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Cold Stone Dead Creamery

Cold Stone Creamery has been one of those businesses wherein people can’t wait for one to come to town. Its name alone promises the waiting masses something unique, as it advertises a customer experience well worth its premium prices. But does it succeed?

Earlier in this decade, Cold Stone Creamery was one of the hottest franchises around. The super-premium ice-cream stores attracted scores of franchisees hungry for a piece of the "Ultimate Ice Cream Experience."

I say bull. You know, there was a time when dot.coms that were losing chunks of money were "hot" businesses, and $180,000 houses were "hot" sellers in the $300–400k range. Then, as Warren Buffett says, the party is over. First, let me continue the article's contents:

Now many franchisees are selling their stores, overwhelmed by soaring bills and shrinking profits. Some have lost their homes, broken their retirement nest eggs or filed for bankruptcy.

What happened?

Cold Stone has closed approximately 160 stores in two years, and more than 20% of its current stores are up for sale. Many franchisees are up to their necks in debt, and some are even claiming personal bankruptcy. But I don't feel sorry for the franchisees who bought into the notion that selling ice cream at $4 to $6 – along with such daft gimmicks as singing employees and dopey menu boards with imbecilic product names – could become a long-term profit opportunity. Cold Stone’s rapid franchise growth was a credit bubble opportunity, and, in addition to that, let me tell you why I think the business, and its products, suck.

Two of my young family members, who are easily snagged by cheesy fads and so-called "cool" stuff, kept telling me that I had to go to a Cold Stone. So I did. My first sense that something was gimmicky came to me immediately as I walked into the store. The place had a line that squirreled around the entire front of the store, and families of 3–5 were the bulk of the crowd. The employees – mostly young – were behind the counter, whipping up creations, yelling out silly catch phrases to customers in line, and they were also singing. Everybody started singing these dumb tunes. (Like that hasn't been done before.) It was all so foolish and juvenile. It was a session of Dumbing Down 101. A former employee of Cold Stone refers to this nonsense as "classic songs bastardized to include lyrics about mix-ins, ice cream, and The Stone."

My thought at the time: do these people (customers) really like this kind of thing? There were big, fat tip jars on the counter, and apparently, you are expected to tip employees for treating you like a 75 IQ moron. As I approached the clerk, I was greeted with some really bad act and a franchise-trained smile that was truly obnoxious. I am not blaming the employees who are trained to do this – it's the business model and the poor attempt at providing an exclusive product that fails miserably.

In fact, the employees are actually denigrated, and they have to act like they love it, which really plays into my little, misanthropic hands. When I saw a tip being placed into the jar, one of the gals behind the counter loudly announced a cheer to the glorious devalued, fiat dollar that was placed into that jar. Immediately, the entire staff erupted in song – again! – and they celebrated their glee like circus monkeys spinning on their heads for an animal cracker. Even though I was only standing in line, as a customer, I felt that I was subjected to a profound sense of embarrassment.

Then there are the awful menu boards, with dumbed-down product choices such as "like it," "love it," and "gotta have it." The whole thing about "creating your own" thingamajig or getting each little item you desire in your ice cream is bewildering and aggravating. It works for Starbucks, but it doesn’t work for ice cream. When you do order, you have to scream at the clerk, and repeat three times, because with everyone else either singing or yelling out Cold Stone phrases, you can't hear a dang thing. The whole show is loud and obnoxious and juvenile and insipid. The last bad gimmick is the process of mixing the ice cream with the other "stuff" on the frozen granite stone. They turn it into a spectacle that leaves you rolling your eyes. Just knowing that most Americans are mesmerized for hours in front of a blaring TV or a repetitive video game (Guitar Hero anyone?), you can understand why American businesses are churning out this sort of crap, thinking it is going to be desirable and successful. Unfortunately, the masses do like this stuff, at least in the early going, which is why Cold Stone was initially successful.

But when they hand you your 5, 8, or 12 oz. cup of ice cream, with a few items like nuts or candy in it, you realize you've paid between $4–$7 for a gimmicky presentation, bad singing, the franchisee's overly-high costs of operating a store, and some plain old, not-so-great-anyways ice cream. But this is presented to the customer as "the ultimate ice cream experience."

I spied several families of four or five sitting down to the Cold Stone experience. A middle-class person taking the spouse and 3 kids out to Cold Stone, and blowing $25–$30 in 20 minutes, is most certainly a credit bubble-inspired act and a Mastercard moment. Can you say "priceless?" Most certainly, George Carlin would have something brilliant to say about paying 18% interest for 7 years to purchase five ice cream bowls at Cold Stone.

The business model of Cold Stone stinks. It was successful only in the very short term because of the crazed credit-consumption economy which was driven by the Federal Reserve and years of interventionist government policies. Remember, right after 9/11 the American public was told – by the president – to act as usual, and go out and shop. Buy, buy, buy, and heck, we’re all Keynesians now! People were walking around looking for ways to blow their excessive credit lines at 0% interest.

While Cold Stone franchisees are suing the company for misleading them, I don't feel sorry for those people who thought they found a "hot ticket" to big profits when they didn't understand what they were getting into, and jumped in before engaging the necessary due diligence. The gimmicky nature of the business, along with the strict rules binding franchisees, should have tipped off the sensible gene in people – if they have one. Any idiot should have known better that middle class people spending $5 and $6 on ice cream, often on a credit card, was not a lasting venture.

There are far better alternatives than overpaying for insulting gimmicks and over-glorified ice cream. First, there's the staple: Warren Buffett's Dairy Queen. DQ has been around a long time because it's real. It turns out products that have staying power and are priced right – and it hasn't oversold itself to the point of destruction (Starbucks take note). Then there are the Mom and Pop joints – hard ice cream, frozen custard, etc. – that have served their communities for decades. Also, what about the half-gallons at the grocery store (I like Stroh's, Edy's, Breyer's, or the grocery store brand ice cream) that sell for $4–$6? Better yet, get it on a "buy one get one free" sale, where those two half gallons of ice cream for $5.99 will allow that family of 4 or 5 many days of ice cream eating pleasure, as opposed to one very expensive sitting in an overpriced joint like Cold Stone. Heck, I even like the ratty-looking ice cream trucks that cruise the neighborhoods playing really bad, repetitive music, which is always a wonderful sound to hear.

Anything but the awful, over-priced, and denigrating contrivances served up by Cold Stone.

July 28, 2008

Karen De Coster [send her mail] is a Certified Public Accountant, has an MA in Economics, and works in finance and accounting in the securities industry. See her website and her blog.

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