Tuesday, October 16, 2007

Starbucks founder bites into Pinkberry

The red-hot frozen yogurt chain gets a big boost from the man who brought you the $4 latte, reports Fortune's Matthew Boyle.

By Matthew Boyle, Fortune writer

(Fortune) -- Red-hot frozen yogurt chain Pinkberry has received a $27.5 million infusion of cash from Starbucks founder Howard Schultz's venture capital firm, Fortune has learned.

The deal, which will be announced later today, confirms long-held speculation that Seattle-based Maveron - whose prior investments include eBay, drugstore.com, and Good Technology, now owned by Motorola - sees a bright future for Pinkberry, which was launched two years ago by a failed restaurateur and a former nightclub bouncer. (See story here.)

Schultz was not available to comment, but in a press release touting the deal he called Pinkberry founders Shelly Hwang and Young Lee "visionary entrepreneurs" and labeled their brand "a cultural phenomenon."

The burgeoning chain now has 32 stores in New York and Los Angeles, and plans to grow by expanding its roster of company-owned stores and franchises. Hwang and Lee told Fortune earlier this year that they hope to have 50 locations by year-end. Stores in Las Vegas and London are also on tap.

Pinkberry's tart-yet-sweet yogurt, topped with the customer's choice of fresh berries, granola, or even Fruity Pebbles cereal, has won it a cult following that includes celebrities like Salma Hayek and Paris Hilton. (Mike Tyson once demanded his cookies and cream topping on the bottom, and the staff wisely complied.) It's pricey - a large green tea with three toppings is nearly ten bucks - but Pinkberry's largely female clientele doesn't pinch pennies.

"I've seen people come in, order a small, eat it and then get right back in line for another," says Daihwan Choi, who has exclusive development rights in New York City.

Some toppings are not even on the menu, which only adds to the allure, and the minimalist d├ęcor features $350 Philippe Starck chairs and $250 Le Klint lamps. (Lee even secured a 10% volume discount from trendy furniture shop Design Within Reach on the lamps.)

"They really developed a look that helped create a cult factor," says Lesley Balla, editor of food blog Eater LA, who adds that top city chefs have worked frozen yogurt into their menus. "It's Whole Foods meets Jamba Juice meets Sephora," says branding consultant Nick Hahn.


But that winning formula has also spawned a slew of copycats, and Pinkberry will be hard pressed to clearly differentiate itself going forward. Of course, Schultz's investment should certainly help in that regard. Starbucks (Charts, Fortune 500) is much more about the experience than the overpriced product, so Schultz will likely aim to foster a similar unique environment at Pinkberry.

This is the first outside investment in Pinkberry, which had previously been funded by its founders. Hwang and Lee will retain "significant equity" in Pinkberry and work with Maveron to create an employee stock option program, according to the announcement.