Tasti D-Lite Banks on Its Fanatical Fans for Growth

Low-Calorie Dessert With New York Roots Is Going International

By ELLEN BYRON

Almost every day for lunch, winter or summer, Elana Bogner heads to the Tasti D-Lite shop near her Manhattan office for a frozen dessert. Her habit started seven years ago when, as a college student, she started substituting one meal a day with the low-calorie treat, hoping to shed some weight.

"I got totally addicted, I couldn't go a day without it," Ms. Bogner said.

For the past 20 years, droves of New York residents and tourists have confessed similar cravings. Founded in 1987 by Celeste Carlesimo and her father, Louis Carlesimo, the 75-store chain has such a cultlike following in New York that the low-calorie alternative to ice cream has been parodied on "Seinfeld" and featured on the "Sex and the City" TV show.

Now, the franchising guru behind Mail Boxes Etc. and I Can't Believe It's Yogurt is betting that such Tasti D-Lite devotees can be cultivated in cities around the world, just as competition among frozen treats is heating up.

James Amos, who, along with New York private-equity firm Snow Phipps Group LLC, acquired the New York-based frozen-dessert business for $21 million last year, is forging deals to expand the chain nationally and internationally with new store formats, additional flavors and new products such as energy drinks and baked goods.

Two Tasti D-Lite stores opened this month in Seoul; expansion into Israel and Mexico is in negotiation. Late last month, Tasti D-Lite signed franchising deals for a minimum of 16 stores in Tennessee and at least 40 in Texas, including San Antonio, Austin and Houston. It is working on expanding into California and adding to the seven stores already in New Jersey. Next month, Tasti D-Lite plans to open two flagship stores in New York, including one on the ground floor of the Empire State Building. The expansion is a risky gambit, as more rivals enter the market. Chains including Pinkberry Inc. and Red Mango Inc. have opened stores across the U.S. and recently entered Tasti D-Lite's home turf, New York.

Since last year, Pinkberry has opened 10 stores in New York, adding to the three it opened there the year before, while Red Mango has opened six. Red Mango's 100-plus stores in South Korea and Pinkberry's Los Angeles headquarters motivated Tasti D-Lite to plan future stores in both locations, says Rick Cornish, Tasti-D Lite's chief marketing officer.

What's more, the frozen-treats market continues to face pressure from coffee, which has increased in popularity among snacking Americans during the past two decades. Frozen treats account for 16% of all afternoon or evening snacks bought at a restaurant in the 12 months ended in February, down from 20% in the 12 months ended February 1989, according to market-research firm NPD Group. Coffee has risen to 12% of all afternoon or evening snacks bought at a restaurant from 8% 20 years ago. Tasti D-Lite's business reflects the trends, slowing over the last four to five years, Mr. Amos said.

The chain's biggest challenge may be simply translating a distinctly New York phenomenon to the rest of the country and international markets. Of the chain's 75 licensed stores or resellers, few are outside New York City -- including the seven in New Jersey and one each in Florida and Texas. Neither Mr. Amos nor other franchisees are planning the kind of national advertising often used by companies expanding across the country. Instead, franchisees in new markets are banking on customers already having some familiarity with Tasti D-Lite from visits to New York.

Michael Shmerling, who just signed on to expand Tasti D-Lite to Nashville, Tenn., and surrounding areas, said he has been eating the product during visits to Manhattan for 15 years and is counting on Nashville's large population of transplants having done the same. Mr. Amos hopes the new Manhattan stores, particularly the Empire State Building outlet, will snag more attention from Big Apple tourists. One complication: Many of the New York stores are run-down, Mr. Amos acknowledges. But the new owners, working with franchisees, plan to renovate existing stores. Mr. Amos said the poor condition of the stores made him skeptical about the chain's prospects when initially considering purchasing the business. What changed his mind was visiting stores on an 18-degree winter day. "It made no sense -- there was a line going out the door," Mr. Amos said.

Digging into consumer research, Mr. Amos discovered a group of zealous Tasti D-Lite aficionados, hooked on the chain's 100-plus flavors, stores' willingness to customize orders according to consumers' whimsy as well as the product having fewer calories than real ice cream. That was enough to persuade Mr. Amos and his partner investors last year to purchase Tasti D-Lite from its founders and pour $10 million into consumer research, branding upgrades and evaluating new market targets. Since closing the deal, Mr. Amos has been working to persuade Tasti D-Lite's existing store owners to transition from their previous licensing arrangement to a franchise, which gives the company more control over stores' appearance and operations. He has been selling the idea by promising financial incentives, updated store designs, as well as marketing and back-office support. Each franchise requires an investment $230,470 to $439,600, depending on factors such as size and location, the company said. Royalty fees of 5% of a store's gross sales are required weekly. Franchises also can expect to pay to build their brand. Contributions to a "marketing fund" amount to 2% of gross sales every week.

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