Japan's ice cream wars
Cold Stone Creamery has hit a hot spot with singing and dancing staff and flavors like Blushing Mango Cloud.
by Corey Hajim and Cindy Kano, FORTUNE

(FORTUNE Magazine) - When Baskin-Robbins offered free scoops of ice cream for two hours on Japan's Ice Cream Day last month, 700,000 customers showed up at its 750 stores. But the hottest new thing in ice-cream-crazed Japan these days is Cold Stone Creamery, another U.S. chain, which has opened five stores in the past seven months and has lines around the block around the clock.

Cold Stone, known for its "mix-in" strategy - 12 to 16 base flavors can be combined with any of 30 add-ins - plans to open 150 stores in Japan by 2010, an aggressive expansion strategy for a company with only 1,300 scoop shops worldwide.

"Japanese people really appreciate quality and freshness," says Lee Knowlton, Cold Stone's senior vice president of international development, "and that's Cold Stone's wheelhouse."

Business, so far, is booming. The stores are attracting 1,000 customers a day, who spend $35,000 a week. "That's fantastic," says Malcolm Stogo, an ice cream industry consultant. The lure: Beyond flavor favorites like green tea and azuki bean, Cold Stone is serving up its own creations, such as Blushing Mango Cloud (mango ice cream with mango-strawberry whipped cream) and Joy Nut Club (coconut ice cream with almonds, coconut, and Oreo cookies). Ice cream is made onsite daily and served by staff who sing and dance.

But expenses in Japan are high, and competition, as one ice cream executive puts it, "isn't shy." Haagen-Dazs, owned by General Mills (Research), entered the market in 1984 and is the leader in the premium segment. "The advertising is more like what you would expect from a cosmetics company or a jewelry company," says CFO Jim Lawrence. Seventy stores and a dominant position in the grocery business generate revenues of about $400 million annually.

Baskin-Robbins has been in Japan for more than 30 years and has far more stores. With Japan's economic outlook improving, it has set a goal of 1,010 shops by 2010, which makes Cold Stone's operations look like a kiddie cone. But in a market that demands innovation, Cold Stone has the buzz. Whether it can stay hot is another question.

"Starting and staying are two different things," says one Baskin-Robbins executive. Haagen-Dazs said to call back in 12 to 18 months. In the meantime, Japanese consumers can enjoy the spoils of the cold war. Top of page

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