16 Handles: Too Hot of a Business to be Frozen Yogurt
There is nothing novel about the frozen yogurt business. So how did this company manage to disrupt a market dominated by fierce competition and little differentiation? Simple: by focusing on who you are – versus what the product is – to drive their success.
It’s a dessert experience like none other. In 2008, 16 Handles opened its first store in the highly saturated, New York City frozen yogurt market. At the time, the Company faced intense competition from Pinkberry and other local establishments. Today, however, they only face a couple direct competitors. In only seven years, the business model has grown to resonate so strongly with consumers that 16 Handles has established itself as a leader in a fragmented market, opening 40 stores in the East Coast and currently developing 150 stores internationally.
The idea of operating a frozen yogurt store is not particularly novel which is why 16 Handles’ rapid growth at the expense of competitors’ market share underscores the efficacy of the business. The model is simple: choose one of 16 flavors (chosen amongst 52 rotating flavors) and any of the 50 available toppings. Based on a buffet-style, 16 Handles was the first frozen yogurt shop to introduce self-serving to New Yorkers. Also, much like other frozen yogurt stores, prices are by the ounce, following a pay-by-weight philosophy. Each store operates with no more than 20 part time employees and is open long hours, seven days a week, creating the imperative sense of availability demanded by New Yorkers.
An overview of the opportunities and consumer preferences in the frozen yogurt market:
What makes this business so special? It goes back to asking yourself the question of whether you can remember the last time you were at a store buying dessert as a memorable experience. This is exactly what 16 Handles seeks to do at the most basic level: tap into individuals’ desire to express their individuality through the choices they make to make their visit stand out. The Company is redefining the way we think about dessert, particularly frozen yogurt, by creating an experience around self-service, customization and ambiance.
16 Handles has taken the basic model of a frozen yogurt shop and created value for customers by giving them greater control over their experience. Unlike other frozen yogurt stores, 16 Handles engages the consumer by allowing them to self-serve
. When you come into a store, an employee greets you and offers sample-size cups for you to try flavors. From that point on, the experience is yours to own and you don’t interact with another employee until you’re ready to pay. You are not rushed to move through a line or to make quick decisions when choosing flavors or toppings. You can therefore explore the offerings and tailor the dessert to your mood. Accordingly, instead of imposing a fixed price for the product, 16 Handle’s pay-by-weight philosophy gives the customer the ultimate say in what to pay by virtue of how much they want to consume. Thus, you truly own the experience from start to finish.
Another tenant of differentiation for 16 Handles is customization. This stems from a highly diverse menu, allowing over 800 combinations of flavors and toppings. Especially appealing are the chef-curated flavors of which 16 are selected from a rotating base of over 52 seasonal, traditional and innovative flavors. The yogurt offerings also range from non-fat, to no-sugar, to sorbe and TV screens around the store feature the nutritional value of all available items, catering to the health-conscious millennials. Given a system of gourmet offerings and customization, 16 Handles generates value to consumers by allowing an expression of individuality through the personalization of their favorite treats.
Unlike a grab-and –go model, 16 Handle stores give customers the choice to lounge in a spacious, stylish and comfortable setting. Much like the Starbucks model, the store’s ambiance is inviting for people to sit, eat and connect, adding a social component to the experience. The diversity of customers is also telling of its appeal. Everyone from kids to adults loves to come into the store to enjoy their favorite dessert with family or friends. The ease of the process combined with an engaging experience creates repeat customers that are loyal to the brand.
By being a labor and asset lite business, 16 Handles is able to transfer control of the experience to the consumer and focus its capital investment in designing stores that lure customers to lounge and engage. The simplicity of the operating model is therefore complimentary to the business model, giving a seemingly simple yogurt store an uncanny competitive edge.
Sources:
http://www.thestreet.com/story/11903466/1/16-handles-aims-to-win-in-frozen-yogurt-consolidation.html
http://patch.com/new-york/newcity/at-16-handles-16-different-flavors-of-yogurt-availabla129ce20f0
http://www.thefranchisemall.com/news/articles/27043-0.htm
http://www.restaurantnews.com/how-hot-is-the-frozen-yogurt-market/
Hey Andrea, cool choice! I agree with your points that as long as consumers want frozen yogurt, 16 Handles has designed a very effective operating model to sell it. I wonder, though, if 16 Handles will be able to survive in the long-term or if this frozen yogurt infatuation is going to be short-lived. I’ve noticed a pattern dessert obsessions that become fads; for example, it seems like cupcakes were a huge hit prior to frozen yogurt, and hundreds of shops and some large chains opened up. Now that it is slowing down, some of those cupcake chains are running into trouble (like Crumbs, who went into bankruptcy). Frozen yogurt is still doing well, but I could see it maturing and then declining really quickly as people move on to the next dessert obsession (doughnuts? macarons?).
I agree with Marissa here. There are elements of the operating model and the business model that are aligned, such as being asset and labor lite. However, a big value proposition that the product is also calorie lite. One assumption is that the market for fro yo is growing as fast or faster than other dessert speciality places. A lot of health research shows that fake sugar or calorie lite desserts aren’t actually healthy and potentially cause weight gain in the long-term. If this is true, the model for fro yo will break down. Some of the 16 Handles’ locations in NYC are closing down because the repeat customer base is starting to disappear. While they are labor lite (and usually only need 1 or 2 service professionals at the checkout counter), they do rely on having prime real estate where there is a lot of foot traffic. If they can’t sustain those high rents, their assets will become more burdensome. I wonder if they really need as much inside space for seating. Instead, perhaps they’d be better off investing less capital into each store and more into continued marketing for the product.
Hi Andrea,
I agree with Nora. I wonder if the company should be spending its capital on prime real estate versus focusing on the core experience. Given that people seldom decide to stop to get frozen yogurt with an intent to hang out at the place is that real value added? Also, how scaleable is this business model? You mention the company is expanding internationally and I wonder whether other countries think of this experience the same and therefore whether the company can continue to extract the same value from customers abroad.