Why Did Cookie Dough Creamery Close?

In February of 2020, we made the difficult decision to close our store, despite how popular it was. Why? If it was so popular, why did it have to close?

The answer requires a bit of math. Most people have no desire to follow me down the mathematical rabbit hole I am about to go down to explain it. So for those TL;DR readers, here's the quick answer:

We were paying $6.88 to acquire each impulse customer, who would spend between $5 and $6 with us. That means we were already $0.87 to $1.87 in the hole with every impulse customer before even considering all of the business costs of providing the impulse customers the goods we sold them. It made overall business profit close to impossible, despite having established a very strong public goodwill that was providing us 43,200 destination customers per year. 

Okay, so how did we come up with those numbers? To grasp this you need to understand that ice cream shops (and many other types of businesses) have two different types of customers: 1) destination customers; and 2) impulse customers. 

A destination customer is a customer where your business was their destination. Before they left the door of their residence or place of work, they had made a plan that your business was their next destination.

An impulse customer is a customer where your business wasn't part of their plan. Their decision to be your customer was an impulse they experienced while going to, or leaving, their destination. 

Ice cream shops can exist on the extremes of both types of customers. Those ice cream shops that are in high foot traffic locations like Easton Town Center and the Short North (both in Columbus Ohio) find the vast majority of their customers are impulse customers. They decided on an impulse to get some ice cream while being in the area for a different reason.

But ice cream shops can also be in low, or even no, foot traffic locations. A great example of this is Young's Jersey Dairy in Yellow Springs, Ohio. They exist in the middle of farmland. They do not get much, if any, impulse customers at all. Nearly every customer of Young's Jersey Dairy has Young's Jersey Dairy as their destination in mind. And the Young's Jersey Dairy ice cream shop is HUGE, because people will drive from hours away to make Young's Jersey Dairy their destination. 

When an ice cream store wants to be in a high foot traffic location, they will pay very high rent for it. But being in a little to no foot traffic location will come with very low cost rent. With the low rent the ice cream shop can afford to advertise much more, which produces those destination customers. 

The lease we signed at the Shops of Worthington Place was based on it being a high foot traffic location. In 2014 we could have leased a spot in a cheap strip mall for around $15 per square foot. Our lease with the Shops of Worthington Place was for $44 per square foot, nearly 3 times as much. The mall had just undergone a multimillion dollar facelift and renovation, and we saw many new businesses there with a healthy amount of foot traffic. Given we were a completely unknown brand, we felt we needed the impulse traffic, and other high foot traffic locations were locked out to us because of exclusivity agreements with ice cream shops already in them. 

And for our first year or two, we benefited from the high foot traffic we were paying for. But over the four years we were open, the mall died on us. We watched an endless parade of retail shop after retail shop close, pack up and leave the mall. By 2020 65% of the retail stores that existed when we opened were gone. And the foot traffic declined by even more than that. 

The mall did replace those retail stores that left, but not with new retail stores. They were replaced by a large gym, a fitness coach business, medical offices, and one of the largest square foot nail salons I have ever seen. The fact that the mall was over 90% occupied meant nothing to us. The customers of those new businesses weren't the kind of people that turn into impulse ice cream consumers. An office building could be 100% occupied, but that doesn't make an office building a good spot for an ice cream shop. The decline of the retail foot traffic was killing our impulse customer revenue.

Given the drastic change in dynamics I would take time to study what kind of customers we were getting. I would sit in the parking lot in front of Kroger and watch where our customers came from and where they would go after a visit to us.

More than 90% of the customers that went to Cookie Dough Creamery arrived in the parking lot, walked directly to our business, walked directly back to their car after leaving Cookie Dough Creamery and drove away. That means that over 90% of our customers had nothing to do with the mall. Those 90% of customers were "destination customers". In other words, they were our customers, and not the mall's customers. 

That means that less than 10% of our customers were "impulse customers", or in other words, they were the mall's customers. But, I can't really say that the entire group that interacted with the mall were impulse customers for us though. Because we may have been their destination, but they got the impulse to also do business with another mall tenant. But for the sake of the numbers, I am going to assume that all of those 10% were impulse customers to us, which makes the numbers I am going to present generous in the favor of the mall, when in reality it was probably an even worse situation than these numbers suggest. 

In 2019 we had approximately 48,000 visitors to our store. With the 90% destination customer percentage we observed, that extrapolates to 43,200 destination customers for the year. Which means the other 4,800 customers were impulse customers. 

We were paying $48,000 per year in rent. Had we decided on a cheap strip mall for $15,000 per year, the vast majority of our 43,200 destination customers would likely be entirely retained at the different location, as they would have come to us wherever we were located, as long as it was somewhere around the north central outer-belt area. Which means we were paying an extra $33,000 per year for the 4,800 in impulse customers the mall was providing to us. 

$33,000 divided by 4,800 is $6.88 per customer. So we were paying the mall $6.88 to acquire every impulse customer the mall provided to us. The average customer spends between $5 and $6 on their visit. That means our impulse customers were spending less with us than what we were spending to get them to just walk in our door. 

That additional $33,000 per year in rent we were paying needed to be sending us an amount of customers that would result in us paying less than $1.00 per customer to acquire them, given the price point of ice cream sales. $1.00 is about 16% to 20% of the amount they spend on average ($5 to $6). Anything more than a $1.00 per acquisition and acquiring those customers becomes questionably profitable. 

So for the $48,000 in rent we were paying to be justified, we should have been seeing at least 33,000 impulse customers or more per year. Add that to our 43,200 destination customers, and we should have had 76,200 customers in 2019, an increase of 59% more than what we had. 

That increase in customers would have provided us with $50,000 to $70,000 in profit. 

But the mall died, so we weren't getting the impulse traffic we were paying to get. So the profit we were making from our 43,200 destination customers was being be wiped out by the $33,000 we were essentially flushing down the toilet. Pretty much all we were getting in return for our rent was four walls and a ceiling. Nothing more.

We weren't losing money as a result, but we also weren't making money. We had become the very definition of a "zombie business". A business that isn't dead, but also has no life, because all the life we were producing was simply being sucked away by the dead mall. The mall was the only entity that was benefiting from our success. We were investing a ton of time and energy for nothing in return. 

The mall was put up for sale. And it turns out that due to the retail activity at the mall having completely died, the only buyer they could find bought it with the intention to tear 87% of the mall down and replace it with two 10 story office buildings. No one with the intent to keep it running as a mall was willing to buy it. The building had become worthless real estate despite being 90% occupied. Only the land had value anymore. 

"You should have just moved and opened up somewhere else!" 

While the above is easy to say, it's not so easy to do. Our business model requires a significant amount of both electrical and plumbing work. The four soft-serve machines we use are 220 volt, 3 phase, water cooled machines. You don't just move them to a new spot and just plug them in like a dorm room fridge. It cost over $100,000 in leasehold improvements to get those four soft serve machines and the six other fridges and freezers we use up and running, in addition to the floor, wall and cabinetry work. 

And investing in all that doesn't make the problem go away. The problem being that the mall is still entitled to $48,000 per year in rent from us, and would be until fall of 2023, more than 3.5 years away.  Our new rent costs would become the rent for the new location PLUS the $48,000 in rent we were still obligated to pay the mall. 

"Why not keep the zombie location up and running (no profit) and make profit from the new shop in a better location?"

With this plan, now we aren't moving existing equipment to the new shop. We would need twice the equipment to run two shops. Each soft serve freezer costs $18,000. Four of them cost $72,000. Then we need six other fridges and freezers, plus tables, shelves, POS, menu, etc... the total cost to build out a new store entirely (equipment and leasehold improvements) is around $250,000. An amount of money we did not have and could not get. We even tried to get it, but the banks didn't consider our open shop to be an asset because they saw that is was a zombie business, and we didn't have enough other assets to be used as collateral.  

Unfortunately we were in a situation where we were pretty much being screwed by the mall despite having a business people loved. There was no pivot move we could find to get out of the corner we were stuck in. 

"Would Cookie Dough Creamery succeed in a better location owned and operated by someone else?"

Yes. It absolutely would. It was not the business model of Cookie Dough Creamery that failed. It was our decision to build it in the Shops of Worthington Place that was the problem. As the old cliche says, the three most important things in business are: location; location; and location. We did everything right, except for one thing... and that one thing killed us.

43,200 destination customers per year is a nothing to sneeze at. Given inflation those customers would spend an average between $6 and $7 per visit now. That is $259,000 to $302,000 in revenue just from destination customers alone. A decent location should produce an equal amount of impulse customers as it does destination customers. That means Cookie Dough Creamery in a decent location could do between $500,000 and $600,000 per year. In a great location, even more. 

"Would you let someone else build out, own and run a new Cookie Dough Creamery in a better location?"

We think all ice cream shops would be more successful if they moved towards the Cookie Dough Creamery business model, and let cookie dough be to their ice cream shops like French fries are to fast food restaurants. What the ice cream shop is named doesn't matter. Whether the ice cream shop sells soft serve ice cream or hand dipped doesn't matter. Whether the ice cream shop uses self serve or full serve doesn't matter. Those are all just format preference decisions, and they all work. 

Cookie dough can help in all those different ice cream shop formats. If one our customers decided to call their shop Cookie Dough Creamery, make numerous flavors of soft serve ice cream, and offer a self serve sundae buffet, would we have some nostalgic attachment to it? Of course, yes! It would be kind of fun to see. But we are now in the wholesale food business, and have no desire to control how our wholesale customers run their businesses. So to answer the question, no one would even need our permission to do it. And our products could go a long way in helping that reboot succeed.