• History of the company pricing.
  

  • 2004 (kids $2.50, $3.39, $4.79, $5) Including the Mix-in
    
    • It was assumed the following (Small Basis):
      
      • Cream $7 per gallon ($0.33)
        
      • Flavors $0.05 per serving
        
      • Cup $0.05 per
        
      • Spoon $0.02
        
      • Mix-in $0.17
        
      • Nitrogen$0.12 (Over time we use .4
        
      • Total cost$0.73
        
      • Price 5 x Cost (ie: 20% food costs)
        

• • When we started we didn’t know how good the product was really going to be.
    
    • Jerry In the Past has joked that “we were shooting for adequate”  when people would give us the comments like “this is the best product I’ve ever had”.
      
      • The fact is we didn’t know if it was going to be a good product or not.  We knew we had the wow factor with a great show.  What we thought is that people would come back for the show and not for the product.  We were wrong they come back for the product but the show brings them in the first time.
        
  • Adding a mix-in in seemed like the logical step to trying to ONE up the competition.  We figured that all Cold Stones were the same.  The Cold Stone near us charges $0.15 for the first mixing and $0.65 for each additional.  Red Mango charges $1.00 for the first mix-in.  We were decidedly the lowest price but we never asked if the customer wanted it or did it make the product better. In fact often times I would apologize for what the mix-in did to the product.
    

• • We sampled with NO Mix-in.  Mostly we were trying to be cheap.  But we started realizing that leaving out the mixin provided bigger responses.
    
  • Knowing this it took the numbers to realize where the product shines.
    
• 2014 - we are getting franchisees and even our store reporting Costs of good are exceeding 25% and some stores going above 30%.  This created great concern but we didn’t have an answer of why.
  
  • April 2014 at the Multi-Unit Franchise Show in Vegas Peter ask why I didn’t bring a mix-in?  I always leave a mix in out when I want to show off the product.
    
  • We generally have had a great response to our product but occasionally we get comments that it’s ordinary.  Our product is anything but ordinary.  So why?  We’ve known that others put mix-ins to mask the water Crystal structure.  So when we add a mix-in and particularly when we over mix-in an ice cream and ice cream.
    
  • So how to get more Wow moments?
    
    • Reduce the mix-in or discourage the mix-in
      
    • We often get our product compared to Dip n Dots or Frozen Custard or Gelato.
      
      • What do those Three products have in Common?
        
      • NO Mixin (typically and if they do they are on top and sparing).
        

So let’s do the math:

• Explanation -
  

  • Cost of Cream - There are reasons for costs
    
    • Commodity Pricing - Historically we Milk Futures are high in the winter and low in the summer.  2.5 Gallons of Ice Cream mix has typically cost the same of the Class III futures.
      
      • Farr - Our previous supplier in the west would try and have stable pricing and not change with the futures but after getting a competitor in the market and studying the futures it became clear the stable pricing was always higher than the fluctuating pricing.  They matched the fluctuating price for about 4 years.
        
      • Winder has been making a proprietary mix. In other location not using Winder we are using a suitable off the shelf mix but at a comparable cost.
        
    • Between 2004 and 2010 as I would watch the futures prices Class III futures would fluctuate between $12 and $17.
      
    • Since 2012 - Futures prices started creeping up and no longer came back down to the seasonal lows.  The past 8 months Cream futures have been at ~$20 - $22.  Currently
      
    • The Fluctuation has been for a few reasons
      
      • Drought in California - Many farmers are slaughtering their cattle because they don’t have the feed or the water. Making a shortage of milk supply.
        
      • Chinese have had diseased cattle and have been exporting dehydrated milk
        
  • Candy Mix-in costs - When we started Sub Zero in 2014 you could go to the grocery store and get candy bars 4 for a $1.  It’s pretty typical that it’s now a $1 or more.
    
  • Our assumptions at the beginning were $0.17 per serving for the mix-in.  This is not accurate.  Our Spoons are 1 oz spoons so theoretically if you’re serving 1 spoon it’s costing ½ of a candy bar.
    
  • The Candy costs typically are 3 times the cost of the fruit and buying from the Food suppliers wholesale ends up being $0.33 per oz.
    

• Notice the 4 columns
  
  • Column 1:  Historic low cost of product with a lower than normal cost of mix-in.
    
    • Showing cost of goods of 17%
      
  • Column 2:  Today’s average Cream cost and the mixing Not going up in cost so unusually Low cost of Mixing
    
    • Showing cost of goods of 19.5%
      
  • Column 1 and 2 could be much higher if you’re not watching Mix-in portions.  As much as 30%
    
  • Column 3: Historic Low Cream Prices and REMOVING the charge and cost of the mix-in
    
    • Allowing for a 14% COGS
      
  • Column 4:  Average current Cost of Cream - REMOVING the charge and Cost of the Mix-in
    
    • Allowing for 17.5% COGS
      

• CONCLUSION -
  

  • Offer the mix-in and let them pay for it.
    
  • Give the customer the most consistent and smoothest possible by not encouraging the mix-in.