BR Research: Please tell us briefly about the frozen yogurt market and a little bit about Tutti Frutti’s history?
Dr. Naeem Niazi: Frozen yogurt was first introduced in the world in 1971, but at that time it didn’t pick up because people were not that health-conscious then as they are now. Much later, frozen yogurt’s demand started to pick up from the year 2000 and onwards. There were many franchises around the world catering to this niche, the likes of Pinkberry, FroZenYo, Red Mango, TCBY, Yogurt Land, etc. The history of Tutti Frutti starts from 2007. Presently, Tutti Frutti is the largest self service frozen yogurt chain in the world. We are present in 36 countries and are looking to expand to 100 by the end of next year. We have around 700 outlets across the world.
BRR: How is Tutti Frutti different from its competitors?
NN: What differentiates us from competition is that Tutti Frutti came and introduced the concept of self-service in this category: That puts control back into our customers’ hands and they are the masters of their own choice. From kids to elderly people, this gives them confidence to choose whatever flavour and topping they like. We have seen that consumers at Tutti Frutti outlets love to operate the product machines. Our product identity, quality, multiple and unique flavours, unmatchable taste and greater affordability entices the families and friends to come back more frequently. Our modernised and attractive store designs promote practicality, convenience and effortless operations to minimise overhead costs.
Tutti Frutti frozen yogurt is a nutritious treat carrying the goodness of probiotic – a vital natural component used for centuries for health and promoting foods. Last but not the least, our catchy brand name “Tutti Frutti” easily becomes the talk of the town.
BRR: How is the supply chain organised around this product?
NN: Our operations, from start to finish, are in-house. We manufacture the soft serve machines that our franchisees use. We produce the raw material ingredients within the Company. The recipes of base powders are also developed internally. Tutti Frutti has more than 80 flavours to offer in the frozen yogurt category. We have an in-house Research and Development team who is busy day in and day out, coming up with innovative recipes, flavours and ideas.
We have six base powders which no other company can boast of. These include the vanilla base, chocolate base, tart base, cream base, coffee base and velvet base. All our flavours that we add to the base powder are fruit syrups with no artificial ingredient. Our Company has the distinction of producing two base powders (chocolate and vanilla) that are sugar free, but there is no change in the flavour and taste. Most of the toppings are produced in-house using coconut and other fruits.
All our products are Halal certified and that is why we have expanded in countries like Saudi Arabia, Middle East, Malaysia and others. The shelf life of our base powders is 18 months at normal room temperature. No refrigeration is required. We mix the base powder with milk and water, and then we can add flavour in it according to the recipe provided to our trained staff. All the base powders are produced in USA under very strict hygienic conditions and supplied from there to all the distributors around the world wherever we are present.
Tutti Frutti in Pakistan
BRR: Please tell us about the Tutti Frutti’s presence in Pakistan and future plans. Moreover, how do you oversee and organise Company’s operations in Pakistan?
NN: I am working as the lead business developer for Wellspring USA in Pakistan and many other countries. I am based in both California and Islamabad and I keep shuttling back and forth between the two. We also have liaison offices in Korea and Dubai. TFFY Pvt. Ltd is our Company handling Tutti Frutti operations in Pakistan, having a team of 35 direct employees. Another 150 individuals are indirectly involved with the Pakistan operations. We have a dedicated warehouse for the supplies. We make sure that at least three months’ supplies are there all the time.
We have 17 outlets already opened in Pakistan. There are five outlets in Karachi, three each in Lahore and Islamabad, two in Rawalpindi, two at Bhera Motorway rest area and one each in Abbottabad and Faisalabad. Another 19 are under-construction in different cities. We are targeting about 100 branches by the end of the year 2013, reaching customers in nearly every city of Pakistan.
BRR: Are you following the franchise model to expand business in Pakistan?
NN: Among the existing branches in Pakistan, currently, four are owned and being run by the Company management. Yes, we operate on a licensing/franchising model, just like McDonalds. I am the master franchisee of Tutti Frutti in Pakistan. I got the master franchise license for Tutti Frutti in the year 2009 for countries of Pakistan, Middle East, Bangladesh, Sri Lanka, Nepal, Myanmar, Afghanistan, and more recently, India. I have the right to license, but I am also obligated to provide the franchisees with all the facilities like design, plan, outlet construction, supply of raw materials and also back-up services such as machinery’s repair and maintenance.
We license our outlet operations on turnkey basis. For a one-time payment of $150,000, a whole package is offered to the franchisee, which includes licensing fee, interior design including its implementation, cost of four machines, kitchen operationalisation costs, small ware, training, software systems including two POS systems, etc. A franchisee just has to open the door and walk into his or her new branch. After that, the franchisee runs the business on its own. Location is chosen by the franchisees themselves, and we give them the go-ahead if it’s a suitable place for business.
The one-time charge is low, compared to other established franchises around the world. We do not demand any royalty from our franchisees, neither do we ask for any share in profits. Franchisees can later sell their license to other interested buyers if they want to. After a franchise goes into operations, we sell and supply all the raw materials to all our franchisees. According to the contract, franchisees cannot buy from any external sources, only Wellspring USA can supply them the inputs.
BRR: Has the frozen yogurt market shown any visible demand pattern in Pakistan?
NN: It all depends on which area and city we are referring to. For instance, the demand dynamics in Lahore are different from those in Karachi. Similarly, the quantity consumed on Bhera Motorway rest areas (where we have one outlet on either side) is inherently different from that in an outlet located on high street. We have the same rupee price (which is ‘rupee per gram’) across all our outlets.
Our raw materials’ movement gives us some idea of the traffic (or demand) on these outlets. Demand seems to be ranging from 300 cups a day to 600 cups a day. I feel that the demand is robust, and will increase manifold in the future. It’s a good business to invest in. The margins are as high as 30 percent in this business. Our estimates suggest that within two years franchisees can recover upfront costs. It all depends on the volume of frozen yogurt dipping down the machines.
After the success of Tutti Frutti in Pakistan, Wellspring is soon going to launch two more food-related franchises, which will be another good addition to the Pakistan market.