Story URL: http://news.medill.northwestern.edu/chicago/news.aspx?id=163003
Story Retrieval Date: 5/23/2013 8:22:49 AM CST
Chicago frozen yogurt chain Berry Chill LLC filed for Chapter 11 bankruptcy protection Monday, attributing financial problems to store locations with low traffic on nights and weekends. Berry Chill is looking to restructure and correct its mistakes, according to Michael Farah, founder and CEO.
In a note to customers Tuesday via the company’s blog, Farah wrote, “Berry Chill is not going anywhere . . . We will emerge from this better than ever and continue to find ways to serve our growing fan base.”
Berry Chill, a premium-priced, self-described “chilled yogurt bar,” offers a variety of lactose-free and gluten-free yogurt flavors containing live active cultures and a wide selection of toppings, as well as blended frozen treats.
Filing Chapter 11 bankruptcy allows a company to reorganize while holding creditors at bay, but also comes with high price for legal fees and extensive paperwork. Farah said after weighing his options, Chapter 11 was the best choice for Berry Chill, but he doesn’t plan on staying in bankruptcy very long.
“We just want to settle our debts and move on,” Farah said in an interview.
The filing states the company has 50 - 99 creditors and between $1 million and $10 million in both liabilities and assets. A complete list of assets and liabilities is not yet available, as Berry Chill has 14 days from the date of filing to fill in this information. However, it did list its top 20 liabilities.
Notable debts include $450,000 in legal fees to Drinker Biddle & Reath LLP, more than $300,000 in sales tax to the Illinois Department of Revenue, and about $78,000 to StratEx for payroll services.
Typically, filing might hurt potential business prospects, but Farah said the feedback Berry Chill received has been quite the opposite. About 1,000 e-mails have come in this week from customers offering their support, and investors are just as enthusiastic, he said.
“We’ve gotten hundreds of e-mails in the last 24 hours of people wanting to partner with us,” Farah declared.
Berry Chill has had some successes, one being its store in River North, which is prospering thanks to extended hours, Farah said. The 625 N. State St. store is open through midnight on weekdays and 2 a.m. on Fridays and Saturdays. However, he noted that the company “made a mistake” in opening Loop locations that lack late-night traffic.
“The Loop is not our business,” Farah said. “We need locations that have nighttime and weekend business, and the Loop is dead during that time.”
Even so, he plans to keep the Loop locations open.
Farah said he is looking to expand the hours of the Loop locations, a store at 132 N. LaSalle St. and one inside Ogilvie Transportation Center, as well as add to Berry Chill’s product offerings, to garner more business outside of the work day. But these efforts might not be enough.
“It’s not a good location,” said 28-year-old Chicagoan Carina Sanchez of the LaSalle store, who said she wouldn’t go to that particular store on the weekends even if it were to be open during that time.
Downtown locations of Berry Chill cater to a predominantly female audience during lunch hour downtown. Loyal customer Abbey Gillespie, 31, of Chicago, said she likes that Berry Chill’s treats are low-cal, so she doesn’t stray to other frozen yogurt establishments. She comes to the store about every two weeks, but not during the winter.
“I only come when it’s nice out,” Gillespie said.
Chicago’s long winters have an impact on Berry Chill and competitors such as Red Mango. Darren Tristano, executive vice president of Technomic Inc., a food industry consulting company in Chicago, said Chicago’s climate is difficult because the cold weather generally means fewer people eating frozen desserts. However, with summer approaching, Tristano said, he thinks Berry Chill might recover from its financial problems.
Although warmer days might make frozen yogurt more appealing to a wider audience, the yogurt trend as a whole may be flattening out for a number of reasons, according to Tristano.
“Consumer discretionary income is down, making it difficult to sell yogurt at a higher price point,” Tristano said.
Berry Chill offerings run from $2.99 at the low end for a small, original flavor yogurt with no toppings to $8.49 for a large, specialty flavor yogurt with up to three toppings, plus an additional 79 cents per topping after that.
More competition in the frozen treat market also poses challenges for stores like Berry Chill, according to Tristano. Giants like McDonald’s and Baskin Robbins are offering premium and soft-serve ice cream at low prices, and restaurants that have not traditionally carried frozen yogurt, such as Wow Bao, are beginning to serve it.
This is the second time around for the frozen yogurt fad. Back in the '80s and '90s, chains like TCBY opened nearly 3,000 stores playing on the low-fat diet craze. After overexpansion and Mrs. Field’s acquisition of TCBY in 2000, many of those stores closed. Mrs. Field’s filed Chapter 11 bankruptcy in 2008.
A new crop of frozen yogurt stores has crept up, catering to a new audience focused on the health aspects of yogurt. New research touting the health benefits of probiotics, which are live cultures that may offer a lengthy list of benefits including lowering cholesterol and blood pressure and improving digestive health, has drawn more consumers to the trend. Many chains are offering yogurt that is not only low-cal and fat-free but also gluten-free and kosher.
However, the health benefits of yogurt that has only about 25 calories per ounce by itself can be offset by decadent toppings offered at these chains. In addition to blueberries, raspberries and kiwi, Berry Chill customers can also choose to load down their bowl with sugary toppings such as gummy bears, sprinkles, Oreos, chocolate chips and Lucky Charms.
Evidence that the yogurt comeback may be here to stay: Books-A-Million announced Thursday that the company purchased a minority equity interest in Yogurt Mountain Holding LLC, a frozen yogurt store in Alabama.
Even in the midst of Berry Chill’s financial problems, the company has an expansion plan in the works, though Farah wouldn’t discuss details. He did reveal that the Chicago Cubs recently installed a Berry Chill yogurt machine in the locker room. This summer, the company will be working with Noah’s Arc Foundation, a charity founded by Joakim Noah of the Chicago Bulls, to empower youth through sports and the arts.
Chicago native Farah, who started Berry Chill just over two years ago, was a commodities trader for seven years before he left his career to develop a business plan and launch the company.