Why Everyone Is Rushing To Open Frozen Yogurt Stores

Business Insider

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If you think that nearly every frozen yogurt store in the U.S. is the same, you're not imagining it — small stores and large chains alike all get their ingredients from the same few manufacturers, according to The Wall Street Journal.

Fro-yo stores have been popping up all over New York for the past several years, and the trend seems to be expanding, with big brands like Ben & Jerry's now selling a variety of fro-yo by the pint in grocery stores.

There are several fro-yo chains in New York — including 16 Handles, Off the Wall, and Red Mango — and they all seem to follow a very similar formula. 

They get their fro-yo mix from a handful of manufacturers (with the exception of Pinkberry, which has its own proprietary recipe for its yogurt and develops each flavor individually), many of the shops are self-serve, they offer a variety of toppings, and they have a similar look, which The Journal refers to as "Tokyo preschool lounge" — bright, neon colors and curvy, plastic furniture.  Many frozen yogurt chains are nearly indistinguishable from one another. 

And the reason why so many fro-yo shops are opening up is because they are an attractive investment and the stores usually have good profit margins.

There is a staggeringly high markup on the treats — CBS New York points out that yogurt selling for 59 cents an ounce costs less than a dime to produce. There's a 500% markup on a 10-ounce serving even when you factor in the expense of cups and spoons.

CBS notes that high rents on stores —  $10,000 a month for a Red Mango franchise on Long Island — drive down profit margins, but Anne Kadet at The Journal says that in a city like New York, which has a very high population density, it's not hard to sell enough yogurt to generate revenue even after paying rent and other expenses.

On top of that, the labor costs are low because many of the shops in these chains are self-serve. Many frozen yogurt stores are manned only by a handful of employees working at the cash register.  All nine 16 Handles stores in Manhattan generated more than $1 million in revenue last year, according to  The Journal.

But there is at least one fro-yo chain looking to distinguish itself from the competition. New Jersey-based fro-yo chain Cups is being called "the Hooters of fro-yo" because of its suggestive theme and attractive staff.



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