Here Comes the Chill

Back when I was teaching business plan writing, one of the techniques I would show my students was the industry analysis method known as a quadrant analysis. If you’ve never seen one, basically it’s a two-factor graph that charts the desirability of the industry on one axis (usually the X) and the company’s relative strength or dominance within the industry on the other (most often the Y). The chart is then split into four quadrants: Stars (strong position in a strong industry), Cash Cows (lesser position in a strong industry), Question Marks (strong position in a weak industry) and Dogs (weak position in a week industry). Where your company falls on the chart will drive your internal strategies; where your competitors fall will determine your market strategy, and if you should try to re-position the company.

The examples I usually gave the class were drawn from the ice cream/frozen dessert industry, because they were familiar and easy to grasp. Ben and Jerry’s was the typical “Star” when I started teaching, but by the time I came to work for Extension they were being overtaken by Cold Stone Creamery. For a cash cow, it’s hard to beat Baskin-Robbins, a firm that has never really been an industry superstar, but has been sitting there churning out revenue for over 50 years now, nearly always profitably. Question mark companies, at least at the time, were frozen yogurt places like TCBY or Penguins. Yogurt goes through cycles of popularity, and at the time they were in a down period (they have since come back up, just as I predicted they would). Finally, for a dog example I drew on the frozen tofu products, which for some reason have never caught on, despite their obvious health benefits and relatively low costs…

It was a simple, useful exercise that almost anyone could follow, and it got my students – who were mostly entrepreneurs without formal training in business or strategy thinking about the strategic picture of their new business. But now it turns out that I may not have been entirely correct when assigning the stars to our graph. A story in the Wall Street Journal indicates that a significant number of the Cold Stone franchises are either failing or struggling, and that as many as 25% of the franchise holders may be trying to sell their operations and flee the company. The Cold Stone company itself has just been acquired by a larger corporation that sells other franchises, and the new owners are trying to improve the situation, but the change has come too late for a significant number of former franchisees…

Some of the disgruntled franchise holders claim that Cold Stone misrepresented the profit margins available to them, and then lowered those margins even further by issuing reams of 2-for-1 coupons and similar specials. Other franchisees are complaining about lack of support from the corporation itself, or lack of assistance from their local business development managers, and some are claiming that Cost Stone made them purchase all of their supplies from a single-source vendor, resulting in high prices, huge “minimum order” amounts, waste, and similar problems. Cold Stone in turn claims that their critics were all franchise holders who expected too much return and were not willing to work hard enough to make a go of their operations. They also dispute charges that they were extending franchise offers to inexperienced investors (or indeed anyone with the money and credit rating they wanted), despite the obvious presence of people who fit that description among their current franchise holders…

It’s a huge mess, and a truly amazing thing to see happen to a company that was being held up, only a couple of years ago, as a rising star in their industry. Neither side disputes that the downturn in the economy, the rise in prices of dairy products, or the rise in transportation and energy costs has hurt their business, but even with all that is happened, it seems clear that Cold Stone’s business model, which once seemed so solid that anyone could make a fortune using it, turns out to have some serious flaws. I don’t know if they can turn things around or not, but it certainly supports my position that food service is the hardest business there is – and that business strategy is harder than it looks…