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FDD Talk 2019: Tropical Smoothie Cafe Franchise Review (Financial Performance Analysis, Costs, Fees, and More)

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In this FDD Talk post, you’ll learn the following:

  • Section I – Background information on the Tropical Smoothie Cafe franchise opportunity, including relevant news updates
  • Section II – Estimated initial investment for a Tropical Smoothie Cafe franchise, based on Item 7 of the company’s 2019 FDD
  • Section III – Initial franchise fee, royalty fee, marketing fee, and other fees for a Tropical Smoothie Cafe franchise, based on Items 5 and 6 of the company’s 2019 FDD
  • Section IV – Number of franchised and company-owned Tropical Smoothie Cafe outlets at the start of the year and the end of the year for 2016, 2017, and 2018, based on Item 20 of the company’s 2019 FDD
  • Section V – Presentation and analysis of Tropical Smoothie Cafe’s financial performance representations, based on Item 19 of the company’s 2019 FDD, including information on the:
  • 2018, 2017, and 2016 average and median net revenues, number of stores, and number and percentage of stores that surpassed the average net revenues in the category for the top 10%, top 25%, top 50%, top 75%, bottom 10%, bottom 25%, bottom 50%, bottom 75%, and all franchised traditional Tropical Smoothie Cafe stores that had been open for at least one full year as of the end of the company’s fiscal year

Section I – Background Information

20 Things You Need to Know About the Tropical Smoothie Cafe Franchise

Achieved Significant Milestones and Propelled Growth Across Target Markets in 2018

1.  In early February 2019, Tropical Smoothie Cafe celebrated its notable milestones and achievements accomplished in 2018. During 2018, the brand opened 110 cafes and signed 191 franchise agreements, with more than 60 percent of those agreements coming from its existing franchisees. This growth is fueling the brand’s expansion in markets across the country, including Texas, Indiana, and Georgia.

2.  With same-store sales growth of 6.5 percent and recognition amongst top industry awards such as QSR Magazine’s Best Franchise Deals, Entrepreneur’s Franchise 500, and Franchise Times’ Top 200, Tropical Smoothie Cafe also reported its seventh consecutive year of positive same-store sales growth in 2018.

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3.  According to Charles Watson, CEO of Tropical Smoothie Cafe, LLC, “Tropical Smoothie Cafe continues to outpace our industry as we hit record milestones year after year. These accomplishments are attributed to hitting the mark on strategies focused around product innovation and guest experience, as well as the dedication and passion of our franchisees to deliver better-for-you food and smoothies to the communities we serve. This success is providing Tropical Smoothie Cafe the opportunity to double our system size in the next five years and we look forward to a bright future for the brand.”

4.  One of Tropical Smoothie Cafe’s major milestones from last year was the opening of its 700th cafe located in Hurst, Texas. The company also further accelerated its growth with the signing of franchise agreements in various markets, including eight new cafes in the pipeline for the Indianapolis, Indiana market and six new cafes in the Columbus, Ohio market over the next few years.

5.  Additionally, Tropical Smoothie Cafe celebrated 11 years of partnership with Camp Sunshine. In 2018 alone, Tropical Smoothie Cafe’s fundraising efforts totaled $1.01 million and benefited more than 400 families by giving them the opportunity to visit Camp Sunshine in the future. The company’s 2018 efforts contributed to an 11-year cumulative donation of $6.3 million for the charity.

6.  Cheryl Fletcher, SVP of franchise development for Tropical Smoothie Cafe, LLC, said, “The continued success in 2018 significantly strengthened our new cafe opening pipeline which allows us to target another record year with 130 new cafe openings planned for 2019. As we set our sights on 2019, we are dedicated to continuing the momentum and growing with like-minded entrepreneurs. We are also committed to making a positive impact in the communities we serve nationwide by providing better-for-you food choices and promoting a healthier lifestyle.”

Appoints New CEO

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7.  At the end of January 2019, Tropical Smoothie Cafe appointed Charles Watson as its new CEO. Watson will lead the brand through its next phase of strategic growth. As CEO, Watson’s goal is to achieve $1 billion in sales and more than 1,500 cafes by 2023.

8.  Scott Pressly, chairman of the board for Tropical Smoothie Cafe, said, “Charles has the tenacity, vision and passion this brand needs to continue our upward trajectory and will ensure the success of our franchisees is at the center of every decision we make. He has been instrumental in developing the culture of Tropical Smoothie Cafe and earning the trust of our franchisees. We look forward to realizing Charles’ vision for the company.”

9.  Watson has more than 10 years of experience with Tropical Smoothie Cafe and led the company’s franchise development efforts since 2010. He had been the chief development officer since 2015 and was directly responsible for selling more than 800 franchises during his tenure with the company. Watson had been serving as interim CEO of Tropical Smoothie Cafe since Mike Rotondo stepped down from the position in 2018.

10.  Watson said, “I am overjoyed to have the opportunity to lead such an incredible brand that has truly become a part of my DNA over many years. I am forever grateful to our franchisees, support center team and our Board of Directors for their confidence in me as the leader who can guide Tropical Smoothie Cafe into a new era.”

Continues Aggressive Expansion in Texas

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11.  At the end of March 2019, Tropical Smoothie Cafe announced its aggressive franchise development plans for the Dallas-Fort Worth area, and said that the company is seeking qualified entrepreneurs to open new restaurants throughout the market. CEO Charles Watson, along with his leadership team, hosted an information session at the franchised Tropical Smoothie Cafe in Dallas-Fort Worth on April 16.

12.  The event welcomed interested prospects and offered them a chance to learn more about franchising opportunities with the brand, which has achieved compounding success and substantial nationwide growth evidenced by, among other things, increasing average unit volume across the system, recognition amongst top industry awards, and seven consecutive years of positive same-store sales growth.

13.  Charles Watson, CEO of Tropical Smoothie Cafe, LLC, said, “In the past year alone, our aggressive expansion throughout Texas has proven to be a success, most notably with the celebration of our 700th cafe opening, located right here in Hurst. There are many opportunities for local entrepreneurs to build on the existing momentum in the local Dallas-Fort Worth market, and we’re looking forward to meeting with them in-person to talk about the tools and resources Tropical Smoothie Cafe is able to offer our franchisees that position them for success.”

14.  The brand’s development priorities in the Dallas-Fort Worth area are fueled by opportunities in the market and the company’s continued demand for accelerated growth. Currently, franchisees operate nearly 50 Tropical Smoothie Cafe locations across the state of Texas, with 11 cafes open in the Dallas-Fort Worth area, and another three expected to open in the market before the end of 2019.

15.  The Dallas-Fort Worth area offers a dynamic built-in customer base that enjoys an active and better-for-you lifestyle in flourishing local communities. In addition to Dallas-Fort Worth, the brand is continuing to aggressively develop throughout the state with franchise opportunities in Austin, Houston, and San Antonio.

Company History

16.  Tropical Smoothie Cafe was founded in 1997 by Eric and Delora Jenrich and David Walker in Destin, Florida. The Jenriches and Walker came from franchise backgrounds and used their industry knowledge to grow the Tropical Smoothie Cafe franchise.

17.  In 1998, the first franchised store opened in Tallahassee, Florida. The following year, Tropical Smoothie Cafe expanded its menu and introduced a line of food items including sandwiches and wraps. Around this time, as more locations opened, the company redesigned its stores to offer a beach house theme with bright white walls, an open kitchen concept, vibrant colors, and tropical artwork.

18.  In the early 2000s, Tropical Smoothie Cafe continued to grow across the United States and the 200th store opened in 2006. By the beginning of the next decade, Tropical Smoothie Cafe had grown to 300 locations. Around this time, private equity firm Buckhead Investment Partners (BIP) bought a controlling interest in Tropical Smoothie Cafe. Eric Jenrich and David Walker remained on the board of directors, while former chief operating officer, Mike Rotondo, was promoted to replace Jenrich as chief executive officer in 2012 until his departure in 2018.

19.  Today, there are Tropical Smoothie Cafe stores across the United States with a goal of 1,500 stores open by 2023.

Entrepreneur’s Franchise 500

20.  Tropical Smoothie Cafe ranked No. 65 on Entrepreneur’s 2019 Franchise 500 list.

Section II – Estimated Costs

  • Please click here for detailed estimates of Tropical Smoothie Cafe franchise costs, based on Item 7 of the company’s 2019 FDD.

Section III – Initial Franchise Fee, Royalty Fee, Marketing Fee, and Other Fees

  • Please click here for detailed information on Tropical Smoothie Cafe’s initial franchise fee, royalty fee, marketing fee, and other fees, based on Items 5 and 6 of the company’s 2019 FDD.

Section IV – Number of Franchised and Company-Owned Outlets

Franchised

2016

  • Outlets at the Start of the Year:  464
  • Outlets at the End of the Year:  539
  • Net Change:  +75

2017

  • Outlets at the Start of the Year:  539
  • Outlets at the End of the Year:  627
  • Net Change:  +88

2018

  • Outlets at the Start of the Year:  627
  • Outlets at the End of the Year:  718
  • Net Change:  +91

Company-Owned

2016

  • Outlets at the Start of the Year:  1
  • Outlets at the End of the Year:  1
  • Net Change:  0

2017

  • Outlets at the Start of the Year:  1
  • Outlets at the End of the Year:  1
  • Net Change:  0

2018

  • Outlets at the Start of the Year:  1
  • Outlets at the End of the Year:  1
  • Net Change:  0

Section V – Financial Performance Representations (Item 19, 2019 FDD) and Analysis

  • The following tables provide historical sales information for Tropical Smoothie Cafe franchised restaurants (“Restaurants”) that were open at least one full year as of: (a) the calendar year 2018 for 569 Restaurants; (b) the calendar year 2017 for 485 Restaurants; and (c) the calendar year 2016 for 412 Restaurants.
  • The tables do not include any financial performance information for any other types of franchises, such as non-traditional locations (i.e. college campus or other captive locations) or seasonal locations, and do not include any franchises of any type that had not been open for at least one year on December 30, 2018, December 31, 2017, and December 25, 2016, respectively.
  • The information presented is not a forecast of future potential performance.
  • For purposes of the tables below, Net Revenue means all revenue related to the sale of products and performance of services at the Restaurant, whether cash or credit, and regardless of collection in the case of credit, and income of every kind or nature related to the Restaurant, less any discounts. Net Revenue does not include (i) bona fide refunds to customers, (ii) revenues from sales taxes or other add-on taxes collected from customers by you and actually transmitted to the appropriate taxing authority, (iii) sales of used equipment not in the ordinary course of business, or (iv) sales of gift cards or similar products (but the redemption of any such card or product will be included in Net Revenue).
  • The tables provide the average and median net revenues for the following categories of Restaurants in 2018, 2017, and 2016 on a category and cumulative basis:
  • (a) the top 10% revenue producing Restaurants (meaning the average net revenue for the number of Restaurants that are in the top 10% of net revenues for that year);
  • (b) the top 25% revenue producing Restaurants (which includes the Restaurants that are in the top 10%);
  • (c) the top 50% revenue producing Restaurants (which includes the Restaurants that are in the top 10% and the top 25%);
  • (d) the top 75% revenue producing Restaurants (which includes the Restaurants that are in the top 10%, the top 25%, and the top 50%);
  • (e) the bottom 10% revenue producing Restaurants (meaning the average net revenue for the number of Restaurants that are in the bottom 10% of net revenue for that year);
  • (f) the bottom 25% revenue producing Restaurants (which includes the Restaurants that are in the bottom 10%);
  • (g) the bottom 50% revenue producing Restaurants (which includes the Restaurants that are in the bottom 10% and the bottom 25%); and
  • (h) the bottom 75% revenue producing Restaurants (which includes the Restaurants that are in the bottom 10%, the bottom 25%, and the bottom 50%).
  • The franchisor presents the average net revenue for the year in that category as well as the number and percentage achieving or surpassing the average net revenue in that category alone and cumulative for all Restaurants. For example, 52 of the 142 Restaurants in the top 25% for 2018 (or 37%), and 48 of the 121 Restaurants in the top 25% for 2017 (or 40%) achieved or surpassed that average.

Part 1 – Average Net Revenues in 2018

Top 10%

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