September 22, 2005
From Gooey Designs to GUI, IT Helps Ice Cream Chain Deliver
By Evan Schuman, Ziff Davis Internet
With 1,200 stores in 47 states, the Cold Stone Creamery chain is growing quickly with its do-it-yourself ice cream concoctions. But the acting CIO is trying to whip those do-it-yourself treats into a corporate CRM sundae.
The managers at one of the nation's fastest-growing ice cream chains pride themselves on customers who know exactly what they want sweet-wise when given the tools to make it.
The 1,200-store chain opened its first franchise store 10 years ago and has been gaining momentum ever since.
It plans to open 400 stores this year alone, and expects revenues to hit $425 million, said acting CIO Sally Bell. Most of those franchise openings have come about in the last four years.
But the chain's approach focuses on selling a series of dishes and taste combinations recommended by the store—combos that change frequently.
Customers can also create their own combinations. For Bell, though, it's discomforting how little the chain and, for that matter, individual stores, know about customer preferences.
The chain knows how many gallons of ice cream it uses a day, but not how they are delivered—in what flavor combinations and with what toppings.
Knowing which combinations its customers prefer would obviously help the company plan supplies, menus and individualized marketing programs.
But the company only started using POS systems three years ago, and doesn't have access to as much data as it could wish, Bell said.
Those initial POS units, from Panasonic, were never intended to deliver sophisticated CRM data.
"When we programmed the POS, we didn't go into the details of the type of [ice cream] creation. We are just saying it is a creation," Bell said, specifying that the system does record the item's size, listed as "like it [small]", "love it [medium]" and "gotta have it [large]."
The current POS will also note the number of mix-ins and toppings which, like the size, can directly impact the price, making the POS have to ask that.
"We are limited in the knowledge of what is being ordered by whom," she said.
So Bell has ordered three related IT priorities for the chain: major POS upgrades; a new CRM package; and Cold Stone gift cards (and potentially, loyalty cards).
Envision a crowded summer Saturday night, with the line of ice cream aficionados overflowing from the store.
What if customers could wave a loyalty card as they get in line, alerting the staff that there are 26 known strawberry-ice-cream-lovers in line, so somebody had better bring a new container of strawberry out from the back.
Better to know that now than when the customers get to the front of the line.
Or perhaps regional e-mail alerts could be dispatched when certain flavors need to be pushed. A database of customers that understands their flavor and topping preferences could make those e-mail alerts much more effective.
The premium ice cream scoop shop chain is becoming an icily competitive space, with Cold Stone mixing and topping along with Dairy Queen, Marble Slab, Maggie Moo, Haagen Dazs, Ben & Jerry's and Baskin Robbins.
Those chains have also moved very far away from the romanticized nostalgic mom-and-pop ice cream parlors of the Norman Rockwell mode.
For example, investing legend Warren Buffett's company, Berkshire Hathaway, owns the 5,700-store Dairy Queen chain.
Ben & Jerry's 570 scoop shops—not to mention the ice cream in stores—is owned by U.K.-based Unilever, which also owns Breyers.
Haagen Dazs is now owned by Swiss company Nestle, which also owns about 68 percent of Dreyers, which makes Edy's brand ice cream.
The most complicated ownership is Baskin Robbins' 4,500 stores. It's now owned by Dunkin Brands (the Dunkin Donuts people), which itself is a division of the U.K.-based Allied Domecq, a wine and spirits maker. Allied this year was taken over by French company Pernod Ricard.
The mount of ice cream is also growing rapidly, with U.S. ice cream production hitting 1.6 billion gallons last year, translating to about 21.5 quarts per person, according to the U.S. Department of Agriculture. That makes the United States the world's largest ice cream producer.
In terms of cold cash, the latest figures available (for 2002) put U.S. sales of ice cream and other frozen desserts at $20.5 billion, including $12.5 billion spent on "away from home" purchases, including scoop shops, food service and other retail outlets, according to the International Ice Cream Association.
For the most part, the high-end chains are quite similar, analysts say, in terms of ice cream quality and variety of ice cream, toppings and mix-ins.
From a marketing perspective, that puts a huge amount of competitive pressure on store experience along with whatever kinds of incentives and promotions the chains can whip up to generate loyalty. That's where innovate technology deployment could play a crucial differentiating role.
The clientele for any of the super-premium ice cream chains tends to be affluent and younger, a demographic that is comfortable with PDA-phone hybrids, instant messaging and a wide range of gadgets.
That opens up possibilities including sending alerts to customers—traveling anywhere in the United States—when they are geographically near any Cold Stone store, along with a special discount on their favorite flavor combination.
Integration with car navigation systems is also a possibility, with alerts dispatched when the driver is both near a store geographically at the time the CRM system says that customer typically buys ice cream.
The system knows that a particular customer's purchases typically are between 8 p.m. and 9 p.m., for example, on Fridays.
The system could send an alert if that customer is near a Cold Stone during that time, even if that customer is traveling on business.
If it's linked with a strong discount on a known flavor or topping combination, the pitch could be quite powerful.
Darren Tristano is the managing director for Technomic Information Services, a major market research data company focusing on the food service industry.
Tristano said much of the focus in the scoop shop market is not only on the kind of customer that is involved, but on the kind of purchase this would be.
"The important thing for them is changing the number of impulse buys. Ice cream falls in the impulse buy category. Anything you can do to support impulse buying would be good for them," Tristano said.
And electronic means of communicating brings the merchant into the world of the user, which is especially important when working with a younger clientele.
"There's a sense in technology that people in general are more oriented to using PDAs and instant messaging. The younger demographic just tends to adopt it much faster," Tristano said. Cold Stone's "typical customer does tend to be younger."
Tristano was especially optimistic about what some of these chains will do with CRM programs.
"They could create a direct marketing program where they know that Thursday at 8 o'clock, this person comes in," he said.
"At 4:30 one day, they could send a message to the person's PDA, saying they have a different special night the person could go to. It's all about trying to drive additional occasions."
The personal knowledge of customers' preferences is also something that Tristano argues would be powerful with the ice cream buyer.
"It can put them in a position where they know what someone ordered on their last five visits and when the person orders, the salesperson can ask if they'd like the usual or if they'd like to try something different," he said. "This would have great recognition with the customer."
Cold Stone's Bell agreed.
"Having a database of our customers that we own, having the ability to touch them directly with all kinds of communication" is interesting, she said. "Our customers have asked for more communications electronically. We have looked at electronics and how we touch our customers. If it's PDA, if it's cell phone, we'll be on the forefront."
She added, though, that the cost-controls and streamlined operations through 1,200 franchisees means that simplicity must play a crucial role.
"We do not have 1,200 company-owned stores, so any kind of training, any kind of consistent platform is a challenge," Bell said.
"Our systems need to be improved to provide better tools and better access to sales data, inventory and labor," Bell said, adding that this must be done with tweaked software. "We have no intention of changing out the hardware in the existing stores."
How to strike the balance between corporate mandates and local control? Carefully.
Bell cites the gift card program as an example of where the company needed to make it mandatory, which is imposing some IT purchases on its franchisees.
It's recommending, for example, that franchisees use Verifone's Omni 3750 POS units.
"It is a required program with Cold Stone. Making it happen in a way that makes sense for our franchisees timing-wise and cost-wise is the balance and the challenge that we always have," Bell said.
An initial concern was whether employees having to key in all of that additional information would slow down service, but when the chain did some store testing, "It really didn't slow things down. If anything was slowed, it was very minute," Bell said. "And it's great information so that we know our customers better."
The chain does have pockets of aggregated and individualized customer data through its Web site, she said, which sees about 49 million page views a month via its 600,000 visits.
But because the chain doesn't yet sell ice cream—or anything else, other than gift certificates—directly from its site, the data is limited to comments and some small programs.
"The Web site is a part of the strategy that we are still obviously developing. We need to make it come to life to generate better support," Bell said. "We want to have more of a relationship with our ice cream lover customers. There is not a lot of relationship-building on the Web site right now."
The chain is within a few weeks of rolling out phase one of a CRM package from NetSuite.
Bell said that one of the key items that attracted her to NetSuite was that it had offered more e-commerce capabilities.
E-commerce action is being debated, but there are no concrete plans, she said.
"We are certainly looking at different avenues that would include e-commerce, a tool that would add a lot of value to the CRM," Bell said.
"Having this tool just prepares us. As a company, we are looking at different business opportunities. Delivery [of ice cream] is something that has certainly been thrown out there. We have such a awesome franchise opportunity."
The franchise opportunity is referring to national orders that could be assigned to the nearest local store in any of 47 current states (all U.S. states other than Vermont, New Hampshire and Wyoming) plus Washington, D.C., and outside the United States in Puerto Rico, Guam and a store about to open in Japan.
The chain directly owns about a dozen stores in the U.S., including its first in Tempe, Arizona, and a flagship store in New York City. All of the others are franchised.
Because of the large number of independently owned franchises, the chain can operate with a relatively small staff of about 200 employees.
Bell's IT group employs 14 people "and key partners," she said.
But having such a huge percentage of revenue under the control of franchisees makes corporate-wide IT and marketing initiatives something that has to be handled very delicately.
Bell, for example, said her chain wants to be much more than a chain of scoop shops within a few years.
"Our vision is to be the number one best-selling ice cream in America," she said, which is why she adds ice cream manufacturers Breyers and Dreyers to her list of rivals. That also raises the question of retail and grocery store distribution, which is not likely to sit well with franchisees.
Locally, franchisees have done outreach programs to area businesses and schools and can roughly gauge community preferences in that way.
"We have franchisees who have done an outstanding job with local relationships. They know who the school administrators are, the girls and boys clubs, the businesses that order cakes, etc."
But for a true corporate business intelligence system, more detailed information must be gathered at all stores with all orders and analyzed at headquarters, Bell said.
Bell comes to her role with a nontraditional background, officially having the title of VP, Special Projects.
Before Cold Stone, she held senior legal department positions at BellSouth and McDonalds, although the positions were management and she is not an attorney.
Her e-mail signature touts her favorite creation as Mint Mint Chocolate Chip, and the acting CIO's outgoing voicemail message even reminds message-leavers that every day is a good day for ice cream. It wisely doesn't mention the 14 percent butterfat.