Over the past decade, we have seen a shift in the frozen treat and snack category with many short-term category trends gaining steam and eventually showing unsustainable growth in the longer term.
Lessons from the past
Krispy Kreme’s singularly focused menu of sweet, craveable doughnuts led to rapid expansion for the chain in the later ’90s. Peaking in 2005 with sales in excess of $1 billion, the company has since declined and settled down with annual U.S. sales today of $570 million. Although the chain’s growth over the past two years has been slow and steady, Krispy Kreme has shifted unit development globally by bringing products to international marketplaces; today Krispy Kreme has more than 500 locations outside the U.S. compared to just 239 domestically.
Cold Stone Creamery was at the heart of a premium ice-cream movement. Its rapid growth in units helped the chain achieve peak annual sales in 2007 of nearly $500 million in a frozen-dessert category of $7 billion. Then premium ice-cream players suffered from the recession as increased unemployment and declining disposable personal income—among other economic factors—prevented consumers from indulging in ice-cream purchases. Today, Cold Stone Creamery has broadened its offering with ice-cream cupcakes and shakes and continues to manage sales of $355 million.
“Sex in the City” and Magnolia Bakery sparked a cupcake revolution and national craze that led to upstart brands like Crumbs Bake Shop, Sprinkles and Gigi’s Cupcakes adding locations. Independent cupcake shops have also popped up in most major cities in recent years, while supermarkets have expanded their cupcake offerings for in-store bakeries. Although Technomic estimates the retail cupcake shop segment to be in the range of $200 to $250 million annually, this segment appears to be maturing and flattening in the restaurant lifecycle curve as other desserts build greater momentum.
It is worth noting that frozen-yogurt brands like Yogurtland, Pinkberry, Menchie’s and Red Mango are still in the high-growth stage of their lifecycle. Frozen-yogurt chains within the 2013 Technomic Top 500 Leading Chain Restaurant Report as a whole increased their sales by 20%, with net unit growth of over 25%. The high appeal of frozen yogurt’s broad flavors, customization options and “health halo” consumer perception has given other sweet-treat operators (like cupcakes, traditional ice cream and doughnuts) a run for their money. This trend will likely continue to grow in the short term based on the low cost of opening a store and the franchise brand availability and appeal.
So what’s next?
We could see growth of numerous dessert trends such as chocolate-covered bacon shops, cream puffs, churros or perhaps macaroons. One thing that isn’t changing is consumers’ interest in craveable sweet and savory snacks. Health and lifestyle considerations will also remain a consideration but a balance with indulgence will likely provide ample opportunities for both healthful and decadent treats.
In today’s restaurant space, growth has become a battle for share: as one category grows, another will fall victim.
