The business of selling super-premium ice cream is at a crossroads. So MaggieMoo's International LLC summoned potential franchisees to its Columbia headquarters last month to reenergize a brand it hopes to expand to 1,000 locations by 2009.
The product: 40 flavors of high-butterfat ice cream that can be rolled out on granite slabs and mixed to order with crushed candy, nuts and fruit. The target audience: families with children to indulge and money to spend. The goal: Snatch prime real estate quickly and build stores that will reach those families before the competition does.
Hence the urgent need for more franchisees, who offer a quick way for a company to expand nationally without investing too much of its own money in the process.
But MaggieMoo's 141 "treateries," as its retail outlets are called, are up against two equally ambitious -- and nearly identical -- franchised rivals. Cold Stone Creamery, based in Arizona, has 848 stores. Marble Slab Creamery, based in Texas, has 421 stores. They differ from MaggieMoo's mostly in decor and atmosphere, analysts said.
Malcolm Stogo, an ice cream industry consultant based in Riverdale, N.Y., predicts one of the chains most likely will be acquired by another in the near future.
"There's just not enough room for all three to coexist," Stogo said. "There are probably only 1,000 good locations left, and whoever gets them will be the winner."
"Good" means locations in food courts or spaces that are easy to spot from the street, areas with high volumes of slow-moving traffic and easy access to parking. MaggieMoo's is competing for these prized spots not only with its look-alike cousins, but with a whole range of ice cream retailers: Ben & Jerry's, Haagen-Dazs, Baskin Robbins, Dairy Queen and Carvel.
MaggieMoo's specialty, though, is at the heart of the $13 billion ice cream shop industry's strongest sector. Although sales at some of the largest ice cream retailers, such as Baskin Robbins and Dairy Queen, were flat last year, premium stores such as MaggieMoo's were growing, said Dennis Lombardi, executive vice president of Technomic Inc., a food service consulting firm in Chicago.
Though MaggieMoo's, a private firm, has not turned a profit since it was purchased by a group of investors in 1996 from a Kansas City, Mo., couple, its revenue has doubled every two years since 2000 and should reach $30 million by year's end, a MaggieMoo's executive said. Lombardi said that even though consumers might be health-obsessed these days, when they want to indulge themselves, they're looking for the kind of upper-end experience that MaggieMoo's and its mix-in-front-of-you rivals aim to provide.
"You'll probably see growth in the [premium ice cream] area because it's an evolving niche," Lombardi said. "The real questions becomes: How big does it get and at what point will it be saturated?"
There's a sizable customer base out there. About 37 percent of Americans eat ice cream at least once in a two-week period, making it one of America's most popular desserts, second only to fruit, said Harry Balzer, vice president of NPD Group, a research firm in Port Washington, N.Y.
But the customer base hasn't grown in a decade, placing tremendous pressure on all ice cream makers and retailers, especially those that charge high prices, Balzer said.
"Premium ice cream has captured a lot of buzz," Balzer said. "But we saw similar buzz around TCBY [frozen yogurt] 15 years ago, and it never sustained its growth." He said success for the mix-in ice cream sellers will depend on their ability to attract repeat customers.
Jonathan R. Jameson, the company's president and chief executive, said his chain will keep them coming back through innovation.
That's why MaggieMoo's outlet at the Mall in Columbia, under renovation for about a week, will serve as a test store for new products and marketing strategies starting tomorrow, he said.
"We've talked to a lot of people who don't realize we make fresh ice cream daily," said Jameson, who joined MaggieMoo's in December from Panera Bread, where he was a senior vice president and chief brand officer.
At the mall store, "we're going to bring ice cream and cake production out into a room right in the mall so that people can see ice cream being made and cakes being decorated," Jameson said.
After tweaking the concept a bit, the company will offer the idea to franchisees. "It will be up to them whether to accept it," he said.
The company will keep a sharp eye on its franchisees through "mystery shoppers" who report back to company headquarters about their experiences and unannounced visits by officials to the stores.
"We have dropped franchisees in the past," Jameson said. "Over the last 10 months, we have shut down three units that don't meet company standards." None were in the Washington area, he said.
As for the competition, Jameson said MaggieMoo's and Cold Stone Creamery, its only national mix-in rival in the Washington region, chase different customers. MaggieMoo's is a more kid-friendly operation, featuring the MaggieMoo cow mascot incorporated in the company logo and bright, colorful displays in the stores. Cold Stone Creamery has a more subdued decor and caters to women ages 18 to 35, its core demographic.
"There's plenty of market out there for everybody," Jameson said. "Competition does not scare us. We don't shy away from good real estate because research shows we don't have to."
For instance, the company's internal research found there's room to grow in the Washington region, where it already has almost a dozen stores and plans for 18 more in the next year or so.
Howard County can sustain another three to four stores in addition to its mall outlet, the company said. It believes it can get another 12 stores in Fairfax County, 10 in Montgomery County, six in Prince George's County and five in Anne Arundel County, based on population and demographics.
MaggieMoo's is not relying on new locations alone. It also is converting some existing ice cream shops into MaggieMoo outlets, Jameson said.
Maggie Moo's started as a mom-and-pop operation out of Kansas City, Mo. It was run by a couple who eventually opened about a dozen stores. In 1996, Maryland businessman Richard Sharoff, former president of Vie de France, and a group of investors bought Maggie Moo's and moved its headquarters to Columbia.
The goal was to expand MaggieMoo's nationally, but the chain grew slowly. Sharoff needed an infusion of capital in 2001 and called on his cousin, Stuart Olsten, former chairman of Olsten Corp., a public multi-billion dollar staffing services company. The duo formed a venture capital firm that acquired controlling interest in MaggieMoo's.
Sharoff left the company in July 2003 after a falling out with the board of directors about the company's strategy. His departure "was a mutual decision made between the board and Mr. Sharoff," Jameson said.
But Sharoff wrote a letter to franchisees that triggered a legal battle between him and the company he helped found. MaggieMoo executives responded with their own letter to Sharoff in October 2003, accusing him of breaching his severance agreement by revealing confidential information in his letter to franchisees and soliciting former franchisees for his next business venture. Because of that, MaggieMoo's said, it would withhold $25,000 of the $100,000 severance payment due to Sharoff.
In December, Sharoff sued MaggieMoo's and three of its board members, including Olsten, in U.S. District Court in Baltimore. The allegations included breach of contract and fraudulent inducement to contract.
The lawsuit was settled in March 2004, Sharoff's lawyer said.
"It's behind us now," Jameson said. "We always stayed true to our first and utmost goal, to make sure we were properly positioning this company."
Staff researcher Richard Drezen contributed to this report.