Will Pinkberry Stop Offering Franchises?
October 17, 2007 by Sean Kelly
Filed under Business
(FranchisePick.Com) Now that Starbucks Corp. Chairman Howard Schultz’ venture capital firm Maveron has invested $27.5 million into trendy franchise chain Pinkberry, and Schultz has joined the board, will Pinkberry cease franchising?
FranchisePick.Com predicts it will.
Pinkberry, the trendy and popular frozen dessert chain, was founded in early 2005 by two South Korean immigrants Young Lee and Hyekyung “Shelly” Hwang in a 600-square-foot space, a former garage, in West Hollywood. The tart, low-calorie no-gurt has created one more celebrity addiction (Paris Hilton reportedly requested a green tea Pinkberry from jail), and a slew of me-too fellow pushers with knock-off names like Kiwiberri, Roseberry and Berri Good.
Read these related stories:
Pinkberry Gets $27.5 Million Infusion from Starbucks Founder
What are the reasons Pinkberry is likely to discontinue franchising?
All but three of the 33 Pinkberry stores are owned by franchisees but, in our opinion, it’s likely that Pinkberry will continue franchised expansion domestically. Why?
#1: Franchising is difficult
The first reason is that franchise headaches, in part, led the Pinkberry founders to seek outside capital in the first place. In a recent LA Times article, Lee stated that the complexity of managing franchised growth was overwhelmed him. “‘I have my limits as a multitasking person,’ Lee said. ‘The leasing situations, dealing with franchising — it met my limit.’”
#2: They don’t need the capital
According to Howard Schultz, “I always viewed franchising as a way to get access to capital, because you’re using other people’s money to grow, essentially.” With a cash infusion of $27.5 million, Pinkberry now has access to plenty of OPM – including Schultz’s.
#3: Schultz likes control in the shop
Schultz has stated that the decision NOT to franchise Starbucks was a factor in its success: ”One reason we’ve been able to exert an unusual amount of control over our products is because we never franchised.”
Schultz believes it’s more difficult for franchise companies to communicate the benefits of a premium product to customers. ”…That requires an educated staff.” Schultz has stated. “It would have been hard to provide the level of sensitivity to customers and knowledge of the product needed to create those Starbucks values if we franchised.”
#4: Schultz likes control in the marketplace
Schultz has also stated that company-owned retailers can react more quickly: “[As a company-owned business,] you can read the marketplace and turn on a dime… But if you’re a franchised company, it’s hard to make quick adjustments because there’s an extra level of people in the business [the franchisees] that you have to basically pass all the decisions through. And that can make these kinds of transitions harder.”
#5: Schultz likes control over distribution & revenue streams
Schultz also believes franchising impairs a company’s ability to seize new opportunities and profit centers. “We’ve created a major new revenue source recently by selling bags of Starbucks coffee, bottled Starbucks coffee drinks and Starbucks ice cream in supermarkets,” Schultz has said. “But imagine if we were a franchise. It would be difficult to sell products in supermarkets because most franchisees probably would see that as competition and not like it.”
Schultz has a point: Starbucks’ franchised competitor Dunkin’ Donuts had to face outraged franchisees 
earlier this year when it announced its plans to mass-market Dunkin’ Donuts packaged coffee at thousands of supermarkets and big-box retailers nationwide. While the increased brand exposure may actually help increase sales at franchised shops, franchisees generally see any alternative distribution as additional competition.
Without a doubt, Pinkberry chose Maveron over other other venture capital firms because of Schultz’s extensive experience and track record of success growing Starbucks - a non-franchised success story. It’s unlikely he’ll abandon the strategy that transformed Starbucks from a single coffee shop into an international brand valued at $3.6 billion.
photo: newsbiscuit
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Excellent points, Sean. One other point I think needs mentioning: the franchisor doesn’t believe that individual operators know more or can contribute more to the growth of the network.
Michael… I get that impression, too.
I am still amazed (dumbfounded?) at them paying $27.5 million and not even getting the majority stake. What did they buy? They’ve been in business 2 years… The stores are franchised, so I’d assume there are no tangible assets. I’d assume they think the PinkBerry name and celebrity buzz, wedded with the Starbucks credibility, will make for a well-hyped IPO and story stock.
Remember the Gary Larson cartoon where the horrified cow looks up from the meadow and calls out to his bovine buddies: “GRASS! This stuff we’ve been eating is Grass!” I just hope the Maveron investors don’t have a similar epiphany: “FROZEN YOGURT! We just spent $27 Million on FROZEN YOGURT!!!”
I think that you are right: IPO here we come. They will have to turn on a dime with frozen yogurt. Maybe Coldstone will be a major player in the IPO!
hope pinkberry will give the chance who are interested to franchise..thanks