Convinced that ice cream stores can weather even the coolest Midwest summers and bolster its dairy revenues, Aurora-based Oberweis Dairy plans to roll out a major expansion of its retail shops.
“We know how to run ice cream stores,” said Mark Vance, vice president of marketing, noting that the company has operated dairy stores since 1950.
Vance says the existing 33 retail shops–where customers can buy hand-packed and scooped ice cream as well as milk and other dairy products–are good assets and now account for more than 40 percent of the company’s revenue.
Even with that growing line of income, Oberweis won’t be using its own money to fuel the expansion.
Instead, the company plans to sell franchises for as many as 500 stores that will initially be located in a seven-state area stretching east to Ohio and north to Michigan’s upper peninsula. The company first will be targeting Milwaukee and Indianapolis, where it already offers home delivery of its milk products. It then plans to move east to the Cincinnati, Columbus, Cleveland and Detroit markets, according to Robert Stidham, an executive with Oberweis’ ice cream stores.
Home delivery of milk, which Oberweis would continue to handle itself, likely will be extended to each major market the company enters.
The firm expects that within two years as many as 175 company-owned and franchise-owned stores will be operating. Oberweis, which owns its 33 stores, said it will slow the expansion of company-owned stores.
The company, which got its start delivering milk in the Aurora area in 1927, has used both delivery and retail-store channels to help build its reputation.
“It is a brand builder. People who get to know us through the store become home delivery customers, and home delivery customers frequent the stores,” Vance said.
In recent years Oberweis, which had about $50 million in sales in 2003, has fueled the growth in its business by selling milk and milk products that are free of growth hormones. Now, 42.5 percent of its business is recorded in its dairy stores, while about the same amount is recorded in home delivery sales.
The remaining 15 percent comes from wholesale accounts with a variety of grocery stores, including Jewel, Dominick’s, Dierberg’s in St. Louis, Whole Foods, Wild Oats, Treasure Island and Fox & Obel.
The company employs 1,300 full-time and part-time workers, including about 700 people in its stores.
By the time the first 300 new franchise stores are operating, the company expects that 65 percent of its revenue will come from store sales.
To make sure it handles the rollout of the operation as best it can, Oberweis has hired iFranchise Group Inc., a franchise consulting firm, and the law firm of Piper Rudnick.
“The issue isn’t one of capital,” said Stidham, who will be in charge of franchise development. “We’re not franchising because we have to, we’re franchising because we want to.”
Peter Birkeland, president of the Birkeland Institute and the author of “Franchising Dreams,” said Oberweis’ decision “is a clever strategy and is something that companies should think about. By building brand and the whole experience they may be better off than bearing all of the risk [of expansion] themselves,” he said.
Oberweis, officially headed by Jim Oberweis, who lost his bid this year for the Republican nomination for the U.S. Senate, already is financing a 30,000-square-foot expansion of its 75,000-square-foot dairy to accommodate the expected growth in stores.
“The issue is how do we grow the company so we can ensure the same caliber of experience,” Stidham said, noting that the company already is talking with nearly 200 people who were previously executives at major companies before investigating franchise opportunities.
Birkeland, who operates a franchise boot camp for potential owners and a franchise talk show via the Internet, agreed that the company probably will find better qualified people to run the stores than it currently has managing the company-owned stores.
“Franchisees have their backs against the wall with the banker screaming at them, so they have to make it work. Whereas managers just go home at the end of the day,” he said.
But Oberweis will be entering a market in which a number of international operators, including Baskin-Robbins Inc., Dairy Queen Corp. and TCBY are well established. And new premium ice cream makers, such as Stone Cold Creamery, are trying to stake a position.
“We’re different than those so-called competitors,” said Stidham. “We don’t have 31 flavors. We make an extraordinarily high-quality product compared to those competitors.”
But it will be facing a tough competitor in Ohio, where United Dairy Farmers operates 188 convenience and dairy stores including 150 where gasoline is also sold. In Missouri, it will face Braum’s Ice Cream and Dairy Stores, which operates 281 stores from its headquarters in Oklahoma City.
Despite the obstacles, Stidham believes Oberweis will be successful with its plans.
“There’s nothing new about what we’re doing other than trying to identify and attract outstanding business partners in the community to help us grow,” he said.
