I Scream, You Scream, We All Scream for Ice Cream

Course Introduction

The Business Planning class involves various case studies illustrating the underlying concepts behind forming, structuring, financing, and even selling a successful business. It is designed to aid students in becoming trusted business advisors. The course has focused on startup businesses, where people identified a problem in their industry and built a business from the ground up in the hopes of solving it. We have also heard from real estate developers, investment bankers, and family offices.

The Chocolate Moose case study, however, is a different type of business planning success story. The class for the Chocolate Moose Case Study was held on Thursday, September 14, 2023. Our guest speakers were Justin Loveless (owner-operator), Shaun McDermott (former member and president pro team), and Jordan Davis (director of operations).

What is this case study about?

The Chocolate Moose case study tells the story of a beloved but struggling local ice cream shop with a decades-long history in the Bloomington community. When Justin Loveless took over as owner-operator, the Chocolate Moose had modest revenues and virtually no tangible assets. However, it also had a remarkably strong and established brand associated with wonderful summertime memories.

With the help of a handful of local business people who were more focused on preserving a local institution than turning a large or fast profit, Justin and his team implemented a turnaround strategy that resulted in an eight-fold increase in revenue and a pathway to significant and sustained profitability.

Our Chocolate Moose case study is organized into the following five sections:

1. The History and “Almost” Failure Story. This takes you from the family that started the business, its struggles due to their lack of succession planning, to the Chocolate Moose’s new face.
2. Owner-Operator Structure. This discusses the new owners’ decision to bring in an owner-operator instead of turning the business into a wholesale ice cream distribution company. 
3. Downtown Redevelopment. This discusses the store’s move from the iconic A-Frame to its new downtown location. 
4. Brand and Goodwill. This discusses the accounting concept of “goodwill” and how the company, although struggling with profitability, was not “worthless.” 
5. Growth and Diversification. This discusses how the new owners have improved and grown the business through various community-involvement efforts and a look towards the store’s future.

1. The Chocolate Moose’s “Almost Failure” Story: The History and Life Cycle of the Iconic Family Business

A. The Early Days—The Mays Family

In 1933, several decades before the classic Neapolitan color scheme and the iconic moose logo, the Mays family founded the May’s Cafe, a family-owned restaurant. Eventually realizing its prime South Walnut location could be developed into more valuable commercial real estate, the Mays family curtailed the food service to a seasonal ice cream shop.

During the early 1950s, the Mays built a 200-square-foot storefront for a seasonal ice cream business known as the Penguin. The Mays even created the “Penguin mobile,” the town’s first ice cream truck, but this venture experienced little success. Yet, the brand as we know it now began to develop, and by the 1970s, it became evident that a change in ownership might soon be necessary. The founder and his children were getting older. Thus, the family started thinking of ways to stay involved in the business without running it. 

Cletus Mays eventually “sold” the Penguin in 1973. Technically, he did not truly sell it, instead franchising the store to a new owner and acting as a landlord.

The new owner opened multiple new locations but did not achieve the success Mays hoped for. After a few years, the Penguin owed vendors that it could not repay. Mays had long-standing business relationships with these vendors, so he asked for the business back to pay the invoices and repair those relationships. But Mays ran into a problem—the new owner demanded that Mays buy back the Penguin name! Rather than pay money to his failed tenant or hire a lawyer, Mays and his family devised a new name for the store. Thus, the Chocolate Moose was born. 

B. The limits of a seasonal ice cream storefront

Throughout the years, the greatest impediments to the Chocolate Moose’s success proved to be a lack of succession planning and the inherently seasonal nature of the ice cream business. On days when it was rainy, or cold, or traffic was especially heavy, sales unsurprisingly suffered. In addition, the store was usually closed from the week before Thanksgiving and did not reopen until around Easter time.

When the Chocolate Moose was open, the size and layout of the building limited the total sales volume. The 200-square-foot stand that everyone called “the box” had one walk-up window for taking and picking up orders. On busy days, long lines stretched through the parking lot, and the lack of an updated and efficient point-of-sale system meant customers often had long waits to place orders. Because the box was so small, there was no room for storage. When supplies would run low, employees would have to run out to the storage building across the parking lot to get items to restock. Overall, the processes in place were not efficient enough to keep things running smoothly. 

In the 1990s, the Chocolate Moose was modified to include its iconic A-Frame top. Yet, according to Justin Loveless, the primary motivation for the A-Frame was to create a cover for a new HVAC system that had to be placed on the roof due to space limitations in the alley behind “the box.”

Despite its problems, the Chocolate Moose became a Bloomington staple. The store was beloved by its community. Michael Jordan even mentioned that his favorite ice cream shop was the Chocolate Moose during his visits to Bloomington for the 1984 Olympic Trials. See Jon Wertheim, “Tales of Michael Jordan and the 1984 U.S. Olympic Trials,” Sports Illustrated, Apr. 19, 2020.

But, by the early 2010s, the business was still struggling. With annual revenues of around $230,000 and high ownership turnover, the Chocolate Moose needed capital and a patient investor willing to put in the time and money needed to revamp the iconic local establishment.

C. Community Investment—Keeping Things Afloat

In 2012, Thomas Mays, the original owner’s son, finally wanted out. He was making a decent living from the store but was getting older and did not want to continue running it. Since the business had no significant tangible assets—Thomas leased the box from this family—his plan was to close the business at the end of the season.

A civic-minded community member saw the value of the beloved local business and bought the Chocolate Moose, hoping to be able to turn things around. He soon realized, however, how difficult it was to run the Chocolate Moose given the issues it was facing. What came to be known as Bloomington’s “Big Dig”—the closure of South Walnut to enable major infrastructure improvements—was essentially the nail in the coffin. The roads to the store were completely torn up, making it impossible to park in the parking lot.

Two investors, Matt Orrego, CEO of a successful software business in Bloomington, and Adam Estes, a Bloomington financial advisor, put up additional funds to try and keep the business solvent while the Big Dig wrapped up, with the hopes that once it was completed, the business would turn a profit and pay back the money. However, it did not work out this way, and the investors kept pumping money into the store to the point they were nearly the unintentional majority owners.

At this point in time, the Chocolate Moose story seems to portray ice cream stores as an unattractive investment. However, the unattractiveness hasn’t turned investors away from the potential returns—Warren Buffet bought Dairy Queen in 1997, even when a majority shareholder noted that “[Dairy Queen] has not been a good performer the last five years,” due to competition for food sales with restaurants like McDonald’s. See Richard Gibson, “Buffett Scoops Up Dairy Queen In a Deal That Melted Investors,” Wall Street Journal, Nov. 5, 1997. In 2005, three private equity firms—Carlyle, Bain Capital, and Thomas H. Lee Partners—bought Dunkin’ brands, which included the purchase of Baskin-Robbins. See Terence O’Hara, “Carlyle, Partners to Buy Dunkin’ Donuts Parent,” Washington Post, Dec. 13, 2005.

Unfortunately for the Chocolate Moose, it was doubtful an investor like Warren Buffet or Bain Capital would come in and buy it, as the local shop did not have the draw of a historically successful national establishment. But the Chocolate Moose did have community investors—Adam, Matt, and Warren Cutshall (’04 JD-MBA graduate of Maurer School of Law)—who refused to let the store die.

D. The “New” Chocolate Moose—A New Face for an Old Business

The community investors—as a homage to the Chocolate Moose’s beginnings, they formed Penguin Enterprises, LLC—knew that they needed to begin taking steps to find a way to earn a return on their investment. Enter Shaun McDermott, Matt’s business advisor. Shaun, serving as the President pro tem of the Chocolate Moose, was tasked with analyzing the financials and helping the investors see where they could begin to get value out of the business.

Shaun quickly found that most of the financials were just written down on paper, so he implemented true business processes, such as an actual point-of-sale system that would record sales, inventory, etc., and could be uploaded into Quickbooks to run financials. After analyzing the business, Shaun felt it was at a fork in the road: what is the best business structure to maximize their return? See infra Section 2.

Spoiler to Section 2, the investors continued operating under the owner-operator structure. They needed someone who was committed to making the Chocolate Moose successful, and they found that person in Justin Loveless, Owner/Operator. Justin quickly found that he needed a “general manager” to help him with the day-to-day operations, so he hired Jordan Davis, Director of Operations.

Right from the start, Justin and Jordan came in and fixed some of the store’s biggest inefficiencies—aside from the point-of-sale system, which Shaun implemented. They cut down on the overwhelming size of the menu and changed the prices to multiples of twenty-five cents to cut down on the use of dimes and nickels, which reduced the amount of change they would need to count back to customers.

To help increase revenues, they expanded the business’s operating season to stay open longer throughout the year. They started by expanding their season from February to almost Christmas (today, the Chocolate Moose is open year-round). They also invited a local burrito vendor to set up a cart in the store’s parking lot to try to draw in a larger lunch crowd who would purchase ice cream to go with their food. 

These improvements meant more efficient lines, shorter wait times, better accounting, and significantly reduced the negative impact of ” seasonality ” on the business. It was not long before they saw annual revenues grow to nearly $400,000. But they knew the work was only beginning. They had a vision for further scaling and diversifying the Chocolate Moose, with plans to increase revenue even more. 

2. Choosing an Owner-Operator Structure

An owner-operator is a business structure where a person is an “owner” and runs the business’s day-to-day operations. They are financially and emotionally invested in the business’s success as an owner, and they are in the weeds of the operations, allowing them to see areas that could use strategic solutions. Generally, an owner-operator structure will probably work best for small businesses or micro-businesses as they have not grown to a size that is beyond the capabilities of the owner-operator.

The Chocolate Moose’s fork in the road presented two options: transition to wholesale distribution of packaged ice cream or continue running the store with an owner-operator.

Shaun and the investors considered shifting the business model to packaged ice cream sales in grocery stores throughout the Midwest based on a case study conducted by the Kelley School of Business that suggested this would be the best way to make the business more profitable. Given the brand’s appeal, especially to out-of-state Indiana University alumni living in neighboring states like Illinois and Ohio, they thought that packaged products would be a hit and that this was what the future of the Chocolate Moose looked like. See Chocolate Moose Case Study (case study conducted by Kelley School of Business in 2013). However, the logistical hurdles with this kind of business model were daunting—packaged products require a sophisticated distribution system and would need a lot more capital than they had access to. They ultimately chose to stick with the classic storefront model, selling ice cream to customers from the A-Frame building on South Walnut. 

After examining what the business needed regarding day-to-day operations, they decided that an owner-operator structure for the store would work best. They knew they were not a business that could be successfully run by “suits.” They needed an owner-operator who was invested in the store’s success, had an acumen for business development, and whose heart was in the local community. 

Justin has a background in finance and sales. He spent some time working in sales for Pepsi-Cola, then moved on to pharmaceutical sales, which he says quickly burned him out. He transitioned to a business development role at a large mechanical contracting firm, then a trusted colleague reached out to him about potentially investing in the Chocolate Moose. He took them up on the offer and agreed to become the company’s full-time owner-operator, with the remaining investors serving in an advisory role.

However, once Justin started “peeling back the layers of the onion” that was the Chocolate Moose, he realized that a dedicated general manager would be extremely valuable. The business was dealing with staffing issues and failing equipment, and it was too much to focus on while also trying to deal with the business side of things, like working to increase profits. So, Justin used his industry connections to bring in Jordan as the general manager for the Chocolate Moose. 

Jordan, a Carmel, Indiana native, has lived in Bloomington for nearly 14 years. His mix of “informal” business training—years spent working in the restaurant industry—and his experience in the community told him that the Chocolate Moose could be worth his time and made him a great fit to be a general manager of a local store. Justin was a regular at the restaurant Jordan worked at, and his “job interview” for the general manager position was Justin seeing him handle the workload of a busy Friday night. Jordan took on the general managerial role but soon realized that the needs of the business went far beyond that job description. His role eventually expanded into the business’s administrative and human resources side. Today, Jordan oversees approximately 60 Chocolate Moose employees; his current title is Director of Operations.

3. Downtown Redevelopment

For decades, the Chocolate Moose was a gateway into downtown Bloomington from Walnut Street. The store was a 200-square-foot building with an A-Frame roof. It housed glass block accents, a brown, white, and pink Neapolitan border design, and neon signs. The A-frame and Neapolitan design became iconic for the Chocolate Moose.

As Loveless said, “[a]s soon as you start seeing the light of the Moose coming down Walnut (Street), you’re getting the old fashioned ice cream shop experience.” Kurt Christian, “How the Chocolate Moose Will Keep Its Frost,” Herald-Times, Oct. 21, 2016.

It’s a building that holds countless memories for generations of Indiana University students/alumni and Bloomington residents alike, with the A-frame signaling that you were “home.” It is a popular date-night stop and has even served as a stop for a wedding party—the Chocolate Moose played an important part in their relationship. 

When Penguin Enterprises, LLC took over the Chocolate Moose, they were owners of the Chocolate Moose business/operation, but they didn’t own the building. They leased the building and land with a right of first refusal should the landlord ever want to sell. 

This became a reality. Real estate values in Bloomington had skyrocketed and apartment buildings were popping up left and right to meet demand of the constantly growing student population of Indiana University. The landlord was getting older and saw the opportunity to cash in on his investment, so he began actively seeking buyers for the property. These sky-high prices were out of reach for the owners of the Chocolate Moose. Ultimately, a local developer purchased the land for about $3 million and planned to build an apartment building to cash in on the demand for student housing. 

The Chocolate Moose was synonymous with their A-frame roof and the history that was present with the building. This redevelopment of the land put the Chocolate Moose at another crossroads: How will the tradition continue without the A-frame? Do we move to a different location? These unknowns would shape the Chocolate Moose’s next chapter. 

For the most important unknown—location—city mandates helped provide the answer. Bloomington’s local laws mandate that retail space be located underneath all apartment buildings in specific parts of the city. As such, the local developer—in order to stay in the good graces of the community—offered the space to the Chocolate Moose. Therefore, the Chocolate Moose would remain a Walnut Street fixture but in a redesigned building. 

Moving into the new space brought its own challenges. They would need to remodel the space to meet their needs and purchase new equipment. This would require capital, and according to Justin Loveless, “no bank is going to lend me any money.” At this point in time, even with all of the growth they had already accomplished, the ownership group still felt that they needed additional growth to secure this funding and to make Chocolate Moose a sustainable business. However, the redevelopment left them no choice, the move was happening whether they were ready or not. 

To build the apartment, the Chocolate Moose would be without a storefront for a year. Luckily, they were already working on expanding to a second location in Nashville, IN, that helped maintain profits during this downtime. See infra Section 5 (discussing expansion and Nashville’s offerings and benefits).

When designing the “new” Chocolate Moose, the ownership group wanted to embody as much of the old stand as possible in the new space. They incorporated the Neapolitan color scheme with the awnings of the “new” Chocolate Moose. They kept the Moose logo and the traditional walk-up ordering window. They decorated the new location with photos for customers to see the history of the “goofy-looking Moose” ice cream store. Christian, supra, “How the Chocolate Moose Will Keep Its Frost,” Herald Times, October 21, 2016.

The iconic A-frame building may no longer be standing, but the history, tradition, community engagement, and tasty ice cream of old are better than ever in the Chocolate Moose’s new space on Walnut Street.

4. The Chocolate Moose’s Brand & Goodwill

When the community investors—Adam, Matt, and Warren—became the unintentional majority owners of the Chocolate Moose, they held the keys to what appeared to be a failing business. At this point in time, the Chocolate Moose seemed “worthless” on paper. Therefore, what were the new owners trying to buy/take over? 

They were looking to buy/take over the Chocolate Moose brand. In a business technical sense, they were taking over the company’s goodwill. Goodwill represents the value of a company’s name, brand reputation, loyal customer base, solid customer service, etc. Marshall Hargave, “Goodwill (Accounting): What It Is, How It Works, How to Calculate,” Investopedia (last updated Mar. 25, 2023). The value representing goodwill is why a company will pay a premium price to purchase another company. Id.

When valuing a business, tangible and intangible assets are two primary determinants. See Comerford & Dougherty, LLP, “The Value of Goodwill and Your Brand,” Comerford & Dougherty, LLP Blog, Mar. 1, 2019. Goodwill is an intangible asset. You can’t physically touch it, but it is still intrinsically tied to the value of the business. Id. Goodwill is generally calculated by taking the purchase price minus the fair market value of the assets and liabilities. Hargrave, supra, “Goodwill (Accounting): What It Is, How It Works, How to Calculate“.

For the Chocolate Moose, when the investors took over, the company’s value was largely being driven by this goodwill and brand reputation. The valuation method may not have been calculated with the traditional formula of the purchase price minus the fair market value of the assets and liabilities because of how the business was “bought.” The investors already had a stake in the company due to the capital they contributed to keep the business afloat, so they didn’t truly “buy” another company.   

When valuing the business, the Chocolate Moose had very few tangible assets. They had a few pieces of equipment or ice cream machines. But they had a brand—one that was iconic within the Bloomington community. The goofy Moose logo, Neapolitan design, and A-frame building all contributed to the Chocolate Moose brand. The brand was a timepiece for IU alumni returning to Bloomington. It took them back to their student days and all the memories they made during their time on campus and in the community. Unfortunately, brand and goodwill are seldom the basis for a bank loan to finance the purchase of a business, as collateral is usually limited to tangible assets.

Due to all of the growth and diversification that Justin, Jordan, and the company have accomplished with the Chocolate Moose, the business is no longer “worthless” on paper. Today, the Chocolate Moose has a decent amount of tangible assets to go along with the value of the goodwill, which has drastically increased due to the growth of their brand within Bloomington and beyond after the addition of the Nashville location.

Adam, Matt, and Warren invested in the Chocolate Moose to serve the philanthropic purpose of keeping the business afloat for the Bloomington community. At times, receiving a return on their investment was a pipe dream, but under Justin, investors are now getting their initial capital investment back plus additional returns (i.e., Justin recently bought out Warren and appears to be on a long-term path to majority ownership).

5. Growth and Diversification: The Steady Rise of the “New” Chocolate Moose and a Look Toward the Future

A. Growth and Diversification

In recent years, the Chocolate Moose has vastly improved, with recent annual revenues of over $1.6 million and projections of future revenues nearing $2 million. They have largely achieved this success by diversifying and scaling business operations beyond just sales at the one Bloomington storefront. Now, around 60-70% of their revenue comes from storefront sales, with the rest coming from a mixture of wholesale deals, special deals with Indiana University, and events. 

A large part of the Chocolate Moose’s growth and diversification came from opening a second location in Nashville, IN—which kept the business earning revenue while the Bloomington location was closed for construction. See supra Section 3. Nashville is a town that embraces local business—they do not allow chain stores—making it a perfect location for expansion. Justin and Jordan found a building that had sat empty for nearly thirteen years, which allowed them to get a great deal on the space.

After opening, it took about two years to really come together, but now the location outperforms the Bloomington store in sales. On busier days, they can double the revenue of the Bloomington store with fewer staff. The Nashville store employs mostly full-time workers, while college students mostly staff the Bloomington location (unsurprisingly).

To diversify offerings, the Chocolate Moose partnered with Brown County Coffee to sell its coffee in the Nashville store, and they are now basically the “Starbucks of Nashville.” Also, during the Covid pandemic, the location fared well because Brown County was not as strict about lockdowns and is a heavily outdoorsy area, so it saw a lot of traffic when other places were closed down.

The Chocolate Moose expanded into limited wholesale deals to further grow the business. They sell their ice cream to local restaurants throughout Bloomington, such as Lennie’s, Cardinal Spirits, Baked!, and Upland. This model has its drawbacks, though, as sometimes these restaurants need shipments of ice cream at less-than-convenient times. However, any drawbacks are outweighed by the benefits of these relationships with other local businesses, such as increasing overall brand visibility.

The Chocolate Moose also deals with Indiana University to provide ice cream for some campus restaurants and food courts. They attempted to set up a cart to sell ice cream by the Sample Gates, but this proved not to be as successful as they had hoped. They have also expanded their business to include wedding catering, mostly for Indiana University couples.

To further their community involvement, the Chocolate Moose started hosting Food Truck Fridays. Originally, they hosted the event in their parking lot to help draw customers to the store. They were early to hop on this trend—being the first to get the Food Truck Friday Facebook page name—which has taken off in recent years.

Over the years, especially after Switchyard Park was created, the event has grown and is now extremely successful. They now charge a registration fee for the food trucks to participate, and the event finally became revenue-generating this past year. They have essentially become an unintentional local “food truck broker”—whenever someone in the community needs a food truck for an event, they go through the Chocolate Moose to find one. 

The growth and diversification of a business doesn’t come without setbacks. Justin pointed out that one thing that held them back was their hesitation to raise menu prices. They surveyed the market and ultimately made the choice to increase prices to keep up with demand and continue generating a profit.

They noted that the business involves risks that they must factor into the cost of doing business. For example, as a larger business, they become a target for lawsuits. Recently, they were served a summons by someone claiming to be injured at one of their stores.

They also have to worry about fixed costs, such as rent, during periods of slow of inconsistent sales. In particular, leasing the Nashville location was risky because they weren’t sure they could keep consistent enough sales to pay rent. To mitigate this risk, Warren—who acts as an informal general counsel for the Chocolate Moose—helped Justin draft an exit option into the lease. The option allows the Chocolate Moose to get out of the lease if needed but provides the landlord an incentive to balance against this exit risk. The incentive is provided by requiring the Chocolate Moose to pay a minimum monthly rent for the location, plus “a sum equivalent to the amount, if any, by which 5.0% . . . of Lessee’s gross receipts for each month exceeds the fixed minimum rent.” Exhibit 1.

B. A Look Toward the Future

For the Chocolate Moose, another possible route for further scaling is modeling their business off Graeter’s ice cream, a local chain based out of Cincinnati, Ohio. A student from Cincinnati made the comparison during the classroom discussion, and Justin noted that what Graeter’s does that makes them so successful is the home distribution of their ice cream. The Chocolate Moose has yet to figure out how their shipping operation works, but they have contemplated it. They have also considered following a similar franchise structure and opening more locations throughout the state of Indiana down the line. 

As of now, Justin has no plans to sell the Chocolate Moose. The business is doing much better, but he wants it to be completely turnkey before a sale is on the table. He believes they can scale to that point in about two to four years’ time. Currently, they are just focusing on keeping lines moving and generating revenue. 

Conclusion – Connection to other case studies within the course

The Chocolate Moose case study is relatively unique compared to most of the other case studies from the course, as it focused on revamping an already-established business when its future was uncertain. However, there are some common themes that connect it to the other case studies.

A common theme within the course was financing. PactSafe received funding from an Angel investor who believed in the business. In this case, those who invested in the Chocolate Moose to keep it afloat during hard times were not true Angel investors since this was not a startup. However, the overarching theme is similar in that the investors saw a business they believed in and invested with the intention of helping the business thrive. 

Also, during the Re:Land case study, Jim Beckett discussed how to use your “paperclip” to make trades to get what you need. For Jim, his “paperclip” was the access he had to people who could help him get financing and information for the Re:Land project. For the Chocolate Moose, their “paperclip” was similar–it was the goodwill they had spent years building in the community. This goodwill was their access. It helped them acquire financing to stay afloat and attract a talented and knowledgeable new ownership team who turned the business around. It helped them secure their location in the new apartment building when their original site was bought out. It helped them grow their community involvement through efforts like Food Truck Fridays and partnerships with other local businesses. The Chocolate Moose’s story proves that even if the business is struggling with profitability, with the right “paperclip” anything is possible.