FDD Talk 2018: Tropical Smoothie Cafe Franchise Review (Financial Performance Analysis, Costs, Fees, and More)

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 2018 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 2018 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 2015, 2016, and 2017, based on Item 20 of the company’s 2018 FDD

• Section V – Presentation and analysis of Tropical Smoothie Cafe’s financial performance representations, based on Item 19 of the company’s 2018 FDD, including information on the:

• 2017, 2016, and 2015 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

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

Secures Up to $20 Million in Available Franchisee Financing Through ApplePie Capital

1.  During the last week of March 2018, Tropical Smoothie Cafe announced that, in order to drive continued expansion across the U.S., it was working with ApplePie Capital to offer new and existing franchisees access to up to $20 million in debt capital.

2.  Charles Watson, chief development officer of Tropical Smoothie Cafe, said, “Tropical Smoothie Cafe is committed to helping our franchisees grow and prosper, and we are excited to launch this program with ApplePie. They are franchising professionals who understand the needs of our franchisees to help foster their growth.”

3.  Watson added, “ApplePie recognizes our business model and has developed a dedicated lending program to address the financial needs of our franchisees, whether they are looking to open new locations, acquire capital for acquisitions or remodels, or looking for assistance with refinancing. Their decision to allocate $20 million to Tropical Smoothie Cafe franchisees will help us achieve our accelerating expansion efforts in key target markets across the U.S. and reach our goal of 1,000 locations by 2020.”

4.  Interested franchisees can receive a free consultation by contacting ApplePie on the Tropical Smoothie Cafe section of its website.

Accelerates Development in the Midwest

5.  At the end of May 2018, Tropical Smoothie Cafe announced its “aggressive” franchise development plans for the Midwest, specifically targeting Ohio and Illinois. With momentum from new franchise agreements and a strong pipeline of upcoming grand openings, the brand is continuing to target the Midwest for additional growth and is seeking qualified entrepreneurs to expand the brand’s presence throughout the region.

6.  Mike Rotondo, CEO of Tropical Smoothie Cafe, said, “The Midwest is a key area for development and while we have an existing presence in markets such as Ohio and Illinois, we’ve only scratched the surface. We see tremendous growth potential for Tropical Smoothie Cafe in the Midwest and believe that our successful business model and strong franchisee network will resonate in the region. We look forward to the opportunity to bring more locations to the Midwest and are eager to welcome new franchisees who share our passion of providing unparalleled hospitality and superior products in the communities we serve.”

7.  There are currently 15 Tropical Smoothie Cafe locations in Ohio and the brand has signed five new franchise agreements for the region so far in 2018. Tropical Smoothie Cafe wants to propel its growth in the state, especially in Cleveland and Columbus. The brand says that at least a dozen new locations are slated to open throughout Ohio over the next five years.

8.  In addition to expansion in Ohio, Tropical Smoothie Cafe is also heavily targeting Illinois. The brand has six existing cafes in the state, with an additional location set to open in Tinley Park this summer. As development efforts continue in Ohio and Illinois, Tropical Smoothie Cafe has set a goal to open 50 new cafes across both states over the next 5 years.

9.  To support the brand’s expansion efforts, CEO Mike Rotondo hosted informative “Meet the CEO” events last June 5, 6, and 7 at Tropical Smoothie Cafe locations in Lockport, Illinois; Toledo, Ohio; and Findlay, Ohio, respectively. The events offered interested prospects an opportunity to learn more about franchising opportunities with Tropical Smoothie Cafe, which has achieved compounding success and substantial nationwide growth over the past several years.

Appoints New Senior Vice President of Supply Chain and Quality Assurance

10.  In early February 2018, Tropical Smoothie Cafe promoted industry veteran Kristi Kingery to senior vice president of supply chain and quality assurance. In her new role, Kingery oversees quality assurance, supply chain, and culinary for Tropical Smoothie Cafe. She is also responsible for spearheading food safety and supply chain risk initiatives by implementing new processes for auditing supplier facilities and evaluating product needs for both suppliers and distributors.

11.  Kingery first joined Tropical Smoothie Cafe in 2017 and in less than a year, made a significant impact on the brand’s supply chain by successfully developing and implementing a strategy to improve profitability for franchisees. These efforts resulted in savings of more than $3,000 per cafe, per year and reduced delivery case shortages by 78 percent.

12.  Prior to joining Tropical Smoothie Cafe, Kingery began her supply chain career at ARCOP, Inc., the supply chain cooperative for Arby’s Restaurant Group, which supports over 3,200 franchise and corporate-owned restaurants. Additionally, Kingery’s impressive track record earned her a seat on the Governing Board for the National Restaurant Association’s Supply Chain Executive Study Group, which addresses industry concerns and discusses best practices meant to benefit manufacturers, operators, and distributors.

Company History

13.  Tropical Smoothie Cafe was founded in 1993 by Eric and Delora Jenrich as well as David Walker in Destin, Florida. The first smoothie shop was a success and led to the formation of the Tropical Smoothie Franchise Development Corporation in 1997. The Jenrichs and Walker had franchise backgrounds and used their knowledge to successfully grow the Tropical Smoothie Cafe brand. The first franchised location opened in 1998 in Tallahassee, Florida.

14.  As the company expanded, the founders brought on Mike Rotondo, who had previous experience at franchise companies such as Great Wraps, Arby’s, and HoneyBaked Ham, to serve as chief operating officer.

15.  In 1999, the brand created a niche in the smoothie category by adding healthy food items such as sandwiches and wraps to its menu. As the franchise continued to grow, Tropical Smoothie Cafe started redesigning its stores to offer a beach house theme with bright white walls, an open kitchen concept, vibrant colors, and original Bob Steman artwork.

16.  In 2012, private equity firm Buckhead Investment Partners (BIP) bought a controlling interest in Tropical Smoothie Cafe. Eric Jenrich and Davide Walker remained with the company as members of its board of directors and Mike Rotondo was promoted to chief executive officer, a position he still holds today.

Entrepreneur’s Franchise 500

17.  Tropical Smoothie Cafe ranked No. 71 on Entrepreneur’s 2018 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 2018 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 2018 FDD.

Section IV – Number of Franchised and Company-Owned Outlets

Franchised

2015

• Outlets at the Start of the Year:  412
• Outlets at the End of the Year:  464
• Net Change:  +52

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

Company-Owned

2015

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

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:  0
• Net Change:  -1

Section V – Financial Performance Representations (Item 19, 2018 FDD) and Analysis

• The following tables provide historical sales information for Tropical Smoothie Cafe franchised stores (“Stores”) that were open at least one full year as of:  (a) the calendar year 2017 for 494 Stores; (b) the calendar year 2016 for 412 Stores; and (c) the calendar year 2015 for 358 Stores.

• 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 31, 2017, December 25, 2016, and December 27, 2015, 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 Store, whether cash or credit, and regardless of collection in the case of credit, and income of every kind or nature related to the Store, 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 Stores in 2017, 2016, and 2015 on a category and cumulative basis:

• (a) the top 10% revenue producing Stores (meaning the average net revenue for the number of Stores that are in the top 10% of net revenues for that year);
• (b) the top 25% revenue producing Stores (which includes the Stores that are in the top 10%);
• (c) the top 50% revenue producing Stores (which includes the Stores that are in the top 10% and the top 25%);
• (d) the top 75% revenue producing Stores (which includes the Stores that are in the top 10%, the top 25%, and the top 50%);
• (e) the bottom 10% revenue producing Stores (meaning the average net revenue for the number of Stores that are in the bottom 10% of net revenue for that year);
• (f) the bottom 25% revenue producing Stores (which includes the Stores that are in the bottom 10%);
• (g) the bottom 50% revenue producing Stores (which includes the Stores that are in the bottom 10% and the bottom 25%); and
• (h) the bottom 75% revenue producing Stores (which includes the Stores 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 Stores. For example, 48 of the 121 Stores in the top 25% for 2017 (or 40%), and 35 of the 103 Stores in the top 25% for 2016 (or 34%) achieved or surpassed that average.

Part 1 – Average Net Revenues in 2017

Top 10%