Obits: Despite Student "Army," Ice-Cream Venture Is Frozen Out
BY Emily Barker
Jeremy Kraus took the principles of microbrewed beer and applied them to ice cream. His unique marketing efforts built a loyal cult following, but it wasn't enough for him to survive in America's competitive supermarkets.
The business: Jeremy's MicroBatch Ice Creams Inc., maker of premium ice cream Founded: 1997 Closed: October 2000 Cause of death: Failure of marketing campaign in a competitive niche
Jeremy Kraus was a 20-year-old junior at the University of Pennsylvania when he launched his eponymous ice-cream company, almost four years ago. He drafted fellow students as foot soldiers in his "guerrilla" marketing campaign, which created extraordinary buzz and won him acclaim from Brandweek as one of the "marketers of the next generation." The story of a promising student turned entrepreneur was catnip to the media, including Inc. (See " Hot Start-Ups," company #3, July 1999.)
Jeremy's MicroBatch Ice Creams Inc., based in Philadelphia, specialized in rich, quirky flavors, such as Cinnamon Bun, Welcome to Tiramisu, and Vanilla Cream Stout (a beer-and-pretzel-flavored concoction). Among its fans was actress Sarah Jessica Parker, who dipped her spoon into Jeremy's MicroBatch to cool off on the set of TV's steamy Sex and the City.
But now Parker will have to look elsewhere to feed her ice-cream cravings. Media attention wasn't enough to scoop out a niche in the highly competitive ice-cream market. Although Kraus had raised nearly $6 million in an initial public offering, he ran out of money after his marketing and distribution strategy faltered. "To get beyond the noise level in this area, you've got to spend a lot of money," says Mitchell Pinheiro, a securities analyst at Philadelphia-based Janney Montgomery Scott LLC.
Kraus had drawn his original inspiration from the microbrewery craze. If microbreweries could succeed by making beer in limited quantities with high-quality ingredients, he would do the same with ice cream. That was the idea behind a business plan he wrote as a class assignment, which he then turned into a real company. Outsourcing ice-cream production, he focused on sales to Generation Y, teens and twentysomethings, who, he reasoned, would prefer an alternative to older super-premium brands like HÄagen-Dazs and Ben & Jerry's.
Kraus's student "army" worked part-time for him as taste testers or fanned out in squads, dubbed the "Secret Service," to pass out free samples. In 1998, although still unprofitable, the company posted sales of $416,000. Bolstered by more than $1 million in venture capital from Bluestem Capital Partners, based in Sioux Falls, S. Dak., Kraus's ice cream made it into supermarket freezers in 10 states, mostly on the East Coast.
To expand in the Northeast, with an eye toward a national rollout, Jeremy's MicroBatch raised $5.9 million in its public offering a year ago. Kraus unleashed an aggressive $2.4-million campaign featuring magazine ads, radio spots, posters, Internet ads, and so-called MicroBatch Mobiles, which whooshed 100 Secret Service members into 15 cities.
The results were disappointing. Revenues slipped to $784,000 for the first six months of 2000, down from $854,000 for the same period in 1999. The decline reflected, in part, the company's pullback from some western states to concentrate on the Northeast. What's more, its distribution and marketing efforts didn't always jibe. Although the Secret Service stirred up enthusiasm among students, "we hadn't secured really strong distribution on college campuses," says former company spokesperson Michelle Peranteau.
And the competition in the super-premium category was proving to be stiff. Slotting fees -- payments to grocery stores for shelf space -- cost the company almost half its 1999 revenues.
Given more time, Kraus insists, his marketing campaign would have paid off. But soon cash was running low. Last July, Bluestem, which had a controlling interest in the company, replaced Kraus as CEO with Joseph Phillips, a former senior vice-president of sales at Champion Products Inc. Phillips cut back on marketing and switched distribution channels from supermarket chains to convenience stores, where slotting fees were lower, but sales continued to slump.
On October 3, the company ceased operations. Even so, its founder is looking for allies to help him resurrect the Jeremy's MicroBatch label. "We were trying to generate a phenomenon," says Kraus. "I believe we were on track."