The Profit Recap: There’s Always Money in the Gelato Truck

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Photo: CNBC
The Profit

The Profit

HipPops Season 4 Episode 17
Editor's Rating 5 stars

HipPops is a South Florida frozen-dessert-truck business, specializing in handcrafted gelato bars. (The branding is actually “HipPOPs,” but I cannot bring myself to type that over and over again.) Their margins are enticingly high, but owner Tony Fellows might not be the sharpest popsicle stick around. Let’s get into the company’s biggest problems:

1. Tony dreamed of franchising HipPops around the country, but even after investing hundreds of thousands of dollars, all his efforts have been in vain (with the sole exception of, oddly, an international deal in Dubai).

2. HipPops has no inventory system, and nothing resembling a list of all the fixed assets (dollies, ladders, Styrofoam freezers, and so on) in their chaotic warehouse. Worst of all, the gelato bars themselves are just shoved into unlabeled boxes in a storage freezer. There’s no telling what’s inside, or how much, unless you open it yourself. Selling a franchise requires proof of concept — and that includes well-thought-out procedures, systems, and workflows. All of that is absent here.

3. The dessert truck itself is impressively profitable, making $1,000 to $2,500 a day. But Tony spent $125,000 to deck out the truck ($25,000 went to a “special” Italian-made gelato case), a number Marcus finds ludicrously high, especially given that all this truck needed was a fridge, a sink, and that ice-cream cooler. This is extra ludicrous given that their creamery’s one blast freezer doesn’t even work right — it starts defrosting every six hours, which is the number-one thing you do not want a freezer to do — and yet Tony hasn’t shelled out a relatively modest $7,500 to replace it.

4. Tony had worked in frozen desserts previously, then went into real estate, but lost a lot when the market collapsed. Now, he says that he’s fully committed to HipPops — ice cream has always been his passion — but his employees say he isn’t around much. In general, it seems like he’s always a little distracted, like he’s suffering from a chronic case of brain freeze.

Marcus loves the HipPops concept, particularly how “easy to replicate” it should be. He heads to Fort Lauderdale, where he and Tony have a Trump-and-Macron-length handshake, albeit considerably more friendly. The truck experience invites customers to customize their gelato pops with three chocolate dips and a dozen toppings. The delicious-looking treats are $5 a pop (… do you get it? Do you like my joke? Do you like me?), sold at a whopping 80 percent gross margin. The truck can also blend any pop into a milkshake for $8 — the problem being that the shakes are considerably labor-intensive, and account for only 5 to 7 percent of their sales.

Marcus meets Freyda, HipPops’ bookkeeper slash Tony’s mom, and asks her if she gets paid. “Yes,” she says. “With kisses.” Mom says Tony is a “phenomenal boss,” which, okay, Mom. In fact, his parents have loaned him $350,000 toward HipPops, for a zero-percent ownership stake in the company. Tony, meanwhile, has put in $50,000 of his own. He’s scared by the prospect of not getting his parents their investment back. He’s emotional. Mom’s emotional. I’m a little emotional. Freyda says he’s had a tough life. A father of three, Tony recently celebrated 19 years clean after struggling with drug addiction. He lives with his parents, and his ex-wife does social media for HipPops.

In 2015, HipPops made $533,000 in sales, with a net profit of $54,000. The following year, the business made $492,000 in sales, with a net loss of about $8,000. But Tony’s ill-fated franchise concept is a separate legal entity. That’s lost $250,000 in the last two years. Marcus notes that Tony is wearing a $10,000 Rolex. This is a rookie move, Tony — the equivalent of loudly clomping up the stairs two hours after your school-night curfew. Business Dad sees all. Point, from Tony: “It’s the one luxury that I have.” Counterpoint, from Marcus: “It’s a fucking watch.” And at that, a fucking watch that costs more than a much-needed fucking freezer. But Marcus gives Tony a lot of credit for saving money by living at home, for taking care of his family, and for being honest about his past.

To discuss a possible deal, Business Dad sits down with not just Tony, but Actual Dad and Actual Mom. He doesn’t usually meet with a potential partner’s parents, but given that it’s their money, it only seems right. The business is not yet a franchise concept, he says, but if Tony is willing to make the necessary sacrifices, it could be. Marcus offers $100,000 for 50 percent of the company. Tony wants to know what’ll happen to his salary: He’s making about $100,000. “That is shocking to me,” Marcus says. Tony asks his parents what they think, but Marcus immediately shuts him down. “This is your decision,” he said. “They aren’t going to bail you out anymore.” Well, they have a deal! Marcus demands Tony’s watch, giving it to Freyda to hold until her son can sell it — with the profits to go toward a new freezer.

Marcus dons an apron and spends a day working on the truck. As it turns out, in the time it takes to blend one measly milkshake, they can serve five pops. And food trucks, of course, are all about speed. (Side note: This episode is the best possible advertising for HipPops, because goddammit, I would like to eat these, please.) Marcus nixes the time-consuming milkshakes in favor of super-efficient frozen bananas (if it’s good enough for the Bluths, it’s good enough for you) and slices of key lime pie. They pick up a new truck for a far more reasonable $60,000, which will no doubt ramp up their revenue in no time.

Tony’s job for the next week is to conquer the warehouse: labeling, documenting, and organizing everything, tossing what they don’t need, and implementing a new system for pop storage that displays their quantity. Besides improving their own efficiency, all of this will serve as a blueprint and a sales pitch for future franchisees. But as Marcus explains all this, Tony does an extremely terrible job of pretending he’s listening, so Marcus sits down with him in his office. As it turns out, our dude is hung up on equity portion of their deal — he feels he’s giving up too much. Uh, Tony? Two quick questions: Why didn’t you tell Marcus this yesterday? And why did you accept the offer? But that’s not all: Tony’s ex-wife Niva also has some equity, a fact he has neglected to mention until now. That means Marcus has a second surprise business partner he’s never met. (Niva, I think I am starting to see why this didn’t work out.) Marcus, Tony, and Niva, a 25 percent owner in the business, get together for a wildly overdue conversation about finances. It’s agreed that Marcus will drop to 40 percent, Niva will drop to 20 percent, and Tony will take the remaining 40 percent.

Marcus returns to the warehouse to see what Tony’s accomplished … which is not much. He repainted, rearranged some shelving, and just moved a considerable pile of mess out of sight, like a Goofus and Gallant comic about how you shouldn’t “clean” your room by shoving all the clutter into the closet.

And so, Marcus takes Tony and Niva on “a surprise visit to New Jersey” (I am a proud daughter of New Jersey, and even I have to admit that sounds like a euphemism for something awful) to see the facilities of Mr. Green Tea, a successful ice-cream company Marcus has invested in. There, the production line is gleaming perfection, fueled by fresh ingredients and a meticulous system of organization via tags and barcodes. Hopefully, all this will prove inspirational, because Marcus has set HipPops up with an important gig: the grand opening of a T-Mobile store in South Beach, for which he wants them to develop two custom flavors that reflect the brand’s colors. But rather than getting to work immediately, Tony says he wants to stay up north overnight and visit friends in Manhattan, despite the fact that HipPops has multiple catering events scheduled in Florida for the next day. Apparently, he expects Niva to run them on her own, to the irritation of both his business partners.

One week later, Marcus is eager to see their progress … of which there is not much. (Sound familiar?) They’ve come up with two flavors, a mango-chili and a café Cubano, but they’re still both in liquid form. Tony couldn’t even be bothered to freeze them. Worse still, they’re yellow and brown — colors that look very, very little like T-Mobile’s signature bright pink. “He did a good job of trying to bullshit me, but I’m not buying it,” Marcus tells the camera.

Tony has demonstrated yet again that he lacks follow-through, and he’s still complaining about their financial arrangement — now he thinks $100,00 isn’t enough. An understandably frustrated Marcus steps away to cool off and rethink whether he should be doing this deal at all. Tony keeps saying he needs direction, but doesn’t ever seem to take it when he’s given it. Plus, he didn’t even sell the watch — he gave it to father against money he owes them. Okay, Tony. I think we’re through here.

Marcus ultimately decides to step away, ending their arrangement with perhaps more grace and dignity than Tony’s behavior has warranted. “I don’t believe that you really ever wanted a partner,” he says, but offers to help Tony if he should ever need anything. Business partnerships are best dissolved with a business hug.

The Profit Recap: There’s Always Money in the Gelato Truck