The Country's Best Yogurt (Tcby) Case Study

2.0 Introduction

TCBY has been a frozen treats product innovator from the day its first shop opened in Little Rock, Arkansas in 1981. The great-tasting, low-fat frozen yogurt concept received an enthusiastic response from an increasingly health-conscious public. Its trendy new product propelled the company to the forefront of franchising, and was the �first in a long line of ground-breaking menu items that anticipated consumer preferences and continually refreshed the TCBY concept’ (Conlin 2001, p. 133). But TCBY products are just one of the reasons that thousands of operators have concluded that a TCBY franchise is the preferred opportunity in branded frozen treats, and a dynamic partner in any co-branded concept. However, TCBY is facing a lot of problems, both internal and external, during the difficult period from the late 1980s to the early 1990s, especially the problem with its franchising system. The purpose of this report is to provide a comprehensive situation analysis of TCBY, with special reference to its franchising system, and identify several concerned issues of TCBY and its franchisees, and how these issues have negatively affected the relationship between them. Furthermore, this report also provides three recommendations in the attempt to diminish these concerned issues and better maintain the relationship between TCBY and its franchisees, and most importantly, help TCBY to increase the company’s performance and achieve their strategic goals in the next few years.

3.0 Environmental scanning

Before the situation analysis of TCBY’ franchising system, it is essential to find out why franchising has become such a problem in this case. This can be achieved through an environmental scanning. Basically, three environmental factors have strongly influenced TCBY’s franchising system. They are sociocultural, competitive and economic environment. Firstly, according to the sociocultural environment, we were able to find out TCBY’s consumers are getting more and more health conscious. This is because the frozen yogurt that TCBY produces has a sound health and fitness emphasis which is a social issue that affects the way goods flow through marketing channel. Secondly, due to the competitive environment, TCBY’s franchisees are facing competition from new stores in nearby areas so that it causes the decline in sales of their stores. It is evident in the case that TCBY had 34 percent of the market for frozen yogurt, while its closest competitor had only a 9.7 percent share. However, more companies are getting into the market. McDonald’s Corporation replaced its soft serve ice cream with frozen yogurt. Dairy queen also entered the market. Baskin robins added frozen yogurt to its line of ice cream product. Haagen-dazs added a new frozen yogurt to its product line in supermarkets. Convenience stores and grocery store chains, such as the Kroger Company, have frozen yogurt machines in their facilities. This kind of competition is referred as a Horizontal Competition �that occurs between Channel members operating at the same level and generally within the same market’ (Brickley 1996, p. 173). Lastly, based on the economic environment, there is a downturn in the economy. As a result of both heightened competition and reduced consumer spending, TCBY’s profits fell 32 percent from 1989 to 1990 and were down 22 percent in the first quarter of 1991 from the same period in 1990. Overall, these environmental factors are the major reason of why franchising has become such a problem in this case.

4.0 Franchising system situation analysis

Based on the environmental scanning above, the central problem within this case study is considered to be the increasing competition in the frozen yogurt industry and the increase of more price conscious consumer strongly affects the morale of TCBY’s franchisees. They have become more and more disenchanted. So what is franchising? �Franchising is an arrangement whereby a supplier, or franchisor, grants a dealer, or franchisee, the right to market the goods or services in accordance with established standards and practices’ (Pelton 2002, p. 387). It is beneficial for both parties in its ideal state, because on one hand the franchisor obtains new sources of expansion capital, self-motivated vendors for its products, and therefore an opportunity to enter new markets and increase the market share. On the other hand, franchisees gain products or services, expertise, and the stability usually reserved for large and reliable enterprises so that it may lessen the risk for them when they start a new business. Thus, it is essential for new businesses to build up this channel relationship by buying a franchise from a large, dominant franchisor with a well-managed franchising system. In TCBY’s case, it is strongly evident that one of TCBY’s strengths is its franchisee support program. The company provides sufficient operating manuals and marketing materials to assist its franchisees so that they are likely to have sound understanding about store operations. Also, a new franchisee of TCBY has easy access to many items needed for start-up and for day-to-day business. As a result of TCBY’s well managed franchising system, it leads to a 30 percent market share for TCBY in the late 1980s.

However, franchising is likely to have a negative impact to the business if it is not managed well, and it is often come of the concerns for both parties. Generally speaking, the major concern facing franchisees is that franchising hardly guarantees a profit. This is because of the encroachment, competitions from other companies or the instable local market demand conditions. In TCBY’s case, a clear example of encroachment is that many franchisees that have experienced declines in sales attribute a large portion of the declines to competition from new stores in the same vicinity. Although TCBY carefully selects locations for new stores to prevent competition with existing stores, the sales still decline significantly, that is because TCBY also faces competition from other companies entering the market. For instance, as of 1990, the firm had 17000 competitive units outside of the TCBY system. Another concern for franchisees is that most franchisors collect promotional monies from franchisees and pool it to launch poor promotional campaigns. It is once again evident in TCBY’s case. For example, some franchisees complain that the national advertising campaign is ineffective, and these franchisees are asking the company to waive advertising payments and royalties. Therefore,