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The incredible shrinking ice cream company Add to ...

While Yogen Früz was battling for Eskimo Pie, however, profits in its consumer and franchising businesses were being squeezed. In the fiscal year ended Aug. 31, 1999, revenues climbed by about a quarter to $112 million, but profit plunged to $3.1 million from $12.9 million. Michael Serruya attributed much of the decline to rising butterfat prices and the company's aggressive discounting. But two quarters later came an outright disaster-a $24.5-million writedown, much of it due to store closures and other problems with some of the franchise chains. The company also posted a $25.8-million loss.

Those results weren't announced until May. Even so, Yogen Früz's annual meeting in February was heated. The share price had sunk to not much more than $1. One shareholder, who claimed to have lost six figures, ripped into Michael Serruya. "I have to tell you, Michael, in this year you have failed. You are no longer the media darling and you [seem]to have lost the confidence of the institutions and mutual fund investors." Serruya ate crow: "We have failed over the past year." To set things right, he announced that he was quitting as co-CEO, but would remain co-chairman. David Stein became Richard Smith's co-CEO, and Aaron Serruya remained as executive vice-president. (Shareholders also approved changing the company name to CoolBrands.)

Smith and Stein, still based in Long Island, now had control of CoolBrands' day-to-day operations as well as most of the overall strategy. The share price continued to sag, to a low of 77 cents in December, 2000. The value of the Serruyas' holding was dissolving just like that of other shareholders. Someone had to step in to halt the decline, and that someone was a family member-Toronto mining billionaire Seymour Schulich, whose daughter had married Simon Serruya, and who'd become a mentor to the brothers. In 2001, with CoolBrands' share price stuck near $1, Schulich bought 7% of the common shares. He rejected suggestions of a bailout, however: "I don't put $3 million on the table to do anything but make money."

He didn't, at first. The share price continued to drift around a buck or two for most of the year. It would only revive after Smith and Stein made some clever deals and product innovations-and after they enjoyed a great deal of luck.

Americans are among the fattest people on Earth, and they're always looking for a new miracle weight-loss solution to that problem. It was fortunate for CoolBrands, then, that the Eskimo Pie acquisition included the rights to the Weight Watchers Smart Ones line of ice cream snacks. It was just five products-or stock keeping units (SKUs), as they are called in the supermarket business-with revenues of merely $18 million (U.S.) a year. But with millions of people enrolled in the Weight Watchers program and buying its food products, there was enormous untapped potential.

And that was before the wave hit: In 2002 and 2003, many more millions of North Americans got caught up in the low-carb Atkins diet craze. CoolBrands was in a sweet spot, in more ways than one. Through the deft use of artificial sweeteners and flavours, the company developed low-cal, low-fat, yet decadent-tasting treats. Slender Pie, a diet version of the Eskimo Pie, was soon outselling the original, even though a six-pack was priced at $4.99 (U.S.), versus $2.99 for the original. By 2003, Smith and Stein had expanded the Smart Ones line to 18 SKUs, which generated $95 million (U.S.) in yearly revenue.

Another hot new product line was almost a fluke. In the summer of 2003, a sharp-eyed CoolBrands sales rep, walking through a Safeway store in California, spotted some two-ounce cups of low-carb ice cream being sold under the Endulge label, owned by Atkins Nutritionals Inc. Stein quickly phoned the company and negotiated a licensing deal for CoolBrands to produce and distribute nine SKUs. Within months, the Atkins line was selling at an annual rate of $60 million (U.S.), according to a company source.

Industry consolidation was also creating a lucrative opening for CoolBrands. Both Nestlé and Unilever were gobbling up rivals: In 2000, even proudly independent hippie entrepreneurs Ben & Jerry's sold out to the Man, in the form of Unilever. And in early 2002, Nestlé, which already owned Häagen-Dazs, announced an agreement to buy Dreyer's Grand Ice Cream Inc. for $2.4 billion (U.S.). But U.S. anti-trust regulators objected, prompting the engorged company to sell off some brands.

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