Tcby Enterprises Inc. Business Information, Profile, and History

History of Tcby Enterprises Inc.

TCBY Enterprises Inc. is the first national frozen yogurt store chain. Borrowing a formula from the fast food industry, it has used franchising as a tool for explosive growth. Although some observers felt frozen yogurt to be merely a health food fad, TCBY's endurance, the proliferation of imitators, and the appearance of frozen yogurt in established ice cream chains like Baskin-Robbins have proven the wisdom of the company's concept. TCBY is the largest company of its kind, operating nearly 2,800 locations in 29 countries.

Finding the Right Idea for the 1980s

Frank Hickingbotham was born in McGehee, a small town in southeastern Arkansas, in October 1936. After attending college in nearby Monticello (concurrently serving as a Baptist lay minister in rural communities), he held various jobs, including junior high school teacher and principal of his hometown high school. He began selling insurance, eventually leaving the high school, then entered the restaurant business through Quality Enterprises, a group he had formed with some associates. During the 1970s, he bought a string of AQ Chicken restaurants and dabbled in other food service businesses, including two trucking companies and a frozen pie shell company. He bought Dallas-based cake mix maker Old Tyme Foods Company in 1979.

Already an experienced entrepreneur, Hickingbotham was looking for ways to fill up his time after selling Old Tyme Foods in 1981. It was at a Dallas Neiman-Marcus department store that he discovered frozen yogurt. According to his wife, Georgia, it was the best she had ever tasted. He concurred, uttering, according to company legend, what was to become the company's name: "This can't be yogurt!" What made the product unique was that it had no aftertaste, and it was this very product that Hickingbotham was to sell at TCBY: he used the same supplier as Neiman-Marcus, Arthur's Ice Cream Specialties, Inc., and TCBY bought it for $2.6 million at the end of 1983 (whereupon its name changed to Arthur's Foods, Inc.).

Hickingbotham opened the first frozen yogurt restaurant in Little Rock, Arkansas, in 1981. His son Herren, who was aiming for a career in securities sales, served as manager of the first store. Hickingbotham tapped his brother-in-law, Walt Winters, to run the second one, which opened quickly thereafter. The third store was managed by his youngest son, Todd. The franchise's first full year of business was 1982, in which $1.8 million in sales was achieved. After more than doubling the next year to $5.2 million, annual sales nearly doubled for the next few years, reaching $70 million in 1986.

Hickingbotham cleaned up frozen yogurt's bohemian image, which had previously been marketed typically in the countercultural surroundings typical of the fringe of university campuses. Hickingbotham gave the product a mainstream image that would sell in middle America. The stores, housed mostly in strip malls, were decorated in green and beige and outfitted with real or fake plants, all designed to appeal to the product's core audience of 18-to-49 year-old women.

Hickingbotham originally called his store This Can't Be Yogurt, emphasizing the product's utility as an ice cream substitute. However, competitor I Can't Believe It's Yogurt, Inc. sued him over the similarities with its own name, and Hickingbotham was forced to pay $775,000 and change the name to The Country's Best Yogurt, salvaging, at least, the initials. (In France, the brand is known as "Tous Ces Bons Yogourts.") As part of the settlement, TCBY bought three I Can't Believe It's Yogurt stores in the Houston area.

A Mid-1980s Initial Public Offering

TCBY went public on the National Market System exchange in May 1984. It then bought its supplier, Arthur's Foods (later known as Americana Foods) with the resulting capital. It organized itself into divisions. Administrative employees doubled to 32, and a computerized accounting system was installed.

TCBY began building company-owned stores in Orange County, California, in order to fuel franchise development on the West Coast. The waffle cone made its debut in October 1984. Belgian waffles and crepes were also made in each store to accompany the frozen yogurt. During 1984, the number of stores increased from 41 to 102. Arkansas, Georgia, and Florida were hot spots for franchises. Sales and franchise revenues leaped from $2.3 million to $7.4 million, and net income increased more than fivefold to just over $1 million.

In the spring of 1985, TCBY had 118 stores. By the end of the year it had 242 (17 company-owned), and annual sales had more than doubled to $17.1 million; net income tripled. Its manufacturing subsidiary, now known as Americana Foods, Inc., began construction on a new $5 million plant in Dallas. Martin-Brower, best known for distributing McDonald's products, became TCBY's distributor (ProSource Distribution Services acquired this business from Martin-Brower in 1995). A new headquarters building in Little Rock and a corporate jet were purchased. The company's stock was one of the very hottest in the United States in terms of appreciation. In addition, TCBY reported more than 500 franchising inquiries per week.

In 1986, TCBY enlisted diminutive Hollywood veteran Mickey Rooney to pitch its products on television. "All of the pleasure, none of the guilt" was the company's catch phrase, hammering home the low fat content of its frozen yogurt in comparison to ice cream. (By definition, ice cream contained at least 10 percent fat--20 percent in the case of premium varieties, while TCBY's yogurt only had four percent.) "Say good-bye to ice cream" was another theme of its television advertising. By 1987, 500 TCBY shops populated nearly every state. Finding the field open, Hickingbotham had been able to expand his chain with very little competition.

The End of the 1980s

The year 1989 was an important one, and the last good one for five years. The company had 1,582 stores, and earnings and share value ($28 a share) had continued to rise. In 1990, no new franchises were opened in the first year of a period of consolidation that lasted two more years. Competing frozen yogurt chains, like Freshens and Columbo proliferated, and ice cream giant Baskin-Robbins added frozen yogurt to its own repertoire.

Some angry franchisees and investors, upset by falling profits and perceived corporate apathy, brought lawsuits against the company. Although a judge characterized one such suit as "tenuous," they highlighted franchisee distress. According to Restaurant Business, the real cause for falling profits across the industry was the huge increase in the number of players, combined with a global recession. On the whole, frozen yogurt consumption had actually gone up. TCBY continued to lead the frozen yogurt segment in 1992, with a market share of about 45 percent, and ranked behind Dairy Queen, Friendly, and Baskin-Robbins among dairy dessert chains.

In 1992, TCBY hired Charles Cocotas and Thomas Tipps to help reverse its fall. The former, whose prior experience included time as president and chief operating officer at the successful Boston Chicken chain, served as a friendly, straightforward liaison between the company and franchisees as president of TCBY Systems, Inc., Tipps led Americana Foods.

New Venues for the Turn of the Century

The company's international phase had begun in 1986, with the creation of TCBY International. About the same time as Tipps and Cocotas were hired in 1992, this division was made more important, and Hartsell Wingfield was brought in to lead it. With franchisees concerned about oversaturation at home, most of the company's growth came from abroad. In spite of initial worries about the Middle East, a region with a long history with yogurt, the formula stayed the same universally. In China, the product took on the poetic name "angel ice king" in order to avoid the connotations of the Chinese translation of "yogurt": sour milk. The company has formed many international partnerships to accommodate its international operations. Master franchisee for China, Hong Kong, and Macao was Top Green International, a veteran import-export firm whose owners came from both sides of the Pacific.

Although national name recognition of the TCBY brand peaked at 74 percent in 1995, declining grocery store distribution, the sale of the company's refrigerated yogurt business, and store closings depressed sales and franchising revenues from $152.47 million in 1994 to $121.57 million, and the company lost money. (Fortunately, this trend was reversed in 1996.) TCBY decided to sell most of its 42 company-owned stores by May 1996, as well as its Fresno, California-based specialty vehicle manufacturer, Carlin Manufacturing, Inc.

The company continued exploring new marketing avenues, particularly nontraditional locations including airports, convenience stores, and restaurant chains, mostly fast food. Such high-volume locations as hospitals and airports were most highly prized. A&W Restaurants, Wall Street Restaurants, and CITGO convenience stores developed bundled units with TCBY in 1996, following the lead of Burger King and other established chains. 7-11 Stores in Hong Kong also began carrying TCBY products. Hotel operator Marriott was the largest operator of such locations. An earlier cooperative agreement to bring Mrs. Fields cookies into TCBY stores failed as volumes did not justify the increased equipment costs of about $8,000.

More than 40 percent of U.S. stores embraced the widely promoted TCBY Treats concept, which brought additional products including hand-dipped frozen yogurt, ice cream, and Paradise Ice brand shaved ice into the stores. These new offerings were accompanied by a change in color scheme from green to burgundy and new interior fixtures. In the mid-1990s, TCBY had also tested a low calorie lunch menu known as Sensible Temptations, but, like the Mrs. Fields experiment, high start-up costs made many franchisees reluctant to try it. Sara Lee and Ultra Slim-Fast products were also tested.

Americana Foods made yogurt for private labels as well as TCBY's own novelty items (frozen yogurt bars and sandwiches) and hardpack products for grocery store sales. With help from the Mid-America Dairymen cooperative, TCBY also began marketing refrigerated TCBY Traditional Style Yogurt. Sales of grocery items did not appear to benefit from the brand name as well as expected. The marketing rights for this line were sold to Mid-America Dairymen in 1995.

TCBY's spirits in 1995 prompted some takeover rumors by analysts who said the company's days as a fast-growing start-up in a wide-open field were over. However, such strengths as its strong financial position, good distribution system, and high brand recognition, suggest an auspicious future.

Principal Subsidiaries: American Best Care, Inc.; Riverport Equipment and Distribution Company; AIMCO; TCBY Systems, Inc.; TCBY International; TCBY Specialty Products; Americana Foods Limited Partnership.

Principal Divisions: Franchise Services; Franchise Development; Operations; Finance; Administration.