FDD Talk: Smoothie King 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 Smoothie King franchise opportunity, including relevant news updates

• Section II – Estimated initial investment for a Smoothie King 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 Smoothie King franchise, based on Items 5 and 6 of the company’s 2019 FDD

• Section IV – Number of franchised and company-owned Smoothie King 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 Smoothie King’s financial performance representations, based on Item 19 of the company’s 2019 FDD, including information on the:

• 2018, 2017, 2016, 2015, and 2014 average, median, high, and low net sales for Smoothie King franchised units that had been open for the 13-month period ending December 31, 2018, December 31, 2017, December 31, 2016, December 31, 2015, and December 31, 2014, respectively

• 2018 vs. 2017, 2017 vs. 2016, 2016 vs. 2015, 2015 vs. 2014, and 2014 vs. 2013 average and median net sales percentage (same-store sales) increase for Smoothie King units based on a comparison of net sales for a comparable period in both years

Section I – Background Information

26 Things You Need to Know About the Smoothie King Franchise

Launches New Branding Campaign

1.  In late March 2019, Smoothie King launched new branding, “Rule the Day,” which delivers on the company’s vision to be an integral part of every health and fitness journey. The rebrand, led by creative agency of record Omnicom Group-owned Rodgers Townsend, comes as Smoothie King continues its menu makeover, a journey that has taken more than five years, 15,000 hours of research and development, and 150 changes, additions, and reformulations of ingredients to support healthy, active lifestyles.

2.  As part of the Clean Blends initiative, Smoothie King’s menu includes more whole fruits and veggies, no artificial colors, flavors or preservatives, and zero grams of added sugar in many smoothie options.

3.  The Rule the Day campaign captures the journey of wellness, activity, and achievement featuring everyday habits that encourage people to live purposefully. It also highlights Smoothie King’s many delicious, nutrient-rich smoothie blends that fuel those lifestyles, including ingredients like organic kale and spinach, carrots, strawberries, mangoes, wild blueberries, and raspberries.

4.  According to Wan Kim, CEO of Smoothie King, “Our new branding demonstrates that we believe food is fuel for the mind and body, and that it should be as flavorful as it is functional. We carefully choose each ingredient in our smoothies to help our guests achieve their purpose, reach their goals and truly rule each day.”

5.  As part of the rebrand, Smoothie King also introduced its newest smoothie: Slim-N-Trim Veggie made with organic spinach, kale, and ginger with mangoes, bananas, Gladiator Protein, Lean1 Protein, Fiber Blend Enhancer, and apple pineapple juice blend. The 240-calorie smoothie is the perfect light meal to help shape up for summer, with two full servings of fruits and vegetables, zero grams of added sugar, and protein and fiber to fuel the day. Slim-N-Trim Veggie became available at all locations beginning April 2, 2019.

Appoints New President and Makes Other Leadership Changes

6.  At the beginning of September 2019, Smoothie King announced that Dan Harmon, formerly chief operating officer, had been promoted to president and COO. As president, Harmon’s expanded responsibilities for the 1,000-plus-unit franchise include oversight of all the marketing and IT functions.

7.  “Over the last two years, [Dan] has demonstrated tremendous leadership and has really taken our store operations and relationship with our franchisees to a new level. He lives our mission to inspire people to live a healthy and active lifestyle every day, and I am thrilled to have him in this new, elevated role,” said Kim.

8.  In addition to this change, Smoothie King also announced that Kevin King, formerly chief development officer, was elevated to chief business development officer, and Rebecca Miller, formerly marketing officer, was tabbed as head of field marketing.

9.  King’s new role entails leading the charge on new growth opportunities as the franchise eyes strategic partnerships in the health and fitness space and potential acquisitions of complementary brands. As head of field marketing, Miller will continue to provide her marketing leadership and expertise to meet the needs of franchisees and field teams while also ensuring an alignment of resources.

10.  In May, the franchise also introduced IT expert and industry veteran Chris Andrews as its new chief information officer.

11.  The restructuring of Smoothie King’s executive team underscores the franchise’s development efforts as it looks to sustain healthy, continuous growth both nationally and internationally for the rest of 2019 and beyond.

12.  Kim added, “Smoothie King has experienced incredible growth over the last couple years, and we want to capitalize on the enormous opportunity that lies ahead. These moves to our leadership team put our franchise in the best position to do just that.”

13.  The leadership reshuffle came after a healthy and active second quarter (2019) for Smoothie King, which signed 25 development agreements for 29 committed stores in 14 states. A total of 18 existing franchisees reinvested, while the brand welcomed seven new owners to the system.

14.  Highlighting Smoothie King’s growth in Q2 was an area development agreement that will bring four new stores to Illinois, while also finalizing an agreement for a location inside New Orleans’ Ochsner Medical Center. Other states where Q2 deals were signed include Alabama, Arizona, Colorado, Florida, Georgia, Indiana, Missouri, Nebraska, North Carolina, Tennessee, Texas, and Virginia.

15.  At the time of the press release, Smoothie King projected 65 more agreements for 100 committed locations by the end of 2019, with target markets including Baltimore, Kansas City (Mo.), Little Rock (Ark.), New York, Oklahoma City, Philadelphia, Tulsa (Okla.), and Washington D.C.

16.  Kim said, “Our brand vision is to be an integral part of every health and fitness journey, and the growth we’re experiencing is giving us the opportunity to better fulfill that vision. Our development is also an indication of just how much our brand and its mission is resonating with franchisees. While we signed agreements in a couple key markets in Q2, it’s crucial we continue to evolve – just as our guests’ needs do – if we want to keep growing like we know we can.”

Launches New Keto Champ Smoothies

17.  In mid-August 2019, Smoothie King became the first smoothie chain to answer the need of carb-conscious customers who were seeking a keto-friendly blend with the launch of new Keto Champ smoothies. Keto Champ smoothies are blended with high-fat, high-protein ingredients like almond butter, collagen MCT blend, cocoa, and almond milk, and contain no artificial colors, flavors, or preservatives.

18.  With less than 10 net carbs per 20 oz. serving, Keto Champ smoothies support the health and wellness journey of guests following the ketogenic diet.

19.  According to Rebecca Miller, chief marketing officer of Smoothie King, “Guests are seeking smoothie options to meet a variety of dietary needs – particularly, we’re seeing an increase in lifestyles that limit carbohydrate intake. We’re pleased to help keto champs Rule the Day with our new Keto Champ smoothies.”

20.  To reward customers practicing a healthy and active lifestyle, Smoothie King celebrated its new product launch by giving any guest who hits 10,000 steps a free Keto Champ smoothie. On Tuesday, August 20, customers could visit their nearest Smoothie King location, show proof of their 10,000 or more steps via an activity tracker, mobile device or smart watch, and receive a complimentary 20 oz. Keto Champ.

21.  “We know our most loyal guests regularly practice an active, healthy lifestyle, and we want to encourage them to continue this trend,” stated Miller. “By rewarding them for hitting a step goal – which we know is a keto-friendly exercise – we hope Keto Champ smoothies will help them stay on track in pursuit of their health and fitness goals.”

22.  Available in two tasty blends, Keto Champ smoothies contain high protein and fats that help to curb cravings and leave guests feeling fuller longer. They are also an excellent source of fiber and calcium, and a good source of iron.

• Smoothie King Keto Champ Berry: Blended to perfection with wild blueberries, whole raspberries, almond milk, almond butter, 100% cocoa, and Smoothie King’s keto protein blend, the Keto Champ Berry contains nine grams of net carbs per 20 oz. serving, with 31 grams of fat and no added sugar.

• Smoothie King Keto Champ Coffee: Providing an extra caffeine boost with almond milk, cold brew coffee, almond butter, 100% cocoa, and Smoothie King’s keto protein blend, the Keto Champ Coffee contains seven grams of net carbs per 20 oz. serving, with 31 grams of fat and no added sugar.

Company History

23.  Smoothie King was founded in 1973 by Steve Kuhnau and his wife Cindy in Kenner, Louisiana. Kuhnau began making his own smoothies at home when he learned that he was lactose intolerant, but still craved milkshakes. He mixed fresh fruit, vitamins, proteins, and other supplements together until he developed a delicious smoothie. Kuhnau’s smoothies were satisfying and had a positive impact on his health. He soon realized that he could sell his concoctions.

24.  Over the next decade, Smoothie King continued to grow and the Kuhnaus started franchising the concept in 1989. Smoothie King’s success and dominance as one of the largest smoothie franchises in the United States continued over the next few decades. The Kuhnaus owned and operated Smoothie King until 2012, when they decided to sell the company to SK USA, Inc., headed by CEO Wan Kim, a Smoothie King franchisee who had more than 100 stores in South Korea.

25.  Kim then secured $58 million (equivalent to about $65M in 2019) in growth capital from Standard Charter Private Equity and National Pension Fund to grow the company. By 2018, Smoothie King had grown to over 1,000 stores in the U.S., South Korea, the Cayman Islands, and Singapore.

Entrepreneur’s Franchise 500

26.  Smoothie King ranked No. 14 on Entrepreneur’s 2020 Franchise 500 list.

Section II – Estimated Costs

• Please click here for detailed estimates of Smoothie King 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 Smoothie King’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:  633
• Outlets at the End of the Year:  717
• Net Change:  +84

2017

• Outlets at the Start of the Year:  717
• Outlets at the End of the Year:  787
• Net Change:  +70

2018

• Outlets at the Start of the Year:  787
• Outlets at the End of the Year:  872
• Net Change:  +85

Company-Owned

2016

• Outlets at the Start of the Year:  26
• Outlets at the End of the Year:  26
• Net Change:  0

2017

• Outlets at the Start of the Year:  26
• Outlets at the End of the Year:  28
• Net Change:  +2

2018

• Outlets at the Start of the Year:  28
• Outlets at the End of the Year:  29
• Net Change:  +1

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

• Under Part A below, Smoothie King has provided unaudited statements of average annual Unit Net Sales as of December 31, 2018, December 31, 2017, December 31, 2016, December 31, 2015, and December 31, 2014.

• Under Part B below, Smoothie King has provided information on the average annual Net Sales percentage increase for Units comparing the 2018 and 2017 calendar years, 2017 and 2016 calendar years, the 2016 and 2015 calendar years, the 2015 and 2014 calendar years, and the 2014 and 2013 calendar years.

• All Units offer substantially the same products and services to the public. New franchisees will receive substantially the same services as those offered to existing franchisees.

• Smoothie King obtained these historical financial results from the information submitted by its franchisees. Neither Smoothie King nor an independent certified public accountant has independently audited or verified the information.

Part A – Statement of Average Net Sales for 2018, 2017, 2016, 2015, and 2014

• The five tables below provide information on average Net Sales of Units during each of the 12-month periods starting January 1, 2018 and ending December 31, 2018; January 1, 2017 and ending December 31, 2017; starting January 1, 2016 and ending December 31, 2016; starting January 1, 2015 and ending December 31, 2015; and starting January 1, 2014 and ending December 31, 2014.

• The term “Net Sales” is defined as all products and services sold in or from the Unit, including off premises catering and delivery, but excluding excise or sales taxes, as well as returns, allowances, and discounts.

• The data below is a representation of average Net Sales for Units broken into 9 segments: top 10%, top 25%, top 50%, top 75%, bottom 10%, bottom 25%, bottom 50%, bottom 75%, and total/all.

• Net Sales information is provided on Units open for the consecutive 13-month period ending on December 31st of the period presented, including those Units closed for a period of less than 8 weeks for remodeling purposes.

• Units presented exclude those Units not scheduled to be open daily throughout the period (excluding holidays), such as Units within office buildings that close for the weekend and Units on college campuses that close for the summer period.

Table A-1 – Average Net Sales of USA Units (January 1, 2018 to December 31, 2018)

• As of December 31, 2018, there were 873 Units operated by franchisees and 29 Units operated by Smoothie King. Of the 902 Units, 760 Units operated by franchisees and 23 Units operated by Smoothie King had been open for the 13-month period ending December 31, 2018, meaning Units opened prior to December 1, 2017.

• Of those 760 franchised Units, 22 Units were excluded since they were not scheduled to be open daily during the reporting period, or were closed for more than an 8-week period during the calendar year 2018, including 15 Units that closed during the 2018 calendar year.

• Of the 738 Units referenced in the table below, all reported sufficient financial performance information to be included in this financial performance representation.

• The information below does not include information from Units operated by Smoothie King.

Top 10%