April 28 (Bloomberg BusinessWeek) -- When Pinkberry opened its first store in 2005 among the glitterati of West Hollywood, Chief Executive Officer Ron Graves recalls people lining up for hours to get their hands on the frosty yogurt dessert. (A small cup can cost up to $4.95.) The city issued $175,000 in parking tickets during a single month to Pinkberry customers, he says. Now a host of copycats has emerged just as the American frozen yogurt craze may be melting. Graves's solution? Expand the 119-store, Los Angeles-based Pinkberry chain overseas, with new shops scheduled to open this year in Britain, Turkey, Morocco, and the Philippines.
"Consumer brands have to look at the landscape through a global lens, as opposed to the domestic lens that Starbucks (SBUX) started from 40 years ago," says Starbucks CEO Howard Schultz, who joined the Pinkberry board in 2007. Currently, more than half of Pinkberry's shops are in Southern California or Manhattan. By yearend, however, about one-fourth of the chain's stores will be outside the U.S., says Graves. That's more than twice the proportion now.
The push may help Pinkberry because there's less competition abroad, says Ron Paul, president of restaurant tracker Technomic. In the U.S., pricey ice cream shop operator Cold Stone Creamery will add frozen yogurt to its menu this spring. Red Mango, a rival yogurt chain, this year plans to almost double its U.S. store count, to 200. Meanwhile, the number of frozen yogurt servings in U.S. restaurants fell 11 percent last year, according to researcher NPD Group.
While Graves won't disclose sales figures, Technomic estimates Pinkberry pulled in $109 million in revenue last year in the U.S. That's less than one-third the sales of Cold Stone and a sliver of the $6 billion U.S. frozen dessert market. Yet neither Cold Stone nor Red Mango has demonstrated the star power of Pinkberry, which counts rocker Bret Michaels, designer Isaac Mizrahi, and New Orleans Saints quarterback Drew Brees among its celebrity devotees. That's one of the things that attracted Schultz, whose private equity firm, Maveron, plugged $27.5 million into the chain in 2007.
Ted Philip, a Pinkberry board member whose Highland Consumer Fund invested in the company in 2009, says the yogurt chain has sidestepped some common errors, such as being too rigid with flavors, as it expands abroad. In Asia, Pinkberry will dish up green-tea-flavored yogurt. It also caters to local tastes via the toppings bar, with dates and pistachios at Middle Eastern stores and the chocolate hazelnut spread Nutella in Russia.
Fast-food restaurants could pose a threat to Pinkberry, says Technomic's Paul, since chains such as McDonald's can easily add frozen yogurt to their menus. "You have to ask yourself: Is this a strong enough concept that people will make it a destination?" he says.
Graves is betting Pinkberry will keep its hot spot status because of the customization its large number of toppings allows and its store personnel, who eagerly chat up customers. "Pinkberry has created an emotional connection between our people and our customers," he says.
The bottom line: As growth cools at upscale frozen yogurt shops in the U.S., still-tiny Pinkberry is heading overseas in search of new revenue.