How giving away free samples created an empire of 250 stores worldwide in just 15 years, Debbie Fields’ success as an empire builder is inspiring.
Dave Young:
Welcome to the Empire Builders Podcast, teaching business owners the not-so-secret techniques that took famous businesses from mom and pop to major brands. Stephen Semple is a Marketing Consultant, story collector, and storyteller. I’m Stephen’s sidekick and business partner, Dave Young. Before we get into today’s episode, a word from our sponsor, which is… Well it’s us, but we’re highlighting ads we’ve written and produced for our clients, so here’s one of those.
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Dave Young:
Welcome back to another Empire Builder’s Podcast. Dave Young here with Steve Semple. Something about cookies? It’s not cookie monster, that’s not a product.
Stephen Semple:
Not cookie monster, not cookie monster.
Dave Young:
I’m trying to think of famous cookies. There’s lots of them. Who are we talking about today, Stephen?
Stephen Semple:
We are going to be talking about Mrs. Fields cookies. Now, have you ever had the opportunity to have a Mrs. Fields cookie?
Dave Young:
I’m not really sure. Are they mass produced, and can you buy them in stores?
Stephen Semple:
Well, you mainly get them in these little cookie shops that are in malls, and they come out warm and soft and chewy. Yeah.
Dave Young:
Oh, okay. So it’s like going to Cinnabon or something like that.
Stephen Semple:
Yes, exactly right.
Dave Young:
I probably have, I tend to try to stay away from those places. I’ll give a wide birth to a Cinnabon.
Stephen Semple:
It’s a really interesting story, because it was started in August 16th, 1977 in Palo Alto, California by Debbi Fields. And today, they’ve got 250 stores worldwide. And in 1992, 15 years after opening, it was sold to the investment firm, Famous Brands International, for $100 million.
Dave Young:
Wow.
Stephen Semple:
In the 1992 dollar, so she did really, really well when you think about, basically in a 15-year period of time, she grew this business from start to being a business that she sold for $100 million.
Dave Young:
Nice little payday for Mrs. Fields.
Stephen Semple:
Nice little payday for Mrs. Fields. So Mrs. Debbi Fields, she grew up in Oakland. She had this very humble beginning. Her dad was this blue collar worker and her mom was a homemaker. And at the age of 19, she we would say today, she married up. She married Randy, and Randy was a financial analyst who worked in Palo Alto and was rubbing shoulders with the elite of Palo Alto. And what she would do, is she would put out these soft chocolate chip cookies for people when they had them over for entertaining. And they all liked them. They all really liked them. But many looked down on her because she was this hick from Oakland, right?
Stephen Semple:
And after one party, she gets really snubbed by one of the Palo Alto snobs, and she decides, “You know what? I’m going to open a store. I’m going to do this. I’m going to open a store.” And she opened a store in a mall. Now, I want you to think about this. A cookie store, first of all, is a crazy idea. She wasn’t the first to do a cookie store, but close to the first to do a cookie store. And food locations were not in malls at the time. The world’s first cookie store had only opened two years earlier and food courts were not in malls. The first successful food court happened in 1976 way over in New Jersey. And this was after a number of failed attempts of food courts. So food courts had been opened and had failed. So this was a really innovative idea of opening a food shop in a mall.
Stephen Semple:
But what she saw was lots of foot traffic. So she was way ahead of this whole food court boom. So she opens this crazy idea of a cookie store, and as far as a crazy idea of in a mall. But this is also what makes her so special, but here’s also something that’s really hard to believe in the world today. In many ways, Dave, women’s rights have got a long way to go, but in many ways they’ve also come so far. In 1970, a woman could not get a loan without her husband. She couldn’t get a mortgage. She couldn’t get a car loan. She couldn’t get a credit card on her own. Think about this. So in 1970, when she opened, her husband had to sign the lease agreement and any loans and things along that lines. It wasn’t until 1974 in Canada, could a woman get a credit card in her own name.
Dave Young:
It just seems crazy today, doesn’t it?
Stephen Semple:
Yeah. In 1988, less than 40 years ago, the US Congress passed the Women’s Business Ownership Act that legally allowed women to get business loans in 1988.
Dave Young:
That’s not that long ago.
Stephen Semple:
I was graduating from university when that happened. So in 1970, when Debbie started her business, only 7% of businesses were owned by women. Today, 42%. Think about how much that is done for our economy, in terms of allowing women rightfully to be able to take out business loans and start businesses. Half the businesses today exist because of that. But it’s crazy when we think, yes, we have a long ways to go with women’s rights, but look at how far we’ve come. It’s almost hard to believe that in 1970 and in 1988, our lifetime, these sorts of things happened.
Dave Young:
So she was a true pioneer in more ways than one.
Stephen Semple:
Oh, yeah.
Dave Young:
To pioneer a food product in a mall that didn’t have food products generally.
Stephen Semple:
So she opens her first store, and her husband gets the loan at 21%. Remember those days, Dave? Remember the seventies, the interest rates in the seventies? 21%. That was not from a loan shark, that was from a bank.
Dave Young:
You used to be able to put money in a bank and watch it grow, too.
Stephen Semple:
Exactly. So she offers these warm chewy, soft cookies. That’s what she’s offering. It’s something that comes right out of the oven. You get it, it’s still warm, so something completely different.
Dave Young:
The smell of freshly baked cookies wafting out of a storefront is better than any sign you could ever put up in a mall.
Stephen Semple:
Yeah. Because the cookies at that time were these hard, crispy little things that you got at the grocery store. So this was the other innovation, it’s this idea of offering this soft, warm cookie in a mall in this cookie store. Right? So something completely different.
Stephen Semple:
So she opens the first day and by noon, not one customer. And here’s the problem. She sells them warm, so they’re perishable, so she’s got to throw them out. Here’s the other challenge. She’s selling them at $.25 a cookie. The market was $.09 cents. So she’s selling them at three times, three times the price of other cookies, very premium priced product. So what she decides is, instead of throwing them out, she’s going to take a tray and pound the pavement, give out samples.
Dave Young:
Heck, yeah.
Stephen Semple:
And she was really one of the first to do this in the food industry, give away your product. We’ve seen others since do this, like Godiva, when we didn’t know how great Godiva chocolates were. They would be in a mall, and they would have a person standing outside the shop, handing out bits of chocolate. Where do you think they got that idea from?
Dave Young:
Mrs. Fields?
Stephen Semple:
Right. So she’s done so many groundbreaking things. We go into a mall today and you see Orange Julius and Baskin-Robbins and Cinnabons and all these food items sitting in these little shops in the mall. She’s the one who did it first. So she’s a real pioneer. And it worked amazing. At the end of the first year, she does $200,000 in sales, which would be basically equivalent of $1 million today out of this one shop in this mall.
Stephen Semple:
So she decides to open a second location, Pier 39 in San Francisco, then in 1979, a third location in Mountain View, California, which means she needs to delegate. She can’t bake for all of these stores. And she wants to ensure the quality is high, but she wants to protect the recipe, because she’s spent a lifetime developing this recipe, but she can’t bake for all the stores. So how do you make it consistent without sharing the recipe?
Dave Young:
Stay tuned. We’re going to wrap up this story and tell you how to apply this lesson to your business right after this.
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Dave Young:
Let’s pick up our story where we left off, and trust me, you haven’t missed a thing.
Stephen Semple:
So how do you make it consistent without sharing the recipe?
Dave Young:
You package the ingredients in a central location?
Stephen Semple:
That’s basically what she did.
Dave Young:
So you ship a mix to your franchisees or your stores.
Stephen Semple:
Right. And all they have to do is pour it out, mix it up, put it in the oven. Right? Put it through the blender and put in whatever wet ingredients have to go in, and then put it in the oven. And if you think about it, this is a page from KFC, because remember, for many, many years, Colonel Sanders himself blended the spices and sent the spices out. So she really took a page from KFC, and created this prepackaged ingredients, sent it to a store, and basically the manager would unbag it, put it in the mixer. This was a way to control quality. And this is the model that has been adapted by the food services industry today. She was one of the first to do that, so yet another innovation being done by Debbi Fields.
Dave Young:
You want the experience of your customer to be the same, no matter which mall they’re in.
Stephen Semple:
Yeah.
Dave Young:
And you know what to expect when you buy a Mrs. Fields cookie.
Stephen Semple:
Yeah. No, she wanted to continue to grow, but she didn’t want to franchise. She refused to hand over control. And if you want to learn more about the issues of handing over control to a franchisee and this decision making, there’s a great section in the book, Pour your Heart Into It, which is done by the folks from Starbucks talking about that. Schultz talks all about that, so grab that book and read that.
Stephen Semple:
But she started to get spread thin, and in the mid-1980s, the soft gourmet cookie business, there’s lots of other people doing it, is now a $150 million business. And the big guys are starting to take notice. In fact, P&G, Proctor & Gamble, spends $30 million developing the Duncan Hines chocolate chip cookie. And Nabisco and Keebler come out with ones as well, so the whole soft cookie thing is starting to catch on.
Dave Young:
Yeah. Yeah.
Stephen Semple:
And Mrs. Fields is now 14 stores, and she’s really struggling to run them. She’s really struggling to keep her hand on inventory, sales figures, and all those things. Now her husband is a computer guy, and he suggests to her, now keep in mind, this is their early eighties. And he says, “Why don’t we put a computer in every store?”
Dave Young:
Okay.
Stephen Semple:
People didn’t have computers in the early eighties, and there was definitely no computers in stores. This is a big deal. Randy quits his job, joins the business, and puts a network system in all the stores. This has never been done in the food industry, and allows him to check inventory and check sales. Not only is there a computer in every store, they are all networked.
Dave Young:
For early eighties, that is amazing.
Stephen Semple:
Yeah. Sales hit $87 million and the system is so innovative, they sell the system to Burger King.
Dave Young:
Okay. That was a new product.
Stephen Semple:
Yeah. So now it’s 1989. They are now selling $129 million, 12 years after opening. So they’re doing $129 million of cookies, $.25 cents at a time. And they do start franchising, but selectively. And what they do is they find well-known bakers. So if you were a well known-baker, and you wanted to buy a Mrs. Fields cookie franchise, you could do that. What they would also do is leverage that person’s name.
Dave Young:
Oh, okay. So like in your city, if you’re a well-known baker in your city.
Stephen Semple:
Exactly right.
Dave Young:
Okay.
Stephen Semple:
So in 1992, 15 years after opening, along comes Famous Brands, and Famous Brands buys them out for $100 million.
Dave Young:
What a great payday.
Stephen Semple:
Yeah. But think about the innovation. One of the first cookie stores, the first to do warm cookies, one of the first to sell food out of a store in a mall, first to do sampling, prepackaged ingredients, putting computers in and networking them. This is a massive amount of innovation that this homemaker, who was looked down upon by these folks in Palo Alto, brought out, while at the same time, facing all those challenges that women faced in business at that time. Just think about how crazy all of this was. It would be very easy to look her in the eye and go, “You’re going to sell cookies out of a cookie store warm? They’re going to parish. Oh my God.” There’d be a thousand reasons that you could give her to say, “This ain’t ever going to work.” And she just drove forward and built this amazing, amazing empire.
Dave Young:
She believed, and she had a vision in what it could be and made it happen.
Stephen Semple:
And it got so great, her husband left the job and joined her, put the computer system in. Right?
Dave Young:
Right. Yeah.
Stephen Semple:
Yeah. But it’s one of those things where sometimes we’ve got to look at things, like she was right when she looked at the mall and she said, “There’s foot traffic there.” She didn’t look at a mall and go, “Oh, there’s no food places.” She looked at the mall and said, “There’s foot traffic there.”
Dave Young:
Foot traffic.
Stephen Semple:
“If there’s foot traffic, people are going to want to buy stuff. And if my product is good…” And then even when she opened, she recognized the problem was, people didn’t know her product was good. “So if I sample some of the product,” and this became actually one of the things she learned. The more they sampled, the more they sold. Where many food companies would go, “Don’t give away your product for free. If you give it away for free, they’ll never buy it.” She’s like, “No. If I give it away for free and it’s awesome, they will come in and buy it.”
Dave Young:
A key lesson here is that a food product, especially a snack food product, but a food product, we make decisions three or four times a day about what we’re going to put in our mouths.
Stephen Semple:
Yes. Yes.
Dave Young:
Right? We’ve got to eat. We’ve got to fuel our machine, our body. Right? So we’re always deciding that. And I think because she was early into the mall, yes, there was traffic. Yes, there were people that were there to buy things, but they probably weren’t there to buy food.
Stephen Semple:
Correct.
Dave Young:
But we’re always thinking about a little, “Yeah, I could eat a snack. I could have a cookie. Sure. Well, thank you. Yeah, I’ll take a cookie.” And you eat it and you go, “You know what? I may take some home for the kids. I may take some back to the office. I may just take some to eat in the car on the way home.” Sampling a product that is a short product purchase cycle that’s purchased often, is a brilliant thing to do.
Stephen Semple:
Yeah. And to your point, Dave, it would be very easy to look her in the eye back in those days, so we’ve got to go back to those days and say, “You should go place your stuff in grocery stores or a farmer’s market or something, because people don’t go to the mall to buy food.” The argument would be, so thank you for this, Dave, the argument would be, “Don’t go in the mall. People don’t go in the mall to buy food.” Where what she recognized is, like you’re saying, people think about putting food in their mouth three times a day or more. But the other part is it would be also easy to go, “You’re nuts because of the price point. You’re going to go into this mall with this thing, and you’re charging three times the price that…”
Dave Young:
But she’s selling cookies, one and twosies at a time. Right?
Stephen Semple:
Right. Right. But this is what she understood. But also, when you’re selling that premium product, people have got to try it.
Dave Young:
I think one other thing, so you’ve got all the people walking around in the mall, but you know what else you have in the mall? All the mall employees, all the employees of every store in the mall.
Stephen Semple:
Yes.
Dave Young:
And they go on a break, right? There may be a crappy break room in the back of their store, but they probably want to go out and walk around a little bit in the mall, and now you can buy a cookie. I bet she sold a lot of cookies to employees of every other store in the mall.
Stephen Semple:
Sure.
Dave Young:
That was her first customer base.
Stephen Semple:
Who wouldn’t want a nice, soft, warm chocolate chip cookie to have with their coffee?
Dave Young:
Yeah.
Stephen Semple:
The more I read about Mrs. Debbi Fields, the more I went, “Wow. What an incredible entrepreneur. What an amazing woman. Hats off to her, because boy, she broke a lot of ground and really did things in a different manner, and that’s what built her empire.” So, blown away with the more I learned about her.
Dave Young:
She’s a cookie monster.
Stephen Semple:
She’s a cookie monster, that’s it.
Dave Young:
Thank you for that story.
Stephen Semple:
All right. Thanks, David.
Dave Young:
Thanks for listening to the podcast. Please share us, subscribe on your favorite podcast app, and leave us a big fat juicy five star rating and review. And if you have any questions about this or any other podcast episode, email to [email protected].
