Tropical Smoothie offers ‘intense’ training stint
Tropical Smoothie Cafe was launched in Tallahassee, Florida, in 1997, and grew to 310 franchises before being purchased in 2012 by BIP Opportunities Fund, an Atlanta investment firm. The total investment for a Tropical Smoothie Cafe is $210,550 to $478,550.
BIP maintained stability by retaining the majority of Tropical Smoothie’s officers, elevating COO Mike Rotondo to CEO, and keeping Charles Watson, chief development officer, and several others. The company’s founder is still on the board of directors, as are others from the original board.
The only item of note is that Tropical Smoothie “may discount” its $25,000 franchise fee, including a 50 percent discount to veterans.
Although the franchisor derives no revenue from direct sales of equipment, products or services to franchisees, it did receive vendor rebates of about $2 million, or 8 percent of current revenue, in 2015. The funds are used to defray expenses of the annual convention, for marketing and promotional materials and for a portion of the salaries of executives involved in distribution and production.
Affiliate BIP Franchise Finance provides financing to qualified franchisees. Chief Development Officer Charles Watson said the program was established to provide funding for the expansion of existing franchisees and so far 20 multi-unit operators have used it to grow their businesses. The funding is not available to new franchisees.
Tropical Smoothie provides an intensive “hands-on” training program, which includes two weeks in a local cafe and a week at corporate headquarters in Atlanta. More unusual, Tropical Smoothie sends one or two franchise business consultants to a new franchisee’s cafe for a full week to prepare for opening day. This ensures that staff is trained, inventory is correct and technology is functional, Watson said.
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Corporate collects a 2 percent ad fee and requires franchisees to participate in local ad co-ops if they are available. All internet marketing and social media must be approved by the franchisor. Tropical Smoothie has no independent franchisee association or advertising advisory council. Instead, seven area developers that represent over 150 cafes make up the Tropical Advisory Group, said Watson. “Over the last five years, this group has provided feedback on initiatives before we implement them systemwide.”
Veteran franchise reporter Julie Bennett examines a franchisor’s financial disclosure documents, and writes about strengths and potential red flags. Reach Julie at email@example.com.
Tropical Smoothie Cafe’s FDD includes a financial performance representation based on gross revenue of traditional cafes operating for a year or more. It does not include franchisees’ expenses. However, Watson said the company will begin a pilot test of a cloud-based point-of-sale collection system in the first quarter of 2017 and aims to roll out the program systemwide by the end of the year. “Our goal is to include a fully aggregated P&L in our Item 19 in April 2018,” he said.
Tropical Smoothie Cafe has grown steadily since the BIP acquisition, adding 31, 53 and 52 outlets each year. The system has only one corporate store and ended 2015 with 464 franchises after 20 transfers, 4 terminations, 1 nonrenewal and 8 that ceased operations, for a turnover rate of about 7 percent. According to Watson, the franchisor has a pipeline of more than 200 signed development deals, which explains its tally of 240 franchises sold but not opened.