Ice Cream Business

This article was written to provide a few basics on opening an ice cream parlor. There’s a lot more to it that is listed here, but reading this might give you a little bit of an idea of what is required. If you own an ice cream store, and would like to comment, please do. We encourage you to challenge our assumptions and contribute to our knowledge base.

The most important decision you will make on the road to success is most likely to be the location you choose. You’ve probably already heard of the 3 most important factors involved in a successful retail operation: location, location, location. I cannot stress enough the importance of this, especially when it comes to ice cream.

Ice cream is an “impulse” product. In other words, people who buy ice cream usually do it on impulse when they see it and are tempted. It is less likely these days that people will make a conscious thought to go to an ice cream parlor. Sure, some still do, but more sales are made to customers who happen to be brought to the area for another reason.

I have listed the key factors to look for when considering your location below. If your location meets most of these, you are off to a good start:

Traffic

• Car traffic is nice, but more importantly, how many people are walking by?
• If you are counting on high car traffic, make sure that your location is easily visible from the street and easy to access (parking, etc.)
• Are they typically there to browse or to buy?
• Being in a Wal-mart type plaza doesn’t guarantee success. It depends on how close to the Wal-Mart door you are.
• Talk to existing businesses and ask them what the traffic is like.
• If you are counting on car traffic as your main traffic, a drive thru window is almost mandatory.
• Enclosed malls are better for year round traffic and people prefer them to stroll through and buy ice cream! In general, it’s better to pay more rent and be in an enclosed mall than to pay less and be in a strip mall.
• 3-4 good anchor stores would help.
• Visit the site on different days at different times to see how consistent the traffic is.
• Competition: How many parlors within a 1 mile radius? If inside a mall, who else is serving ice cream? Competition is not necessarily a bad thing. If someone else is on one side of the mall and doing well, chances are that you will do well on the extreme other side of the mall.
• Population is key. If the area is somewhat congested, that’s a good sign.
• Visibility. Will everyone who walks close by know that there is ice cream there?
• Would you buy ice cream there?
• Hours of operation: Make sure that the peak traffic flow is during hours that you’re willing and able to be open.
• Make sure you have adequate space. 800-1000 sq ft is a pretty good middle ground.
• Is the area growing?

Good locations/Bad locations:

Good:

• Indoor Malls, airports, zoo’s, university campus, amusement parks, strip malls (high traffic), next to a movie theatre, superstore (inside a Wal-mart), professional building, train station, beach area, sporting arena.

Bad:

• Strip Mall unless in thriving area with obvious high traffic (low traffic, no real anchor’s), busy street (but being on the wrong side), gas station, defunct fast food/snack operation.

LEASES:

• After you find out what they want for monthly rent, don’t be afraid to ask for a stepped up lease with a low initial amount. For example, free rent for the first month, half the rent for the next three months, then full rent beginning in month four.  Or a couple of hundred off per month for the first year. This is just a negotiating guideline. They may not go for it, but it doesn’t hurt to ask. In fact, they may be expecting you to. If you don’t, they may feel they can take advantage of you in some way. So it’s always best to shoot for the sky and then see what they will give in to. It is in their best interest to help you get off on the right foot and be successful. Many will be willing to help if they believe in you.
• From my experience, you probably don’t want to pay more than $3000 per month. It’s very hard to make a go of it at a higher monthly rent unless you are talking about an airport or ridiculously high traffic mall. An average rent for a parlor is in the $1800 range. Of course, these are just general benchmarks. An average parlor should sell around $18,000 per month. A rough industry standard says that rent should fall within 8-12% (10% x $18,000 = $1800 per month)

INCORPORATING/FORMING YOUR BUSINESS:

I am not qualified to give legal or tax advice, so I really cannot guide you here. I can tell you that incorporate.com is a great website that can explain in pretty basic terms what would be best for you as an individual or group of people and do it pretty cheap and painlessly.

COST PER SCOOP ANALYSIS:

In general, parlor ice cream is packed in 3-gallon tubs.  Edy’s, Breyer’s, Blue Bell and most premium brands come in 3 gallon, round cans. A ballpark figure as far as cost is concerned is about $26/tub for premium ice cream. Some companies charge less for Vanilla, Chocolate and Strawberry and a little more for everything else. The $26 is a good average figure for premium ice cream. You are supposed to get 55 four-ounce scoops out of a 3-gallon tub. This works out to .47 cents per scoop. I like to add 8 cents to the cost to cover waste, giveaways, etc. So were looking at .55 cents per scoop. Many companies will try to manipulate these figures in their best interests, but I can tell you from experience that the $.55 per 4 oz scoop is pretty reliable. Add another 5 cents for cup and spoon or the cone for a total of .60 cents per scoop. Very doubtful that in real life it works out to be any less, even if you are paying a few bucks less for the tub. Cheaper tubs usually have more air whipped in and you yield less, therefore having the same or higher cost when it comes down to it. My recommended retail is $2.00.

$2.25-$250 isn’t out of the question, but might be too much depending on the area. You are in this to make money, so do some competitive research in your area and make sure that you start off as high as the market will seem to bear. Raising prices later because you realize you aren’t charging enough is never good, so make sure you pay particular attention to your pricing strategy right off the bat. The majority of new business owners make the mistake of not pricing their products high enough. Don’t let this be you. A $2.00 retail makes the COGS (cost of goods sold) 30%. (.60/$2.00 = 30%)

BASIC SAMPLE OPERATING PROFIT/LOSS STATEMENT:

( this statement is intended to be a very basic example and is not a guarantee of anything. Actual p/l varies according to hours open, full time employees, etc.)

One Month:

Sales:                                          $18,000

Cost of Goods: (30%)                   $(5,420)

Gross Profit                                 $12,580

Less: Overhead

Rent                                            $(1,800)

Utilities                                       $(600)

Labor                                          $(4,000)

Equipment/Biz start Loan             $(1,200)

Advertising                                  $(500)

Administrative                             $(200)

Misc                                           $(200)

Total Overhead                            $(8500)

Total Monthly Profit:                    $4080

OTHER ITEMS TO SELL:

It is not a bad idea to try and diversify your operation as much as possible. Popcorn, cotton candy, and other fun foods are a good incremental sale. Cookies and pastries are also good if you know a good place to get them fresh. A suggestion may be Otis Spunkmeyer, a vendor of cookies, brownies, pies, muffins, etc.). 888-ASK-OTIS.

SOFT SERVE?

It would be great to be able to have both soft serve and hard pack in your parlor. Depending on your financial situation, this may not be a reality. Soft Serve machines are relatively expensive. They are a good investment if you are adding them to an existing snack shop and want to get into the ice cream business, but I don’t necessarily recommend them to start off with if you are on a limited investment budget and trying to get a parlor off and running. You can purchase 2 sixteen-flavor dip freezers for less than what a 2 flavor soft serve machine will cost you. Hard pack yogurt can be excellent!

On the other hand, if you have the financial backing, there are many soft serve fans out there, and this can be an incremental sale.

CHOOSING YOUR BRAND

There are great premium brands out there such as Edy’s, Breyer’s, Blue Bell, Blue Bunny, as well as many strong regional brands. A key issue when choosing a brand is not only the quality of the product, but also the distribution services in your area. Not all brands are available in all states. You need to find out who distributes the brand (company owned routes vs. independent distributors) in your area and make sure that the organization seems capable and competent to handle your needs. Do they stock as many flavors as you want to carry? Can they give you a flavor list to order with? Who else do they service in your area (you can check with them to see if they give good service and are dependable). What brands to they distribute?

MAKING YOUR OWN ICE CREAM

If you feel you have the passion and ability that it takes to make your own ice cream I would not argue against it. If this is something you are thinking about, make sure you read the sample business plan closely. The bottom line is: you need to be extremely devoted (full time) to your parlor for this to work. If you are devoted, and passionate about the product you are making, you have a great chance of succeeding.

The investment for a parlor that makes their own requires a substantially higher investment.

Ballpark Initial Investment: (depending on what your situation is, the minimum investment would be 15-20k if you go with a portion of the equipment used)

It can be done for less, and certainly for more, but an average independently owned basic parlor would cost you in the vicinity of 50K to put together. Depending on the theme you choose,  (“old fashioned parlor with steel stools, etc.) how much work needs to be done to the location, etc., you could be looking at 6 figures.The figures below are intended to give you an idea of how the initial start up costs might breakdown. Depending on your specific theme or situation these figures could be adjusted up or down. Working capital (basically what you should have in your checking account to maintain positive cash flow, etc.) can be as low as $3500. I’ve seen some franchise numbers that suggest a 10k working capital figure. Obviously, the higher the better and the main objective here is to guard against a slow start, unexpected costs, a need for increased advertising and promotions, etc.

Rent ($1500)      x 3 (first/last/security)                       $4500

Utilities (Deposit)                                                        $1000

Contractor (Cabinetry, etc)                                         $10,000

Ice Cream, Drinks, Cones, Candies, etc.                     $2,500

Advertising                                                                 $500

Paper goods, cleaning supplies, office sup, misc         $750

Plumbing (sink, dipper wells, etc.)                              $1500

Insurance Premium                                                    $400

Signage                                                                      $2000

Deposits/Liscences                                                    $1500

Cosmetic work to space                                              $1000

Working capital                                                          $7500

Architectural & Legal                                                 $2500

Equipment:

Dipping & Storage Freezers                                     $8000

Flavorail                                                                         $2800

Under counter Fridge                                                    $1600

Waffle Cone Baker                                                        $600

Hot Fudge Warmer                                                        $400

Glasses/Metal Shake Tins                                              $350

Shake Mixer                                                                  $600

Register                                                                         $300

Total                                           $50,300