, president of the NPD Group, a market research company in Port Washington, N.Y., but one that has remained flat for more than a decade and is “not likely to grow.”

To succeed, Cold Stone, Marble Slab and MaggieMoo’s need to take customers from the market leaders Dairy Queen and Baskin-Robbins and the more than 15,000 other independent and chain ice cream shops scattered across the country. This includes Ben & Jerry’s and Häagen-Dazs, which are steadily adding locations, though their focus is more on grocery store sales.

“The Cold Stones and the like have to take business from competitors or increase the frequency of customer visits,” Mr. Balzar said.

Demand was arguably high as several people waited in line on a recent weekday afternoon at a Marble Slab Creamery in Houston. “I was on my way home from jury duty and figured I’d use the $6 they paid me to buy an ice cream,” said Lee Beauchamp, a petroleum marketer, who was enjoying a double dip of dark chocolate coconut and birthday-cake-flavor ice cream.

But Howard Waxman, editor of The Ice Cream Reporter, an industry newsletter, questioned how much of an appetite there is for expensive customized ice cream. “People often have very personal or psychological associations with ice cream,” Mr. Waxman said. “They’ll try something new but they tend to go back to the kind of ice cream they grew up eating.”

That is the way it was for Tony Green, a management consultant in Chicago, who tried Cold Stone and Marble Slab once or twice because he said his two children “are all about mixing as much candy into their ice cream as possible.” Even so, the family favorite is still an independent, old-fashioned ice cream parlor called Margie’s Candies that they have gone to for years. “It’s a throw-back nostalgia kind of place,” Mr. Green said.

Such loyalties and perhaps market saturation might explain why sales at Cold Stone stores open for more than a year were down for the first time last year, by 6.6 percent, and are down 7 percent so far this year. Including revenue from newly opened stores, the company expects sales to reach $465 million this year, up 46 percent from last year. Mindful of the decline in sales at existing stores, Mr. Ducey said Cold Stone would slow its expansion. “We first wanted to secure premier locations and build awareness and now we are going to focus on the amount of product sold,” he said.

Marble Slab, which has pursued a more measured growth strategy, estimates this year’s sales will be $90 million, up from $75 million last year, with sales at stores open for more than a year increasing 3 percent.

“Our primary focus has always been on trying to offer the highest-quality product — we only open new stores when it makes sense,” said Ronald Hankamer, Marble Slab’s president and chief executive.

MaggieMoo’s projects $50 million in sales this year, up from $43 million last year. The company would not release sales at stores open for more than a year. It has dropped to 416 from 169 in 2004 on Entrepreneur Magazine’s ranking of the top 500 franchise opportunities. Cold Stone and Marble Slab have climbed in the 2006 rankings, to 24 and 297, respectively. MaggieMoo’s closed six underperforming stores in Bangkok this year and canceled plans for further overseas expansion.

Still, the three chains are hardly hurting for franchisees. Cold Stone, for example, received 25,000 applications last year.

“A lot of people want to get into the business because it sounds like fun,” said Mr. Waxman of The Ice Cream Reporter. And it is relatively inexpensive to buy in, with $200,000 to $450,000 in upfront costs and fees plus 6 percent royalties on sales. By contrast, purchasing a McDonald’s franchise requires a $506,000 to $1.6 million initial investment plus a minimum of 12.5 percent royalties on sales.

The majority of franchisees at Cold Stone, Marble Slab and MaggieMoo’s own more than one location and as many as 11. “It’s how you create economies of scale so you can increase your margins,” said Rudy Puig, who owns three Cold Stone stores in Miami, and plans to buy another next year.

But he said the real reason he was in the ice cream business is “my kids used to cry if we didn’t stop for ice cream.” Now that is not a problem.