Carvel Corporation Business Information, Profile, and History

Company Perspectives:

Our Mission: Working together, we will make Carvel the leading choice for unique frozen desserts, by consistently exceeding customer expectations. Our Values: 1) Do the right thing; 2) Do everything to the best of your ability; 3) Treat others the way you like to be treated.

History of Carvel Corporation

Carvel Corporation is a wholesaler and retailer of frozen desserts, as well as a franchisor of frozen dessert outlets. Carvel ice-cream and other frozen desserts are available in over 5,000 locations worldwide, including franchise stores, supermarkets, stadiums, and mall kiosks. In addition to producing and selling soft-serve ice cream, Carvel is the largest branded retailer of ice-cream cakes in the world. Carvel products are available in 12 eastern-seaboard states, Puerto Rico, Canada, and Vietnam.

Soft-Serve Ice-Cream Pioneer: 1934-56

Born in Greece (with the surname of Carvelas) and reared, with six brothers and sisters, on a farm in Connecticut, Tom Carvel tried his hand as an auto mechanic and a jazz drummer before becoming a door-to-door salesman of radios in New York City, a job he did not necessarily enjoy very much. He did enjoy taking drives in the country with his girlfriend, Agnes, and they both enjoyed stopping for ice-cream. This simple pleasure was eventually parlayed into a business. One summer day in 1934, Carvel and Agnes loaded an ice-cream freezer stocked with ice cream confections onto a home-built trailer and drove north. Stopped by a flat tire in suburban Hartsdale, New York, the two set up shop in a vacant lot and quickly sold their stock. Soon Carvel began spending his summers at a small, rented store in the Hartsdale area, selling ice-cream. Carvel and Agnes were soon married, and they continued this part-time business for five years.

Tom Carvel was mechanically inclined, and during this time he plowed back the earnings to develop an electric freezer that would produce 'soft' ice cream of a custard-like consistency. In 1936 he developed a secret ice-cream formula and patented a no-air-pump, super-low-temperature ice-cream machine; this would mark the first of his 14 patents. By 1939 Carvel had built five such machines and was supervising three ice-cream stores. Soft ice cream was also being developed by the founder of Dairy Queen during this time. The confection, frozen at a higher temperature than conventional ice-cream, contained less air, and could be drawn from a spout into cone or cup.

During World War II Carvel found a receptive audience when he placed 14 of his patented machines in military-post exchanges (PXs). By 1946 there were 50 machines in operation, but operators had fallen so far behind on their royalty payments that he had to reorganize the business. Carvel then founded two companies and sold 49 percent of the stock to employees and friends for $100,000. One was Carvel Corp., charged with making and selling freezers, while the other was Carvel Dari-Freeze Stores, Inc., whose function was to run a franchise operation. Beginning in 1947, Carvel developed a chain of stores, with Carvel Dari-Freeze selecting and leasing the sites, training the franchisees, and helping to finance them, while Carvel Corp. sold them the freezers and flavorings. The 100th store opened in 1951, and by the end of the following year there were some 200 Carvel stores, grossing nearly $3 million for the two companies, with operating income coming to $538,000.

The freezers and flavorings provided most of the revenue for the Yonkers, New York-based Carvel organization, but the enterprise also charged between ten and 25 cents on each gallon of mix for the two million gallons of ice cream sold in 1952. The company also usually required licensees to buy the freestanding stores as well. Carvel had introduced a unique store model, a building with a glass-and-metal facade that inclined forward slightly and a roof that tilted upward toward the street. On sites chosen by 'location engineers,' these outlets--brightly lit at night--were designed for high visibility, preferably adjacent to secondary highways where the traffic moved neither too fast or too slow, in an area of sufficient residents for a critical mass of everyday customers. By 1956 there were more than 500 Carvel stores, most of them in the East and at least half open year-round. What Tom Carvel called 'the world's first ice-cream supermarket' opened that year in Hartsdale, offering more than 200 items, including 53 flavors of soft ice cream.

Frozen-Dessert Empire: 1956-89

Carvel was now one of the Big Three of soft-serve ice cream, the others being Dairy Queen and Tastee Freez. Carvel franchisees paid more for their businesses than the other two--at least $25,000 in 1956, of which about $10,000 to $12,000 was in cash and the rest financed by the Carvel organization. Carvel claimed that no franchised store had ever failed, but some of its operators chafed at a system that not only required them to pay a high initiation fee but also to purchase the product mix from a limited number of authorized dairies and a variety of other commissary items from Carvel itself. A group of franchisees took the company to court in 1959, charging Carvel with acting in violation of federal antitrust laws.

Carvel Corporation was vindicated after a long and bitter struggle. In 1965 the U.S. Supreme Court rejected the franchisees' appeal of a lower-court decision, and a year later the corporation and affiliated defendants were awarded damages of $10.53 million against four plaintiffs. Also in 1965, the Federal Trade Commission dismissed a complaint against the company filed by a hearing examiner. Carvel's lawyers successfully argued that the enterprise had to restrict its sources of supply in order to protect the secrecy of its formula and also to ensure the uniformity and quality of the end product sold to the consumer under the Carvel name.

Tom Carvel later maintained that every franchise contract in the world contained language devised by himself, and while this claim may have been exaggerated, Bill Carlino of Nation's Restaurant News credited him in 1990 with setting 'legal precedent in mandating uniform standards for corporate identity, product specifications and distribution.' During this period, however, Carvel lost 70 percent of its franchisees, forcing the company to operate its own stores. Consequently, the company went public in 1969, raising $2.45 million by selling a minority of its stock at $11 a share.

Carvel raised its revenues from $9.09 million in 1967 to $16.4 million in 1969; net income rose from $161,788 to $610,267 during this period. The period was characterized by rapid national expansion. By 1971 there were again more than 500 Carvel Ice Cream outlets, in nine Eastern states ranging as far north as Vermont and as far south as Florida, as well as in Illinois. Outlets also opened in Ohio and Virginia in 1971, plus a new Carvel Ice Cream Supermarket, in Chula Vista, California. In addition to soft ice cream, most Carvel stores were offering 36 flavors of hard ice cream and more than 60 varieties of take-home products, including ice-cream cakes and sandwiches, prepackaged sundaes and parfaits, bulk ice cream, and special ice-cream novelties and desserts. Such take-home products were now accounting for about 35 percent of the chain's retail sales.

Carvel Corp. had its headquarters in The Carvel Inn, a facility in Yonkers that not only offered motel accommodations and commercial office space but also housed a new company training center for franchisees, a self-service ice-cream supermarket, and a bakery chain purchased in 1967. Also part of the company was All American Sports City, a subsidiary-owned and -operated 740-acre development in Dutchess County with home sites, a community center, a golf course, and tennis courts.

Carvel revenues reached $27.07 million in 1973. At the time, franchisees were being assessed between $38,000 to $70,000 (depending on store size) to go into business, with a down payment of at least one-third and the rest financed by the company. Carvel lost $996,136 that year, however, partly because the subsidiary enterprises--The Carvel Inn, All American Sports City and Dugan's Bakery--were not thriving. Carvel returned to the black the following year and in 1976 had 701 stores and net income of $1.7 million on revenues of $41.63 million. However, since the stock continued to languish in price, Tom and Agnes Carvel raised their own ownership to 90 percent of the shares in 1978 and took the company private again.

Being his own boss also enabled Tom Carvel to continue, without challenge, broadcasting his own radio commercials, a practice he had begun in 1955. An unrepentant amateur at the trade, he was in the habit of taking a tape recorder on the road and interviewing the franchisees, who, according to an Advertising Age reporter, 'became as well known to listeners for their nearly unbearable nervousness as for their pride of ownership.' Carvel himself spoke in a voice that New York Times columnist Francis X. Clines described in 1978 as sounding 'like muffled laundry in a footlocker.' The 72-year-old tycoon conceded to Advertising Age that more than one Carvel dealer had said, 'get that senile old goat off the air,' but he was not fazed. 'Our commercials are for the people who look like us, talk like us, and sound like us,' he told Tom Callahan, a business writer who interviewed him for the New York Times in 1985.

Carvel estimated the return on his radio spots as better than four dollars to one. By the 1980s television viewers had become accustomed to CEOs such as Wendy's Dave Thomas and chicken tycoon Frank Perdue peddling their wares on the airwaves. Carvel, however, kept his face off the tube. The company's in-house advertising agency, which prepared and placed the radio spots, did the same for its television commercials. By 1981 television accounted for the vast bulk of the company's ad budget.

Carvel had several other successful means of publicizing his enterprise as well. He introduced a toll-free telephone-ordering service for wedding, birthday, and holiday cakes; a mobile vending operation; a Carvel-sponsored beauty contest for truckers, who often stopped for Carvel ice-cream; promotions handing out premiums such as flying-saucer discs, baseball hats, pens, pencils, and even brandy snifters; and specialty products that included kosher ice cream (introduced in 1969), Lo-Yo frozen yogurt (1972), and Thinny-Thin dietary desserts (also 1972). Standard, since 1959, were character cakes with names like Fudgie the Whale and Cookie Puss. By late 1981 Carvel had gross revenues of $180 million a year and was employing more than 8,000 people. The price for a store franchise was now about $100,000.

By 1985 Carvel had 865 franchise stores, with revenues reaching $300 million the year before. The stores were in 18 states and several foreign countries as well, including Canada, France, Great Britain, Malaysia, Singapore, and Thailand. That year Carvel settled a six-year-old New York state lawsuit charging the company with forcing its franchisees to buy their supplies solely from Carvel at inflated prices. The company agreed that its franchisees could purchase ice-cream cones and soft-drink syrup from other sources.

New Products and Sales Outlets: 1991-98

Tom and Agnes Carvel sold their 90 percent interest in the Carvel Corp. in 1989 for about $80 million to Investcorp, an international investment bank based in Bahrain. Tom Carvel died the following year. At this time the company still had 700 stores and was the third-largest ice-cream operation in the United States. However, the chain was shrinking in both outlets and revenues. Now managed by Steven V. Fellingham, the company moved its headquarters in 1991 to Farmington, Connecticut, and took the name Carvel Ice Cream Bakery to exploit the entire dessert market. (The cake line now accounted for about 60 percent of the chain's $200 million in annual sales.) A new store design included a new logo and a red awning on the front. Plans called for small, limited-menu outlets in shopping malls, and also for large sit-down establishments. By the spring of 1993 Carvel had ceased making its own equipment. The number of stores had fallen to 580, partly because some licensees did not went to spend up to $30,000 to renovate the stores in the way that the company's new management demanded.

One new service during this time was delivery of ice-cream cakes anywhere in the continental United States, with orders placed by a toll free number and shipped by Federal Express. An assortment of ice-cream pies, cakes, and novelties, including canolis, neopolitans, brownies, and blondies was introduced as an alternative to the offerings of conventional bakeries. Club Carvel, the direct-mail division, had almost 275,000 members receiving mailings on their birthdays and other special occasions.

The most visible change was a non-folksy television campaign with a professional voiceover and glitzy sculptures, seemingly made of ice cream, devised by Industrial Light & Magic Co., a special-effects company owned by film producer George Lucas. This 'Everything Should Be Made of Ice Cream' spot took an estimated 10,000 person-hours to perfect. Even more important, Carvel was placing hundreds of ice-cream kiosks in major retail outlets, including supermarkets and stadiums. By the fall of 1994 Carvel ice-cream cakes--more profitable than its cups and cones--had been added to the bakery sections of 250 supermarkets in the Philadelphia metropolitan area alone.

By this time the number of Carvel units was 570, including 23 company-owned units, in 13 East Coast states. Moreover, the company's products were also being carried by 935 eastern supermarkets belonging to 15 chains--potential rivals to the retail stores. Licensees were offered five-year contracts to service these outlets, but many opposed the program either because the supermarkets were taking business away from their stores or because they found it more difficult to make money as distributors than first appeared to be the case. By the end of 1994 the number of stand-alone outlets franchised by Carvel had dropped below 500. Owners of some 42 stores filed a lawsuit late in the year, accusing the company of violating 'implied' franchise covenants. One former franchisee won a $200,000 jury verdict in 1999.

The number of Carvel franchise stores had fallen to 450 in 1998. Annual sales were between $110 million and $120 million in 1997, according to Fellingham, not counting $82 million from sales in supermarkets. By 1999 the number of outlets had dropped to 400, but Carvel had a retail presence in some 4,500 supermarkets, including several hundred in the Los Angeles metropolitan area. Supermarket sales came to $95 million in 1998, when sales totaled about $200 million. Carvel restored its original ice-cream cone logo during this time and introduced a new product, 'Lil' Love,' a smaller cake designed to reward children for small milestones, such as good report cards.

As the company entered a new millennium, its reputation for high quality products and innovations in the industry boded well. Regarding franchise opportunities at Carvel, company literature was optimistic that this side of the business would grow, noting that many people had fond memories of Carvel ice-cream and that the company was 'working to leverage this emotional bond with Carvel consumers to attract future generations to the brand.'

Principal Competitors: Baskin-Robbins Inc.; Ben & Jerry's Homemade, Inc.; International Dairy Queen, Inc.

Chronology

• Key Dates:

• 1934: Tom and Agnes Carvel open their first ice-cream store.
• 1947: Carvel becomes a franchised retail operation.
• 1969: Carvel begins a nine-year run as a public corporation.
• 1985: The franchise operation peaks at 865 stores.
• 1989: The founders sell their 90-percent holding to Investcorp.
• 1992: Carvel begins selling its products to supermarkets.
• 1998: Supermarkets are accounting for nearly half Carvel's sales.