How They Started Read online

  Intrigued, Shelly tracked down the local shops’ Italian yogurt manufacturer and brought samples back to the USA to test. She missed the restaurant business and still dreamed of opening her own restaurant.

  “I didn’t have a research-and-development person,” she recalls. “I had a tiny office, one machine, and I’d just drop in the yogurt and milk and taste it and throw it out, again and again and again.”

  Dealing with rejection

  Meanwhile, Shelly thought she would try a time-tested dining concept first, to give her a more assured success. She laid plans to open an English-style teahouse.

  Scouting locations, she located a funky, 650-square-foot West Hollywood storefront on Huntley Drive, just south of main thoroughfare Santa Monica Boulevard. The storefront was a converted two-car garage that had formerly served as a tattoo parlor. The store was set back from the street, which Shelly thought would help create a relaxing, secluded feel for the teahouse.

  Shelly signed a lease for the space, a move she would soon regret. Her application for the teahouse’s liquor license was opposed by local residents. The store’s neighbors turned out in force at numerous public hearings to voice their objections. They didn’t want their quiet street disrupted by loud drunks. The process dragged on for nearly a year before her application was denied.

  The original store in West Hollywood.

  By now, Shelly had experimented with her yogurt recipe until she hit on a formula she liked. Already under lease for the West Hollywood store, she decided to go to Plan B: she would open a frozen yogurt shop. This would not require a liquor license, so she would be free to open the doors as soon as the shop interior was built.

  “I didn’t have a research-and-development person. I had a tiny office, one machine, and I’d just drop in the yogurt and milk and taste it and throw it out, again and again and again.”

  Shelly was excited by the prospect of moving forward to open her own eatery. But her father, who had since returned to South Korea, didn’t think much of her idea.

  “My father didn’t call me for a year,” she says. “‘You are embarrassing to my family members,’ he said. ‘You are going to be sitting behind the counter, reading a magazine and selling a couple yogurts. Do not call me anymore!’”

  Cold start

  Mindful of her previous restaurant failure, Shelly envisioned a simple menu for her yogurt store. Initially, there would be just two flavors, “original” or plain, and green tea. There was also shaved ice with flavored syrup, as an alternative for the lactose intolerant. The store wouldn’t even sell bottles of water to go with the yogurt—just a variety of toppings, mostly fresh fruit. The yogurt came in four sizes, from extra-small to large.

  With the menu in place, Shelly sought a designer. She wanted an eye-catching, memorable look that imparted a refreshing, restful feeling. She interviewed several architects before choosing Young, whom she knew by reputation.

  Young told her the Huntley Drive site was the worst retail location he’d ever seen. Parking was scarce, the store was hardly visible due to its setback, and the tiny store was off the main drag for pedestrians. But Shelly told Young he had to figure out a design for the existing store.

  Shelly sought a designer. She wanted an eye-catching, memorable look that imparted a refreshing, restful feeling.

  Together, they brainstormed a name for the concept. Shelly says they came up with Pinkberry “because pink is a very positive color, and the word had a nice rhyme to it. We wanted people to picture fresh, happy berries.”

  While the big yogurt chains of the 1980s had a cheap, fast-food feel, Young created a sleek, “fun,” high-style look for Pinkberry. The décor featured lots of white, with sherbet-colored dots of pink, orange and green for accents.

  Young selected top-drawer, name-designer furnishings: sleek, translucent Philippe Starck Victoria Ghost chairs; Le Klint light fixtures that evoked a ball of swirled yogurt; white, oval Isamu Noguchi tables; and minimalist wood-strip Case Study benches. A pebbly floor evoked the beach and summertime. The company logo was a simple pink swirl topped with a fruit leaf. The feeling he was going for, Young said later, was not unlike the makeup counter at Bloomingdale’s—warm, flattering lighting and an environment that makes customers feel special.

  Pinkberry opened on January 10, 2005, staffed by Shelly and one part-time employee hired through a classified ad. Midwinter wasn’t the best time to open a frozen-treat shop, but Shelly didn’t want to wait.

  When she put out the “Open” sign, a couple from the neighborhood came in—not to buy, but to offer their condolences. They told her bluntly that a yogurt shop was not going to make it in this odd locale. Then they bought a cup of yogurt, just because they felt bad for her.

  For the month of January, total sales were $70. “I was really depressed,” Shelly recalls. “I thought, I’ve got this home equity loan from the bank and if I lose this business, I’ll lose my house, and I’ll have to go back to Korea and beg my parents to live with them.”

  Confident that she could get customers by handing out free samples, Shelly loaded a cooler with yogurt and began walking up and down the street. But few pedestrians were willing to accept her free samples. She literally couldn’t give the yogurt away.

  They told her bluntly that a yogurt shop was not going to make it in this odd locale. Then they bought a cup of yogurt … they felt bad for her.

  The only hopeful sign: the neighbors who were her first customers returned to buy more yogurt. When she asked why, Shelly recalls they said, “You know, I keep thinking about it. After dinner, I want to have it.”

  The low-calorie, non-fat, yogurt was a perfect fit for the capital of compulsive dieting. Diners felt good about treating themselves to Pinkberry regularly—in some cases three or more times a week. Where many dessert shops saw more occasional business, Pinkberry quickly developed a stable of regulars. There was no advertising campaign whatsoever, but word of mouth began to bring a slow trickle of customers in the door, despite the fact that it was a particularly nasty California winter with lots of rain.

  Hordes of people would queue up for their “fix” of Pinkberry yogurt.

  One rainy night, Shelly and Young—who had become romantic partners as well as business partners—were dining out when they got a call that the store’s roof was leaking. They drove to Pinkberry to find the windows fogged from moisture. It was hard to see what was going on inside. When they opened the door, they found the small eatery packed with patrons. Shelly and Young started to feel more hopeful. They forgot all about the roof leak.

  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.

  The yogurt that launched 1,000 parking tickets

  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 fathe
r, 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.

  To market, to market

  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 …

  Branching out

  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.

  But is it yogurt?

  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.

  Where are they now?

  In April 2009 the company announced $9 million in new private financing. Shelly departed as an active manager of Pinkberry that year, but remains on the board of directors.

  It turned out that parking and visibility really do matter in retail: in April 2010 the original Pinkberry store in West Hollywood was converted to a research-and-development lab, leaving neighbors in peace at last. Young left the company around the same time, ending his ties to Pinkberry in May 2010. Graves continues as CEO, implementing Maveron’s global expansion strategy.

  Having opened its first store in 2005, Pinkberry ended 2011 with more than 170 stores in 17 countries, with more growth ahead. More than 40 of the stores are overseas.

  In the past few years, Pinkberry has faced increasing competition from another frozen yogurt trend: self-serve. While other competitors including Yogurtland allow customers to create a custom-sized serving and pay by the ounce, Pinkberry has stuck to its original model, focusing on quality yogurt products, inspirational design and customer service.

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