How They Started (27 page)

One gray morning shortly afterward, it was raining heavily. The Pinkberry store wouldn’t open until 11 a.m., but by 10:30 a.m., Shelly found 20 people were already lined up outside, waiting in the downpour.

“That’s when I thought, ‘This is something. This is going to happen,” Shelly recalls.

As winter gave way to spring, the buzz grew about the little yogurt store with the light, tangy yogurt. Food bloggers began to take notice. A mention in the influential blog
Daily Candy
in August 2005 touted the low-calorie, nonfat aspect of the yogurt. Traffic grew and began to include celebrities. Soon, Salma Hayek, Paris Hilton, Leo DiCaprio and others appeared in gossip magazines with a Pinkberry cup in their hands.

Suddenly, Pinkberry went from interesting to red-hot. Fans dubbed it “Crackberry.” Popular food blogger Rosie O’Neill wrote, “I would get Pinkberry IV’d into my veins if I could.” Customers wrote fan letters and signed them “Groupie for life.”

The budding business broke even by about mid-year when it hit $400,000 in total sales. By the end of that first year, sales topped $1 million.

Salma Hayek, Paris Hilton, Leo DiCaprio and others appeared in gossip magazines with a Pinkberry cup in their hands.

A stampede of other media outlets called after the
Daily Candy
mention. One piece about Pinkberry appeared on Korean television and caught the eye of Shelly’s father, who flew out for a visit. He took one look at the shop’s long lines and revised his opinion of her business idea. “He said, ‘I’m proud of you,’” Shelly says. “It reunited our family.”

Customers began to arrive from farther away, driving in from Baldwin Hills, from Koreatown, from Santa Monica. With nowhere to park, they’d double-park or block driveways, then dash inside only to find a 20-minute wait. The city of West Hollywood’s parking enforcement cops began handing out $50 and $60 parking tickets.

By the following summer, the city was handing out $175,000 a month in parking tickets to Pinkberry devotees. It became known as the $60 yogurt—it was $5 for the yogurt and $50 for the ticket.

The parking-ticket situation caught the eye of a
Los Angeles Times
reporter. The resulting article, “The taste that launched 1,000 parking tickets,” alerted the entire city to Pinkberry’s runaway success. Shelly was immediately inundated with offers to invest in the company and offers to open Pinkberry locations: a typical day would bring 100 phone inquiries and 150 faxed-in applications. It was a situation most entrepreneurs would have killed for, but Shelly put off signing any deals.

Before expanding, Shelly wanted to develop a marketing plan and improve the branding for Pinkberry. After a search, she hired Singapore native Yolanda Santosa of design firm Ferroconcrete. A visual artist who would go on to design the title credits for TV shows
Ugly Betty
and
Desperate Housewives
, Santosa asked for a $250,000, one-year contract. Shelly agreed immediately.

“I felt this is money I have to invest in our brand image,” Shelly says. “She’s a genius. She made every little thing have meaning.”

Santosa created branding for every item at Pinkberry, down to the bathroom-door signage. Inspired in part by the film
2001: A Space Odyssey
,
early ads featured the original white yogurt against a white background in a white Pinkberry cup with the logo showing, with a couple of raspberries on top.

The company’s reward program was dubbed “Pinkberry Groupies”, rather than a fan club. “Pinkberry is a rock star,” Santosa explained in a 2008 presentation on the chain’s branding.

At this time, “swirly goodness” became the company’s trademarked slogan. Team members are “swirlers” and attend Swirly College. Signs with store hours announce: “Swirling daily 11 a.m.—11 p.m.”

The final branding masterstroke: Pinkberry has a theme song. The bouncy, rap-style tune was created by Lady Tigra of the ‘80s hip-hop duo L’Trimm. Among the lyrics:

Sorry ice cream, I’m dreaming of a different dessert

Pinkberry shaved ice and frozen yogurt

It doesn’t feel like I’m cheating when I’m eating it

Cuz it’s healthy; I’m feeling better already …

Sorry ice cream—I’m on my way to Pinkberry …

In September 2006, Shelly and Young opened a second store financed by the company’s cash flow, in LA’s Koreatown. It quickly became as mobbed as the original store.

At this point, Shelly felt stretched to her limits. She was working full-time in the first store, getting up early to purchase and cut up fruit for toppings, and now also managing a second store. So for a third location on trendy Melrose Avenue, she sold a franchise to a trio of brothers who owned a small chain of 10 video-rental stores. Soon after, several more franchises expanded the LA market and brought Pinkberry to New York City.

Visitors to those stores told their friends about Pinkberry, too. Some of these fans turned out to be friends of Starbucks CEO Howard Schultz and his investing partner Dan Levitan, who together had co-founded Seattle-based venture capital firm Maveron. In late 2006, Levitan had his first meeting with Shelly and Young.

“We were just totally struck by the consumer reaction to it,” says Levitan. “We met with them a few times, and thought the business was very much on trend and satiating a modern consumer sensibility. We kept a dialogue going and got to know them over time, and a personal friendship developed.”

In October 2007, Maveron finally inked a deal to invest $27.5 million and build a professional management team to develop the strategy for Pinkberry’s global expansion. How did Shelly and Young choose an investment partner from the crowd of possible suitors?

“Dan was a true believer in our brand,” Shelly says of Levitan. “And Howard could help us expand into other countries, which really helped us, too.”

“We were just totally struck by the consumer reaction to it,” says Levitan. “We met with them a few times, and thought the business was very much on trend and satiating a modern consumer sensibility.”

With the investment came the appointment of a new CEO: Ron Graves, a Maveron partner and former Air Force fighter pilot. He had worked alongside Schultz and Levitan for eight years before joining Pinkberry. Graves focused on creating a clear strategy to transform Pinkberry from a hit chain in two US markets into a successful global brand.

Graves immediately sought to partner with the founders and add discipline to franchising practices. An important change was a switch from seeking individual franchise owners to relying on area developers who build multiple units. Choosing fewer, more experienced franchisees helped the chain expand rapidly.

Shelly with new CEO Ron opening Pinkberry in Kuwait.

With a new board of directors and the addition of experienced managers to execute the anticipated growth curve, a bold strategy was crafted to expand internationally immediately, by opening in Kuwait City before Chicago. Pinkberry was a smash hit in the scorching-hot climes of the Middle East, and would add more stores in the region through a 2009 agreement with experienced regional franchise operator M.H. Alshaya Co.

While Pinkberry was basking in its favorable press, growing its audience of loyal patrons, and adding more stores, success bred many competitors. Another California chain, Yogurtland, started in 2006 and would grow to be a major competitive force.

The backlash hit in 2007, when a class action lawsuit was filed, alleging the chain engaged in deceptive marketing. It turned out that Pinkberry’s frozen treat technically wasn’t frozen yogurt under California law. Unlike in the vast majority of US states and the rest of the world, to be called “frozen yogurt” in California, the product had to be made in a certified off-site facility. Pinkberry wasn’t the only company caught in the confusion, with the state notifying several frozen yogurt manufacturers in a clarification of the rules. Once the founders of Pinkberry knew about the certification requirements, they quickly complied.

The timing wasn’t great, as Pinkberry had already expanded to its second major market, New York City. At the same time, another competitor was entering the fray.

Red Mango had a head start on Pinkberry, opening first in South Korea in 2003. It grew to 100 locations there before opening its first American store in LA’s Westwood neighborhood in July 2007, a full 18 months after Pinkberry opened. Red Mango USA founder Dan Kim shared his suspicions with the media that Shelly and Young had really gotten the idea for Pinkberry not from Italy, but from seeing Red Mango stores back in Korea. Kim told the
New York Post
: “Pinkberry borrowed a lot of our design elements.”

Pinkberry viewed such comments as competitive sour grapes and noted that the signature design elements Pinkberry became famous for weren’t present in any Red Mango stores.

The lawsuit was a major media event—“The All-Natural Taste That Wasn’t,” blared the
New York Times
—but customers didn’t seem to care. Sales continued to soar. In 2008, the lawsuit was settled with Pinkberry donating $750,000 to various charities. Pinkberry won official recognition from the National Yogurt Association and the scandal was put to rest.

Pinkberry’s rapid success spawned copycats—referred to by Pinkberry staff as Fakeberries—resulting in Pinkberry, too, instigating lawsuits to protect the company’s trademarks. In 2008, Pinkberry sued yogurt startups Kiwiberri and Yogiberry for trademark infringement. In Yogiberry’s case, the chain made changes to its logo and store décor, while Kiwiberri’s case was quietly settled.

The company’s focus soon returned to its products, and seasonal yogurt flavors began to be introduced, starting with pomegranate. In the years to come, additional unusual flavors would be added, including peanut butter & jelly, salted caramel, and blood orange.

Reflecting back on the company’s success, Shelly says her best move was choosing the right investor who could provide not just money but expertise to help her grow her idea into a global brand. Her biggest mistake, she says, was letting the chain grow too quickly in the early days before having the infrastructure to scale the business.

Texas in the late 1970s and early 1980s
wouldn’t seem like the best place to start a business dedicated to natural and organic foods. A state dominated by the beef industry and famous for its barbecued ribs, it was hardly the place where an innovative, organic grocery store like Whole Foods Market would spring to life. Its founder, John Mackey, tough and combative, championed a brand and a direction that few would contemplate anywhere, let alone in a state where meat counts so much toward the local economy. Yet today the company has more than 300 outlets and has spread as far as Europe, boasting $10.1 billion in revenues for the full year to September 2011.

John and his then-girlfriend Renee Lawson Hardy went through a rollercoaster ride before attaining their success. Not only did they survive a tough recession and a skeptical consumer base, but also a flood, an eviction, and battles of conscience—not to mention many of the other challenges that can hit any business—before making a success of their natural food vision.