FDD Talk 2021: 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 2021 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 2021 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 2018, 2019, and 2020, based on Item 20 of the company’s 2021 FDD

• Section V – Presentation and analysis of Tropical Smoothie Cafe’s financial performance representations, based on Item 19 of the company’s 2021 FDD, including information on the:

• 2020, 2019, and 2018 average, median, highest, and lowest 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

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

Acquired by Levine Leichtman Capital Partners

1.  In early September 2020, Levine Leichtman Capital Partners (LLCP), a Los Angeles-based private equity firm, announced that it had partnered with management to acquire Tropical Smoothie Cafe, LLC. Under the terms of the acquisition, Tropical Smoothie Cafe will continue to be run by the existing executive team led by CEO Charles Watson.

2.  According to Matthew Frankel, managing partner of LLCP, “We are excited to partner with Charles and the rest of the management team who have led the tremendous growth of Tropical Smoothie Cafe. We look forward to working with them as they continue to increase system-wide sales, improve franchisee unit economics and expand unit count in the significant remaining whitespace.”

3.  Watson said, “My team and I are very excited to partner with LLCP as Tropical Smoothie Cafe seeks to enhance its market-leading position. Having the opportunity to leverage LLCP’s extensive franchise expertise will be pivotal in driving further growth and supporting franchisees in inspiring better in our guests.”

Reaches Milestone With Opening of 900th Location

4.  In mid-November 2020, Tropical Smoothie Cafe announced the opening of its 900th cafe, which is located on the Fort Benning military base in Georgia. This milestone opening comes on the heels of a momentous year for the brand, which had signed 214 new franchise agreements, opened 87 new cafes across the U.S., and achieved double digit same-store sales for the past five months, bringing same-store sales to +6.3% year to date.

5.  Charles Watson, CEO of Tropical Smoothie Cafe, LLC, said, “It’s inspiring to be part of the growth that Tropical Smoothie Cafe has accomplished this year despite the hit the restaurant industry and economy took. Our franchisees have always been exceptional, but over the course of 2020 they’ve continued to show us their unstoppable dedication and passion for the brand, our product, and the communities they serve. We’re excited and honored to celebrate our 900th opening in Fort Benning, a home to our nation’s military. I’m grateful to be a part of this brand and am optimistic for the future ahead.”

6.  The new Fort Benning location is owned and operated by existing franchisees Reginald and Zenna Foster. Reginald is an Army veteran who served as a telecommunications officer for more than 25 years. In 2015, six months after he retired from the Army, Reginald and Zenna opened their first Tropical Smoothie Cafe location in Augusta, Georgia. In April 2019, the Fosters opened the brand’s first military base location in Fort Gordon, Georgia, where Reginald previously was based. Today, the husband-and-wife team owns five cafes and has two more in development.

7.  Reginald Foster said, “Fifteen years into my career with the Army, I knew that when I retired, I wanted to invest in a franchise. Once we discovered Tropical Smoothie Cafe and learned about the better-for-you menu options and their incredible corporate team and franchisee network, we knew it was the perfect fit. Fast forward to today and we’ve truly come full circle as we help this remarkable brand celebrate such a meaningful milestone with our opening on the Fort Benning military base. We are honored to have this opportunity and look forward to serving the local community.”

8.  This cafe opening is especially meaningful to Tropical Smoothie Cafe because of its connection with the International Franchise Association (IFA) Foundation’s VetFran Program, which provides financial incentives to qualified veterans to open franchises. “IFA congratulates Tropical Smoothie Cafe on its 900th location,” said Robert Cresanti, IFA’s president and CEO. “As longtime supporters of the IFA Foundation’s VetFran program, it is particularly fitting that veteran franchisees are opening this milestone location on a military base. IFA sends its wishes for continued success for the brand and its franchisees as Tropical Smoothie Cafe continues its growth.”

9.  With the opening of the Fort Benning cafe, Tropical Smoothie Cafe also continues its partnership with the Army and Air Force Exchange Service (AAFES). This location makes the fourth operational AAFES location for the brand with several others in development.

Reports Ninth Consecutive Year of Same-Store Sales Growth

10.  In mid-January 2021, Tropical Smoothie Cafe announced another record-breaking year in 2020. Tropical Smoothie Cafe delivered its ninth consecutive year of positive same-store sales, with 2020 same-store sales coming in at +7.5%. The brand opened 99 new cafes, including its 900th location in Fort Benning, GA. Further, the brand signed 254 new franchise agreements, 70% of which came from existing franchisees, and is on track to reach more than 1,000 operating restaurants in 2021.

11.  According to Charles Watson, CEO of Tropical Smoothie Cafe, LLC, “Our success is directly related to the passion and dedication of our franchisees, crews and Support Center teams. As I look back on this past year, I’m incredibly proud of how this brand thrived during difficult circumstances and times. Our focus on serving our guests drove us to develop new and exciting menu items and create multiple delivery methods for guests to experience all we have to offer – all while heightening our dedication to safety and our commitment to the communities we serve. As we look to the future, and the more than 600 new cafes in our opening pipeline, I am confident we have the focus, tools and teams to continue the tremendous growth this next year and beyond.”

12.  In response to the pandemic’s effects on operations and the guest experience, Tropical Smoothie Cafe pivoted early and prioritized supporting its franchisees as well as the communities in which they operate. The brand offered 50% royalty relief for eight weeks, and supported franchisees in securing more than $29 million in PPP funds across the system and $1.8 million in rent relief for approximately 250 cafes.

13.  Franchisees also benefited from guests’ rapid adoption of curbside and delivery platforms, which led to a quick rebound in sales. The relaunch of the Tropical Smoothie Cafe mobile app contributed to this success, adding convenience and loyalty to the guest experience and fueled strong digital sales growth from 24% pre-pandemic to 35% currently.

14.  At the onset of the pandemic, the company furthered its commitment to its communities through a nationwide “#InThisTogether” campaign in April 2020, and a second campaign was launched on Giving Tuesday whereby franchisees supported local essential workers and first responders. To date, the brand has donated 250,000 smoothies nationwide, as well as $125,000 to the American Nurses Foundation.

15.  Watson added, “The last 10 months have impacted us all and I’m so incredibly proud of the selflessness of our franchisees and the entire Support Center as we gave back to those putting their lives on the line to keep everyone safe and healthy. Experiencing the joy that Tropical Smoothie Cafe brought to essential workers and first responders will be a lasting memory of this challenging time.”

16.  Tropical Smoothie Cafe also launched a new brand campaign called Tropic Time which defined the brand’s story and helped it better connect with consumers and unite franchisees. Additionally, the company revised its menu strategy and the innovation team implemented changes to both the core and limited-time offering (LTO) menu items. A major redesign and restructure of the core menu launched in July delivered easier navigation, improved guest experience, and more consistent execution – all while decreasing food cost, increasing add-ons, and growing combo take-rate.

17.  Similarly, LTOs such as the limited roll out of the SORBOS edible straw, which reinforces the brand’s commitment to innovation, delivered record numbers for the brand. As Tropical Smoothie Cafe looked forward to 2021, it has already committed to new proteins like shrimp, as well as new platforms designed to increase reach and frequency among guests.

Company History

18.  Tropical Smoothie Cafe was founded in 1993 by Eric and Delora Jenrich and David Walker in Destin, Florida. The business partners and friends started out making smoothies by blending fresh fruits and vegetables as a treat while they spent time at the beach. Eventually, they began selling their smoothies and the business grew over the next few years. In 1997, Tropical Smoothie Franchise Development Corporation was founded and the following year the first franchised Tropical Smoothie Cafe location opened in Tallahassee, Florida.

19.  In 1999, Tropical Smoothie Cafe expanded its menu to include sandwiches, wraps, and other healthy food options. Initially, locations were allowed to choose their own decorations, but as the franchise expanded, a more uniform theme was adopted. Over the next few decades, Tropical Smoothie Cafe continued to expand around the United States and by 2011, there were 300 locations in operation.

20.  The following year, private equity firm Buckhead Investment Partners (BIP) bought a controlling interest in Tropical Smoothie Cafe. Then, in September 2020, Tropical Smoothie Cafe was acquired by private equity firm Levine Leichtman Capital Partners. Today, there are Tropical Smoothie Cafes all around the United States.

Entrepreneur’s Franchise 500

21.  Tropical Smoothie Cafe ranked No. 14 on Entrepreneur’s 2021 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 2021 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 2021 FDD.

Section IV – Number of Franchised and Company-Owned Outlets

Franchised

2018

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

2019

• Outlets at the Start of the Year:  718
• Outlets at the End of the Year:  833
• Net Change:  +115

2020

• Outlets at the Start of the Year:  833
• Outlets at the End of the Year:  913
• Net Change:  +80

Company-Owned

2018

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

2019

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

2020

• 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, 2021 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 2020 for 555 Restaurants; (b) the calendar year 2019 for 652 Restaurants; and (c) the calendar year 2018 for 569 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 27, 2020, December 29, 2019, and December 30, 2018, 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 2020, 2019, and 2018 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 139 Restaurants in the top 25% for 2020 (or 37%), 61 of the 163 Restaurants in the top 25% for 2019 (or 37%), and 52 of the 142 Restaurants in the top 25% for 2018 (or 37%) achieved or surpassed that average.

Part 1 – Average Net Revenues in 2020