The Llaollao chain retreats after the COVID hit | Business

Llaollao is slowly moving away from the model that gave him success. The Murcian frozen yogurt chain, which underwent rapid international expansion thanks to franchises and still operates exclusively with this model in 19 of its 21 markets, is turning to its own stores in Spain. A movement started before the outbreak of covid-19 that Pedro Espinosa, founder and director of the company, describes as “a natural process”. “We grew quickly based on strengthening the brand a lot and that has made us drag deficits in operations”, explains the businessman, and specifies that their own premises help them correct these deficiencies “because they act as laboratories where to test what works and what no”.

Llaollao, which has 275 points of sale, 142 of them in Spain, arose from the determination of Espinosa, a 36-year-old industrial engineer, who in 2009, with only 24, left the oil company BP and returned from the United States. He sought to prioritize self-employment and believed that with frozen yogurt on the rise in that country and the push of the ice cream tradition in the Spanish Levante of the Martínez Sirvent, his maternal family, a concept based on freezing a mixture of Galician skimmed milk and fresh yogurt Cantabrian could work. In fact, while he was associated with his parents, several of his uncles launched Smöoy in parallel, a brand from the same segment that today is one of his main competitors. Llaollao started with two of its own stores in Denia and Benidorm (Alicante), and in less than four years it reached a presence in 14 countries. With a network of more than a hundred franchises, it already had a turnover of 25 million euros in 2012.

However, after increasing that number to 67 million in 2017, growth stopped. In 2019 it fell to 44 million and in 2020, after the pandemic hit, to 23 million. Some setbacks that the director attributes to the resounding break at the end of 2017 with his Asian partner, produced under accusations of boycotting Llaollao and which led the company to “lose 20% of the business overnight,” says Espinosa , very critical of the “damage caused to the brand” by “the hype” of this release and a similar one with its partners in Portugal. In the Portuguese country, where since that incident they manage the stores, they won the trial and were financially compensated. In Asia they paid not to go to trial. “We have more than a hundred contracts and only three or four have failed us. It is a question of probability. We cannot be blamed for any bad practice and that is why Llaollao will continue to work in the same way, ”says the businessman.

Business strategy

Where Espinosa does believe that they should make changes is in their strategy. Although franchises “have worked” and “are part of the future of the brand”, in Spain they have gone from 9 to 40 of their own stores in two years and the goal is for them to reach 50%; a movement that limits the national market. In parallel, they have also modified the demands on their eventual associates. Now they are demanding a commitment to open at least three stores. Espinosa reveals that they look at McDonald’s, which in Spain has half a thousand restaurants and about 100 franchisors. “We have seen a direct relationship between the number of openings and the degree of concern about operations and business volume.”

Llaollao hopes that these changes will make the results of the brand rebound, a holding company that had a turnover of 16 million euros in 2019 and 13 million in 2020 – although these figures would be added between 6 and 8 million annually billed by its own supplier that supplies franchises. “We are not overly concerned about the drop in income. It is a logical consequence of the health crisis and with the reopening of spaces we are recovering previous business figures, ”says Espinosa. In terms of benefits, holding It went from declaring 4 million in 2019 to presenting losses of 2 million in the last year, although the businessman specifies that in 2020 they attributed all the expense of the preliminary ruling in Asia and that the “real result” was a profit of 1.2 million.

In the international market they fight with an old workhorse: the “adequate” choice of good partners, whom they call “super franchisors”. These are companies or groups that directly or sub-franchising open markets in one or more countries. Llaollao requires local franchisors, often in charge of a single location, to pay between 9,990 and 19,990 euros per year, depending on the type of location, and royalties that account for 5.5% of turnover. In the case of super franchisors, although they must also receive the powders with which the mixture is made from Murcia, the agreement is closed individually and this is where the most fires have arisen. Llaollao argues that it homogenizes the processes to protect the brand; the associates, who seek to terminate the contract and stay with the stores.

One of the company’s priorities is to return to China, a “difficult” country due to the “little protection” that brands enjoy. “We were there for less than a year and our store was literally kidnapped.” Myanmar, on the border, is its second market, with 60 stores. Another objective is to compensate for the little pull they have had in Saudi Arabia, where it has hurt them that at peak times they are forced to close due to prayers, opening in Qatar and the Emirates, countries with fewer religious restrictions. Llaollao has so far privileged shopping centers, although more and more spaces are opening at street level. “A question of prices”, summarizes Espinosa, who perceives that the commercial price has fallen more on public roads.