Top 250 Franchise by Entrepreneur – Rank no.53 – Cold Stone Creamery – US
Products & Services: Ice cream, sorbet
Number of Locations: 1,455
Total Investment: $286.07K – 474.32K
Began Franchising: 1994
About Cold Stone Creamery
Donald and Susan Sutherland opened the first Cold Stone Creamery in 1988 in Tempe, Arizona. Franchising began in 1994, and the company is now owned by Kahala, which also franchises Blimpie, Surf City Squeeze, TacoTime and other concepts. Each Cold Stone store makes its ice cream fresh daily, and the ice cream is blended by hand with fruits, nuts, candy, cookies and more according to customers’ requests.
Startup Costs, Ongoing Fees and Financing
Franchise Fee: $42,000
Ongoing Royalty Fee: 6%
Term of Franchise Agreement: 10 years, renewable
Liquid Cash Available: $125,000
53% of all franchisees own more than one unit. Number of employees needed to run franchised unit: 10 – 15. Absentee ownership of franchise is NOT allowed. (100% of current franchisees are owner/operators).
|FINANCING TYPE||IN-HOUSE||THIRD PARTY|
How This Franchise Supports Franchisees
Franchise Ranking History
|Type||Wholly owned subsidiary|
|Industry||Ice cream parlor|
|Founded||Tempe, Arizona (1988)|
|Founder(s)||Susan and Donald Sutherland|
|Headquarters||Scottsdale, Arizona, US|
|Number of locations||1100 (2011)|
Cold Stone Creamery is an American-based ice cream parlor chain. Based in Scottsdale, Arizona, the company is owned and operated by Kahala, L.L.C. The company’s main product is premium ice cream, or ice cream made with approximately 12–14%butterfat, that is made on location and customized to order for customers at the time of purchase. Cold Stone has also expanded its menu with other ice cream related products such as ice cream cakes, pies, cookie sandwiches, smoothies, shakes and iced & blended coffee.
Since 2008, the company has been co-branding its locations with other chains in an attempt to increase its presence outside the United States and open up its business model from the traditional summertime season to a more year-round one.
The company was co-founded in 1988 by Susan and Donald Sutherland, who sought ice cream that was neither hard-packed nor soft-serve. Publicity materials describe it as “smooth and creamy super-premium ice cream." Cold Stone Creamery opened its first store that year in Tempe, Arizona. The original Cold Stone Creamery, store #0001, is still in operation today at the original location in Tempe.
The company’s business model is the same as the one originally created by Steve’s Ice Cream‘s founder Steve Herrell. The company uses in-store made ice cream that is combined with mix-ins, candy or other items that is folded into the ice cream to make a new flavor. Cold Stone’s name comes from the frozen granite stone, used to mix “mix-ins": candy, nuts, or other edibles into various flavors of ice cream.
In 1995, Cold Stone Creamery opened its first franchise store in Tucson, soon followed by a store in Camarillo, California, its first out of state. Almost 1,400 franchises are in operation. Cold Stone Creamery is now the sixth bestselling brand of ice cream in the US and operates stores in Japan, Taiwan, South Korea, Thailand, Brazil Puerto Rico, Indonesia, Guam, China, Mexico, Bahrain,United Arab Emirates, Saudi Arabia, Trinidad, Trinidad and Tobago, Qatar, Nigeria, Kuwait, and Philippines. Cold Stone opened their first franchise in Europe in 2008 in Copenhagen, Denmark. Three more shops were later opened in other parts of the country. The company was also named the 11th fastest-growing franchise by Entrepreneur magazine in January 2006. In June 2009 the company opened its first location in Canada, in Mississauga, Ontario. Two stores opened in Singapore in 2011 and a third one is opening in 2012.
In May 2007, Cold Stone Creamery merged with Kahala Corp to form the company Kahala-Cold Stone, which collectively owns 13 brands. Doug Ducey, former president and CEO of Cold Stone Creamery, was named CEO of the new company. Kevin Blackwell, the former CEO of Kahala, became chairman of the board and chief strategist. In September 2007, Ducey announced he was leaving the company. Blackwell was named CEO.
The parent company of Cold Stone Creamery, Kahala, announced in February 2009 that it had reached an agreement withCanadian coffee shop chain Tim Hortons to open up to 100 co-branded stores in the United States after successfully testing two locations in Rhode Island. The strategic alliance will allow Tim Hortons to operate in more US locations while allowing Cold Stone Creamery to expand into Canada. The most notable co-branded store opened in August 2009 when Tim Hortons moved into three Cold Stone Creamery locations in New York City, including its flagship Times Square location.
In June 2009, Cold Stone Creamery started testing the Canadian market by opening seven co-branded locations with Tim Hortons located in Toronto, Oakville, Mississauga, Hamilton, Pickering, Sudbury, and Halifax, Nova Scotia. They now have locations in every Canadian province except for Newfoundland and Labrador.
The Tim Hortons venture follows on the footsteps of a similar co-branding efforts in 2007 and 2008. Cold Stone franchisees in New York City began partnering with Soup Kitchen International to sell soup in their stores beginning in late-2007. In 2008, the company signed an agreement with the Rocky Mountain Chocolate Factory to open seven locations in the Western US. The venture is designed to bring in customers on a year round basis as opposed to the seasonal draws that each company experiences. The mingling of Cold Stone and Rocky Mountain led to more than 10% increase in weekly sales in Rocky Mountain stores after co-branding.
All ice cream creations are offered in four sizes: Kid’s size (3 oz (85 g)), “Like It" (5 oz (140 g)), “Love It" (8 oz (230 g)), and “Gotta Have It" (12 oz (340 g)). Also offered are milkshakes and smoothies, among them the Cold Stone PB&C; its large size was designated by Men’s Health Magazine as the most unhealthy drink in the USA for two consecutive years. The drink has 2,010 calories, 131 grams of fat with 68 grams saturated fat, and 153 grams of sugar.
All ice cream is made in house using natural ingredients and waffle cones and bowls are baked daily. Cold Stone also offers chocolate-dipped waffle bowls. The company also has a line of ice cream cakes and pies. Ice cream cupcakes and ice cream cookie sandwiches are also available, most of which are made on-site. Stores also offer the option of customizing these frozen desserts much like their ice cream creations. Most recently, Cold Stone Creamery has come out with various desserts ranging anywhere from hot brownies to warm churros.
Cold Stone has entered into partnerships with other companies to promote brand name products inside its stores. The first major partnership the company entered into was withKraft Foods for its Jell-O brand in 2009. Cold Stone introduced a series of flavors of ice cream based on popular Jell-O pudding flavors; Chocolate, Butterscotch, Banana, and Vanilla. Because the pudding additives cause the ice cream to gel, it was recently noted that these flavors do not melt.
In the spirit of joviality and to encourage customers to give tips, Cold Stone instructs employees to sing a special song related to the company, usually to the tune of recognizable melodies such as “Take Me Out to the Ball Game“, “I’ve Been Working on the Railroad“, or “Bingo“, when a customer places money in the tip jar. Lyrics include short, catchy phrases such as, “This is our Cold Stone song, it is not very long."
There have been allegations by independent franchises that Cold Stone’s business practices have put them at a competitive disadvantage. These former franchises claim that the parent company opens locations too close to each other, requires expensive remodeling and overstates potential revenues and income. Other franchises have contended that is not the case and that they are experiencing growth amid financial uncertainties and higher costs associated with fuel and energy prices.
In June 2008, the Wall Street Journal examined the issue. The article stated that a large number of locations, approximately 16–20%, of Cold Stone Creamery franchises have closed or were put up for sale by their owners, many of whom had suffered significant financial losses due to their investment. The article included claims by franchisees that the company had misrepresented the average revenues of Cold Stone stores and acted in ways that reduced stores’ profit margins. A company spokeswoman said that the number of stores for sale was “at par with industry expectations" in light of “the economically challenging times."
CNBC documentary and lawsuit
Behind the Counter: The Untold Story of Franchising reported on the failures and successes of franchising. After several edits the program was broadcast on CNBC on March 21, 2011. Brands such as Dunkin’ Donuts and Five Guys were highlighted as successful franchise brands. Cold Stone Creamery’s executives and corporate lawyers were interviewed. The lawsuit was discussed with former franchisees and the litigation threats with CNBC. An apparently successful Cold Stone franchise was also featured.
While the company was originally headquartered in Tempe, in 1997 the company moved its headquarters to Scottsdale, Arizona. In July 2005 Cold Stone moved into its current headquarters. The two story building has classroom space, a product development laboratory kitchen, and a training store.