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Gold/Mining/Energy : Yogen Fruz IT'S ALIVE, IT'S ALIVE -- Ignore unavailable to you. Want to Upgrade?

To: Stocker who wrote (1662)	5/30/1999 10:35:00 AM
From: telecomguy	Read Replies (1) \| Respond to of 2453

"shift focus away from hihgher margin towards a lower margin..." Couple of points I would like to make regarding investor's concerns about YF's move toward mfg & distribuion on top of their Franchising business. First of all, it sounds like a no-brainer to stay in the so-called "high-margin" franchising business...but there is a reason why some businesses are low-margin businesses - the main reason being that the Scale for size is much more possible in the low-margin business. This is why a wholesaler will always need less margin than a retailer simply because it costs more to sell $1 at the retail level than at the wholesale level. So yes, YF's margin will go down but their revenue should ramp up significantly since the Franchising business revenue potential had limited growth possibilities. You have to remember that the core Franchising income was/is only in the tens of millions of dollars -- hardly a volume that would put YF in even a Small Cap category. Secondly, being a pure "concept" franchisor has it's limitation and risks (for example if the yogurt suppliers squeezed YF for higher prices, margin would plummet). This means that the profit margin may or may not be a sustainable one. By having mfg control, they should be able to have somewhat better control of the overall profitability margins. Thirdly, YF going into mfg & distribution can hardly be compared to Magna going into magazines & theme park business...YF is simply moving up the food-chain to protect & quality-control their frozen-dessert supply and also use that capacity in the process to supply other retailers. One question that we should be asking (which I think you and others perhaps are raising) is YF mgmt's ability to run an integrated frozen food mfg-retailing operation.......and the jury is still out on that one. I think I am confident of the Serruya's marketing capability in the retail arena. But in the mfg, they have yet to prove themselves....if they have good professional mgmt in place to look after the mfg, I think the synergy & the leverage that they can generate by controlling their yogurt supply and also to expand into other frozen dessert product lines will make YF lot more valuable and give them the ability to get into the "big-leagues". I think that if YF stayed in the yogurt franchising business, you would have seen their stocks get pummelled even more (perahps below a buck) as their profitability would have been really whacked due to the high butterfat price last year and the melt-down in the 3rd world countries.......by acquiring Integrated & other companies in the states, you could argue that YF was able to stave off major financial meltdown since now their major source of revenue is coming from red-hot US market which is also lot more stable than the smaller foreign markets that YF was dabbling in..... As always, one never knows what would have been the best move but I for one feel comfortable that they are taking expansionary steps to move up the food chain and develop their distribution throughout the world (witness the recent Germany deal). Owning a company that is consider to be a clever retail-packager of yogurt and chargin licensing fees.........is for me rathter limited and offers little long-term upside. Strictly my opinion!