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FDD Talk 2016: The Tropical Smoothie Cafe Franchise Opportunity (Financial Performance Analysis, Estimated Costs, and Other Important Stuff You Need to Know)

by Franchise Chatter on December 21, 2016

in FDD Talk 2017: Food Franchises, Franchise Earnings, Smoothie Franchise

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Tropical Smoothie Cafe Smoothies

In this FDD Talk 2016 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 2016 FDD
  • Section III – Presentation and analysis of Tropical Smoothie Cafe’s financial performance representations, based on Item 19 of the company’s 2016 FDD, including information on the:
  • 2015, 2014, and 2013 average and median gross revenues, number of stores, and number and percentage of stores that surpassed the average gross revenues in the category for the top 10%, top 25%, top 50%, top 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

2016 Was Strong Year for Tropical Smoothie Cafe

Tropical Smoothie Cafe has had one of its strongest growth years in the company’s 19-year history, with expansion into new markets and growing presence in key markets around the United States.

The chain, which is aiming for 800 locations by 2018, opened its 500th restaurant in June 2016 in Westland, Michigan.

The aggressive growth plan is fueled by BIP Franchise Accelerator, a division of venture capital firm BIP Capital, which acquired controlling interest in the company in 2012.

“When we invested in Tropical Smoothie Cafe four years ago, the company had 200 franchised locations and was growing at a slow pace of only 20 per year,” Tom Wells, vice president of BIP Franchise Accelerator, said in a news release in November 2016. “Today, Tropical Smoothie Cafe is opening an average of one cafe a week and last year signed nearly 200 franchise agreements. Our partnership has brought not only the needed capital to grow the brand, but also the proven strategies for accelerating a franchise system’s growth.”

In the first half of 2016, Tropical Smoothie Cafe enjoyed a 6.4 percent increase in same-store sales while signing agreements to develop 80 new locations.

Tampa Expansion Aims for 50 Units

A highly successful franchising veteran signed franchise agreements in November 2016 to expand Tropical Smoothie Cafe’s presence in Tampa, Florida.

Emily Harrington, who has considerable experience as a multi-unit franchisee, previously owned 42 Hardee’s restaurants. As part of the agreement, she purchased two existing locations in Tampa and will open four new locations in the area over the next several years. The eventual goal is for Harrington to own at least 50 Tropical Smoothie Cafe restaurants.

And in December, franchise operators Bill Ruby and Greg Powell signed a franchise development agreement to expand the brand’s presence in South Carolina. The duo, industry veterans who most recently worked together in senior leadership for Denny’s Corporation, plan to open six new restaurants in the Upstate area, the first in Greenville early in 2017.

Hepatitis A Outbreak Linked to Strawberries at Tropical Smoothie Cafe Locations

Tropical Smoothie Cafe’s impressive growth in 2016 was tempered by an outbreak of hepatitis A in August that was linked to strawberries the company sourced from Egypt.

The outbreak primarily affected people in Virginia but involved eight other states as well. The chain pulled the Egyptian strawberries and found an alternative source, but the outbreak sickened 143 people.

Of those, 129 reported consuming strawberries from a Tropical Smoothie Cafe location, according to a November 2016 report by the Centers for Disease Control and Prevention. Fifty-two people were hospitalized. No deaths occurred as a result of the outbreak. There have been no reported cases of illness from this same exposure since Sept. 23.

On Oct. 30, The International Company for Agricultural Production & Processing, which had supplied the Egyptian strawberries to Tropical Smoothie Cafe, recalled all of its frozen strawberries that had been imported into the United States since Jan. 1. According to the Food and Drug Administration, hepatitis A virus contamination was found in four samples of the frozen strawberries from the ICAPP.

The investigation into the outbreak is continuing.

On the company’s website, CEO Mike Rotondo is prominently featured in a video message addressing the hepatitis A outbreak.

“We have sourced new strawberries for every location,” Rotondo said. “We take this issue very seriously. Your health and your safety is our top priority. We want you to have confidence that we source high-quality products so that you’ll come back again and visit us very soon.”

Started as Smoothie Chain

The chain was established in 1993 as a smoothie shop in Destin, Florida, by founders Eric and Delora Jenrich and David Walker. Franchising began in 1997, with the first franchised location opening in Tallahassee, Florida. The menu expanded in 1999 to offer healthy savory foods for breakfast, lunch, dinner and snack times.

The Tropical Smoothie Cafe menu contains much more than smoothies, which make up about half of sales. Customers also order sandwiches, flatbreads, wraps, specialty bowls, and salads, with the menu including breakfast wraps and breakfast flatbreads.

CEO Elected to IFA Board

Rotondo was elected to the International Franchise Association Board of Directors in November 2016. He will officially join the board on Feb. 1, 2017, at the IFA’s 57th annual convention in Las Vegas, Nevada.

Over the past five years, Rotondo has increased Tropical Smoothie Cafe’s average unit volume by more than 50 percent.

Chain Honored in 2016

Among awards for Tropical Smoothie Cafe, the company was No. 6 on Nation’s Restaurant News’ list of 10 Fastest Growing Chains, No. 5 in Fast Casual’s Top 100 Movers & Shakers, No. 6 on Franchise Gator’s list of Top 100 Franchisees of 2016 and No. 62 on Entrepreneur’s list of Fastest-Growing Franchises of the Year.

The chain received numerous other awards over the year as well, including ranking at No. 399 in Entrepreneur’s Franchise 500 list for 2016.

Section II – Estimated Costs

  • Please click here for detailed estimates of Tropical Smoothie Cafe franchise costs, based on Item 7 of the company’s 2016 FDD (updated).

Section III – Financial Performance Representations (Item 19, 2016 FDD) and Analysis

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