Hot Springs Adult Video Store Sues Over Seizer

by Arkansas Business Staff  on Monday, Apr. 17, 2006 12:00 am  

Just last week, another customer stepped up to the counter and asked TCBY franchise owner Bill Damrow if he too would be closing the doors of his frozen yogurt shop.

Damrow, who owns the last free-standing TCBY in Little Rock at 11418 W. Markham St., said he hears the question all the time since TCBY Enterprise Inc. of Little Rock was sold in 2000.

Customers have a reason to be curious. Even in its hometown, TCBY's situation is as messy as a 3-year-old with a waffle cone: Former TCBYs are being converted into other stores, TCBY's warehouse in Little Rock closed in March and it probably won't be long before the TCBY name is removed from the top of Little Rock's tallest building.

Since the $140 million acquisition by Capricorn Investors III of Stamford, Conn., a principal shareholder of Mrs. Fields Holding Inc. of Salt Lake City, the number of TCBY outlets has fallen, and Brandweek estimated that U.S. sales have fallen from $280 million in 1999 to $190 million in 2002.

A former regional manager for TCBY, Damrow said he didn't think Mrs. Fields is doing enough to help the franchisees. But a TCBY spokeswoman said Mrs. Fields is committed to the company. As evidence: This week TCBY is launching its first television advertising campaign in nearly seven years.

Damrow's Case

Damrow first bought a 20 percent stake in three TCBYs in 1995 after being approached by company founder Frank D. Hickingbotham. Until that time, the company owned all the TCBYs.

In 1998, Hickingbotham decided to sell the stores outright. Damrow picked up the other 80 percent ownership of the stores on West Markham and in Benton and Arkadelphia.

Other TCBY employees received similar offers, including Michael Hines, who bought the original TCBY in west Little Rock's Market Place shopping center.

Less than two years after Damrow became 100 percent owner of three stores, TCBY was sold and shifted its headquarters to Salt Lake City.

The sale made Damrow apprehensive. Having worked for TCBY for seven years, he had strong connections to the company. And, he realized, "I wasn't going to have the local support that I had had."

At first, the sale didn't seem to affect revenue at his store in Little Rock. But he closed his TCBY in Arkadelphia on Sept. 30, 2001; though sales were OK, the rent and utilities were too high and the commute too long to justify staying open, Damrow said.

Last year, Damrow's Little Rock store recorded $452,000 in sales, up about 10 percent from the previous year. But the revenue jump was tied to a price increase; the number of transactions has actually been falling.

So far this year, transactions are off about 5 percent over the same period in 2002, a trend Damrow can't explain.

Business should be improving, he said, since most of the other TCBYs have closed. Before 2000, there were 16 free-standing TCBYs in central Arkansas. Now there are five, including Damrow's in Little Rock and Benton.

Damrow said he didn't know what caused the other stores to close. A Chapter 7 bankruptcy filing by Hines, who owned the original store and a second outlet at Cantrell Road and Mississippi Avenue, suggests that his stores had been struggling for some time.

In his bankruptcy petition, filed in May 2002, Hines listed his assets at $136,000 and debts at $452,000. He also revealed that he hadn't paid himself out of the stores' proceeds since 1999.

Hines did not return a call left on his home answering machine.

Disappearing

When Hines' Little Rock stores closed in February 2002, Damrow said, many customers assumed Damrow's store had also closed. The company's well publicized sale may have made some yogurt fans think all traces of the company would be leaving Arkansas.

That impression could have been reinforced by the closing in March of Riverport Equipment and Distribution Co., a wholly owned subsidiary of TCBY Systems that sold equipment and supplies to TCBYs out of a warehouse at the port of Little Rock. A company in Salt Lake City now handles the work.

Far more noticeable will be the eventual removal of the TCBY trademark letters from the 40-story building at 425 W. Capitol Ave.

TCBY is still paying rent on 60,000 SF in the building, but the offices are vacant, said Jeff Yates, vice president of leasing for Flake & Kelley Management. Under the lease agreement, which won't expire for a couple of years, TCBY retains the right to have its name on the top of the building.

However, Yates said, "The landlord is actively seeking a replacement for TCBY."

The new tenant could see its name in lights on the outside of the building, replacing TCBY's.

"We have talked to more than one company about that," Yates said.

Meanwhile, former TCBY stores are being remodled to fit other businesses.

Hines' former TCBY at Cantrell and Mississippi is being converted to a Starbucks coffee shop, which should open later this month.

Michael Bray, owner of Brayzen International of Little Rock, has used the one-time TCBY store at 5414 Landers Road in North Little Rock as the prototype for his Hot Diggity hot dog restaurant.

Bray said he's starting to sell franchises using some of the TCBY buildings.

"Most of them aren't big enough for what I do," he said. "It's got a good look to them, but sometimes it's easier to tear them down and start all over though."

Nationwide Troubles

Little Rock isn't the only market experiencing TCBY meltdown.

Since TCBY Inc. was sold, the number of stores in the nation has fallen from about 2,000 franchisees nationwide to 1,550. TCBY spokeswoman Lori Peterson wouldn't release sales figures for the private company, but such a precipitous decline in points of sale undoubtedly signals a similar decline in franchise and royalty fees.

Peterson said numbers in any franchise operation tend to fluctuate. And the sluggish economy has put many companies in a down period.

"We are sorry to lose our franchisees in any market, and we continue to offer the brand to potential new franchisees as a viable, financially sound business," she said in an e-mail response to questions.

Peterson wouldn't say specifically what TCBY was doing to try and increase the number of franchises.

"Obviously, we're trying our best and our hardest to continually grow and create more interest," she said.

Damrow said Mrs. Fields isn't doing enough to support the franchisees. And some of its attempts to help have backfired, he said.

For instance, when TCBY launched Mrs. Fields' "super premium" ice cream in August, it left franchisee owners grumbling.

"I'll be honest with you: Most of the store owners didn't want to see it because what came about was a pretty substantial price increase for our product," Damrow said.

The ice cream contained more butter fat than the ice cream TCBY introduced in 1995. And the price tag was enough to harden owners' arteries. At $11 a gallon, plus $2 for royalties and advertising fees, each gallon set franchisees back $13.

Damrow said he raised his prices by 30 cents per cup, while some other owners went up as much as 50 cents. Either way, it was too much for ice cream — a realization that eventually made its way to Mrs. Fields, which has backed away from the high-end product in favor of lower-priced formulas.

Mrs. Fields, however, is making some positive moves, Damrow said.

In October, TCBY said it had formed a partnership with Moxie Java International LLC, the largest licenser of coffee shops in the United States.

Although the companies made no claims, the Ice Cream Reporter said putting the coffee machines in TCBY could result in a 15 percent increase in profit.

So far there are 14 TCBYs across the country that offer Moxie Java, said Shari Wonders, Moxie Java's director of sales.

Mrs. Fields is also waiving the $10,000 franchise fee to place Mrs. Fields brands in TCBYs, Damrow said. And if an owner relocates an underperforming store, or if an owner is considering closing a store, TCBY will waive royalty fees on yogurt sales for up to 12 months, Damrow said. That alone could be worth thousands of dollars a year, he said.

"It would be a good incentive for someone to move an underperforming store," Dam-row said.

In what could be the biggest boost for owners, TCBY is going to advertise on television for the first time in nearly seven years. Although the ads won't run in prime time, it is a vast improvement.

"We've gone almost 12 months without national advertising," Damrow said.

He understands that TCBY's advertisement budget has declined with the number of stores. Still, Damrow and other franchisees who are still operating have been paying advertising fees all along.

The new ad campaign, which Brandweek says will cost $10 million, will focus on TCBY's low-fat and fat-free products. And it will teach the buying public that TCBY stands for The Country's Best Yogurt, which many people don't know, Brandweek said.

With the ads, Damrow said he thinks frozen yogurt will make a comeback.

"(TCBY) got away from the low-fat years ago, when the consumer started not caring so much about the fat content and the calorie content," he said.

Now the original theme is back, he said: "All of the pleasure and none of the guilt."

 

 

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