YOCREAM International, Inc.

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YOCREAM International, Inc.

5858 NE 87th Avenue
Portland, Oregon 97220
Telephone: (503) 256-3754
Fax: (503) 256-3976
Web site: http://www.yocream.com

Public Company
1977 as Yogurt Stand, Inc.
Employees: 52
Sales: $15.9 million (2001)
Stock Exchanges: NASDAQ
Ticker Symbol: YOCM
NAIC: 311520 Ice Cream and Frozen Dessert Manufacturing

YOCREAM International, Inc., with corporate headquarters and manufacturing facilities in Portland, Oregon, makes, markets, and sells frozen yogurt, smoothies, ice cream, and frozen custard in both organic and non-organic formulations. Its products are available in supermarkets, grocery stores, convenience stores, restaurants, hospitals, school district foodservices, military installations, yogurt shops, fast-food chains, and discount club warehouses. Its customers are mostly foodservice suppliers throughout the United States and 11 other countries.

197786: The First Ten Years

The Hanna brothers came up with the idea for Yogurt Stand, Inc. in 1976, one day when we sat around wondering what else to do, according to John Hanna, an accountant by training. All threeJohn, David, and Jameshad [grown] up on yogurt and were entranced when we heard about them selling frozen yogurt in New York, he was quoted as saying in a 1986 Oregonian article. David, a real estate agent, James, a retired school principal, and John visited New York City for three weeks, stopping in the shops and talking to the public about the new hot food item. They returned home where their mother, Norma, and they developed their own recipe for the sweet concoction. The new company, which changed its name to International Yogurt Company, Inc. later that first year, contracted with Darigold and then with Alpenrose to produce the family recipe. The frozen yogurt sold in milk containers under the name 800 Yo Cream, which doubled as the companys toll free number.

In 1977, the brothers, whose father had had a food store in southeast Portland until his retirement in 1962, franchised a chain of specialty retail outlets, called Healthy Delis, through which they sold their yogurt. Frozen yogurt was in its heyday then, and the franchises did well, expanding to about 17 company-owned and franchised outlets by the early 1980s. But when their product then began to fade in popularity, the trio gradually shifted the companys focus to foodservice sales. In 1982, International Yogurt began selling Yo Cream to foodservice operations and restaurants. We knew the fad interest was leveling off, said John Hanna, the companys president, in a 1985 Portland Business Journal article. Consequently, the company cut back its outlets to ten and began taking steps in 1981 to get its premium-priced product into grocery stores where 70 to 80 percent of all ice cream sales occurred.

By 1985, International Yogurt had 24 employees, about $727,000 in sales, and a solid customer base of hospitals, fast-food restaurants, and pizza parlors in 12 statesHawaii, Alaska, California, Oregon, Washington, Idaho, Utah, Missouri, Arkansas, Oklahoma, Kansas, and Tennesseeas well as in British Columbia, Canada. The company also had the good fortune to have two financial backersOrians Investment Co. of Portland, and Far West Federal Bankeach of which loaned International Yogurt $200,000.

The company positioned its frozen yogurt as a gourmet item, hoping to take on the premium ice cream market, an increasingly competitive market, which then pulled in $3 million in annual sales. International Yogurt perfected a hard-packed version of its gourmet dessert, which had none of the tanginess of its earlier product, but closely resembled ice cream in taste and consistency, then spent $10,000 to come up with a silver-colored tub designed by the local Jenson Display for its container. In early January 1986, the first hard-packed frozen Yo Cream, available in vanilla, chocolate, and strawberry, went on sale at several local supermarkets. Later that year, the company moved to new manufacturing headquarters, a 30,000-square-foot plant, complete with two laboratories and a staff biochemist, near Portlands International Airport. By years end, International Yogurt had sales of $1.4 million, although expenses entailed in the move contributed to net operating losses that year of about $400,000.

In choosing the name Yo Cream for its hard-packed product, International Yogurt became embroiled in a federal trademark lawsuit with subsidiaries of General Mills. The lawsuit had its roots in 1979 when General Mills registered the name Yo Creme for an as-yet-undetermined product that would complement its Yoplait line. International Yogurt, although aware of this, decided to go forward with Yo Cream in 1982, reasoning that since there was still no Yo Creme product, there would be no problem. Then, in 1984, General Mills began the development of a rich, pudding-like yogurt, which it introduced in 1986 under the name Yo Creme, the same year International Yogurt began putting its Yo Cream in supermarkets.

The lawsuit cost International Yogurt some $350,000 by the end of 1986, or about 8 percent of the companys $5 million in revenue on sales of 500,000 gallons of frozen yogurt for that year. A district judge ruled in 1987 that the $5.3 billion General Mills had improperly warehoused a name, and that International Yogurt had established rights to its product name in 32 states and could market its products in all 50 states. General Mills had rights to its product name in 18 states. General Mills had to pay International Yogurt $225,000 in a cash settlement for the right not to take its products off supermarket shelves immediately in the 32 other states. Ironically, the company later dropped this retail venture because of the intense capital investment required, instead focusing on selling to the foodservice sector.

198797: The NORPAC Years

However, the lawsuit served International Yogurt well in other ways. It brought the company to the attention of the NORPAC Group, one of the nations leading processors of frozen fruits and vegetables. NORPAC agreed to market and distribute the local International Yogurts products on a national level. NORPAC also bought shares of the newly public company at its $2 million initial public offering held that year. It was an exciting time in the companys development, according to the Hanna Brothers, who retained slightly less than 50 percent control of the company: The lawsuit had given the company national clout; the plant was producing 10,000 gallons of frozen yogurt a week on one shift and could easily increase beyond that dramatically to the 100,000 (gallon range), according to John Hanna in a 1987 Oregonian article. International Yogurt entered into a ten-year exclusive agreement with the NORPAC Group in 1987 to expand its sales nationally. It also began selling its products in 14 PXs and military commissaries and at Dunkin Donuts shops in 1987.

Sales took off in the spring of 1988. With 105 distributors (compared to 12 at the end of 1987), International Yogurt began selling Yo Cream to schools, colleges, hospitals, in-plant cafeterias, delis, commissaries, and other outlets. By the end of 1989, Yo Cream was available in 46 statesalthough only 12 to 15 percent of its sales occurred in retail stores. In 1989, the company sold its Healthy Deli trademark, and in 1991, it licensed a Swiss corporation to manufacture and distribute its products throughout Europe.

According to an article in Dairy Field, this period of growth was spurred by Americans obsession with the health consequences of eating high-fat foods. However, when that obsession faded in the 1990s, so, too, did the market for frozen yogurt. As many manufacturers discontinued the bulk of their healthier offerings, International Yogurts sales leveled off and its stock price declined. The company finished 1992 with earnings in the $160,000 range on revenues of $6.5 million. Then suddenly in 1993, investors took notice and the companys stock price quadrupled. More positive change occurred for the company in December when it began to package frozen desserts under the Weight Watchers label, catapulting the company overnight from 30 to 50 percent of production capacity. Shortly thereafter, the Hanna brothers each sold some of their own shares so that a New York bank holding company could accumulate about a 10 percent stake in International Yogurt.

Throughout the 1990s, International Yogurt introduced new products, capitalizing on its growth trend. In 1993, a decaffeinated coffee yogurt drink called Yo Caffe Latte debuted, followed, in 1995, by a sorbet line in response to requests from foodservice operators for fat-free products and overall growth in the sorbet segment. In 1997, the company introduced Yo Cream Pure, a 100 percent organic line of soft serve frozen yogurt mixes, directed at foodservice operators, and hard packed, low-fat ice cream. In 1999, as the popularity for smoothies grew, it debuted a bottled frozen smoothie product called Bountiful Harvest at Wal-Mart.

19972001: Focus on Expansion Through New Distribution Plan

Having focused its sights on expansion, International Yogurt ended its marketing agreement with NORPAC in 1997, going to a distribution plan that entailed direct brokerage relationships supported by trained product specialists. Earlier, in 1994, it had entered into a joint venture with Western Family Foods to distribute and market its products under both the Western Family Foods and Yo Cream labels to grocers. Another big break came in 1996 with an agreement with SYSCO Corporation, the nations largest foodservice distributor, to supply frozen yogurt and sorbet under SYSCOs label. In 1997, International Yogurt entered into a marketing agreement with Pocohontas Foods USA, an association of 140 independent foodservice distributors nationwide, to market its products.

Company Perspectives:

To economically develop, manufacture and internationally distribute health oriented, niche food products concurrently providing financial rewards to dedicated employees and increased value for shareholders.

Although production of frozen yogurt nationally had been on the decline for several years, International Yogurt saw its sales grow 90 percent during the second half of the 1990s. In 1997 it totaled revenues of about $8.7 million; in 1998, that number reached $10.2 million and in 1999 $14.6 million. By 2000, with revenue of $15 million, the yogurt maker had experienced seven consecutive quarters of increased sales and income and had had five years of profit.

The declining market forced the company to push harder for new products and a larger market share. After changing its name to YOCREAM International in 1999 in a move to reflect its broad line of frozen desserts, the company spent $443,000 in 2000 to come up with new products to boost revenue. It targeted new markets with new products, including soft serve frozen custard, a shake base, a soft serve ice cream, coffee smoothie for high volume dispensers, and margarita mix for blenders. In addition, it experimented with a premium line of hard-packed, low-fat frozen yogurt for the European market. In 2001, it finished expanding its production capacity by reconfiguring its plant space in Portland. The expanded plant, which cost more than $2 million, had mix tanks outside the facility, which were connected to production equipment via piping, and a bottling line as well as a bag-in-a-box machine to package bulk smoothies.

Increased capacity created new opportunities for YOCREAM, which began looking for new business relationships in 2001. It partnered with Dannon to cobrand a line of soft serve frozen yogurt, one of the most significant events historically for the company, according to John Hanna in a 2001 Portland Business Journal article. Capitalizing on the growing market for smoothies, YOCREAM also inked a deal with Blimpie International to include a smoothie bar in its outlets and was poised to explore additional co-packing arrangements with other manufacturers. According to one major investor quoted in the Portland Business Journal, the companys earning potential was outrageous. Hanna put it more modestly: Frozen yogurt is entrenched in the American economy. When other [companies] get disenamored with the market, we have the opportunity to grab the market share.

Key Dates:

The company incorporates as the Yogurt Stand, Inc., and later changes its name to International Yogurt Company, Inc.
The company moves into a new 30,000-square-foot factory in Portland; General Mills sues the company for trademark infringement.
The company holds its initial public offering and begins national distribution through NORPAC.
The company begins to package frozen desserts under the Weight Watchers label.
The company exits its marketing agreement with NORPAC.
The company changes its name to YOCREAM International, Inc.
YOCREAM International expands production capability and partners with The Dannon Group to cobrand a product.

Further Reading

Anderson, Michael A., I Scream, You Scream for Frozen Yo Cream, Portland Business Journal, August 26, 1985, p. 1.

Cook, Julie, Smooth Sensation, Dairy Field, February 2001, p. 18.

Gauntt, Tom, Lawsuits Glare Softens Profits of Yogurt Maker, Portland Business Journal, June 8, 1987, p. 2.

Goranson, Eric, Portland Brothers Find Hard Sell Not Needed for Frozen Yogurt, Oregonian, January 9, 1986, p. ME1.

, Yogurt Firm Savors Taste of Success, Oregonian, October 15, 1987, p. ME1.

Hamburg, Ken, Yogurt Deal Spoons Up National Distribution Plans, Oregonian, September 17, 1987, p. D18.

Strom, Shelly, Yo Cream Gets Aggressive As Its Core Market Shrinks, Portland Business Journal, June 15, 2001, p. 14.

Carrie Rothburd