Smoothie King's Whiz Kid
How one South Korean defied his father, spent millions to create a market, nearly went bust for the second time, and then bought the entire company. Now that he's 41, Wan Kim needs to get work done — on his well-worn brand.
Nearly five years, almost 40 stores and $9 million into his effort to introduce smoothies to his fellow South Koreans, Smoothie King franchisee Wan Kim was starting to sweat.
He had defied his father in a culture that forbids rebellion, when he left his place as heir-apparent to a $200-million electronics manufacturer that supplied the storied likes of Samsung and Sony.
"They know I'm going to change the gear for growth," says Wan Kim, Smoothie King's new CEO, referring to franchisees and staff.
He raised $15 million from individual investors to start a venture capital firm in Seoul, dazzled just a few years earlier by soaring tech stocks while in graduate school in the Silicon Valley. But the company went bust, and his investors lost their money.
Now his Smoothie King stores were slurping up cash—because they were flashy, the way Kim believed they had to be to impress his countrymen, not like the modest shops in the United States where Smoothie King began. “I wanted to make sure our stores looked premium,” he says. “I needed to make the market.”
His store in Seoul’s version of Times Square, for example, was two stories tall with 150 seats, required a $1.3-million deposit to secure the lease and cost $33,000 a month for rent—at only one location, and he had bested two much-larger competitors in 2003 to win the rights to build 50 stores over five years in South Korea.
“For the first five years we were struggling a lot. We were losing a lot of money,” Kim recalls. “Even my father was saying, ‘You failed. Close the business.’” But then Kim’s fortunes began to turn, perhaps because he finally had opened enough stores to establish the brand in a chaotic and crowded city, although Kim himself can’t pinpoint the exact reason even today.
Stores became profitable and he started sub-franchising, zooming to 130 stores total over the next five years. But the biggest move was yet to come. He convinced Standard Chartered Bank Private Equity, the investment arm of the venerable U.K. institution, and National Pension of the Republic of Korea to back his $50-million buyout of the 40-year-old Smoothie King system, based in an outpost near New Orleans and still in the hands of the founders, Steve and Cindy Kuhnau.
Now Kim, who just turned 41 and looks easily a decade younger, has a major challenge ahead. He aims to pump money into a system that has stagnated, add 1,000 stores by 2017 (on top of 621 now, $180 million in systemwide sales and No. 230 on the Franchise Times Top 200) and return the brand to its founders’ core mission—healthy eating, when competitors as formidable as McDonald’s tout their smoothies as a treat.
But those are items on a to-do list, and this earnest young man who appears more like a prep-schooler than a business mogul has grand thoughts, too. “I think I always wanted to be bigger than my father,” he says quietly at one point during a lengthy interview in the company’s new offices, with an expansive view of the massive Lake Pontchartrain in Metairie and a metaphor for new horizons.
Kim’s wish to transform Smoothie King is personal, yes, a vindication for this oldest son who broke with his father when he couldn’t take the rigid hierarchy that rules South Korean life. But he’s also thinking of his franchisees around the world and his employees at headquarters.
“If my dream is not big enough to hold everyone else’s dream, then they should not work for me,” he says.
The day after the interview is July 25, the first day of Smoothie King’s annual convention, and franchisees are pouring in to meet their new CEO—more than 700 attendees in all are expected, a record for the system.
Paula and Paul McCulloch are one of Smoothie King's few multi-unit franchisees, the type Wan Kim says he wants to attract. "I think they're going to take Smoothie King even more in my direction," says Paula, a long-time devotee of healthy eating. They're a bit worried by Kim's mission to add 200 corporate stores, for fear those stores will encroach.
The executive team is nervous. They’ve been promising changes for the franchisees since the transaction closed, almost a year earlier, but everything is taking a lot longer than planned.
Kim was focusing on reducing COGS, for example, or the cost of goods sold, but then learned those contracts for food and supplies have terms and he has to wait for them to end. The entire year of 2012 and half of 2013 came and went without the introduction of a new smoothie flavor—an eternity in the fast-food business where customers crave the next hot thing.
“I think for the last year I haven’t delivered something to them. I said this will change, that will change,” he says. “I am trying to deliver some of the promises and explain what has happened.”
As a former franchisee himself, he knows the drill. “Franchisees always, always have to make some complaints, and trust me—for 10 years I made the complaints,” he says.
Now it’s show time for the new CEO, and as franchisees file in, greeting each other loudly, he and his team are intense. Kim bounds on stage to a heavy beat, then exhorts those assembled to get back to the company’s mission: to inspire people to live healthy and active lifestyles, he says, in heavily accented English that’s tough to understand in the large space. But the franchisees are leaning forward to catch every word, appearing eager for change.
The Kuhnaus are beloved in the company, and Kim and all the other executives express their admiration for what the husband-and-wife team built. But there’s also this: When companies last 40 years, without an infusion of capital or management, change needs to come.
Kim had said it himself in the interview the day before. “I felt so sorry for it,” about the brand in the years right before his purchase, although he worried he sounded disloyal, and he repeated his high regard for the founders. “If you love something and they’re not doing it right, you feel sorry.”
The big reveal this morning is Smoothie King’s new logo, which they paid “seven figures” to WD Partners, a design and branding firm in Dublin, Ohio, to develop over the past year. After all the focus groups and market research and design iterations—and WD created “hundreds” of different logos for Smoothie King execs to consider—today is the day, and it’s obvious how much is riding on franchisees’ reaction because the build-up is massive.
“Forty years and we’re finally going under the knife, like a middle-aged crisis,” the marketing veep is explaining on stage. They flash dozens of logos on screen, such as Starbucks and Apple and McDonald’s and Jamba Juice, and report consumers’ reaction to those. McCafe “looks like a classier McDonald’s,” according to consumers. Planet Smoothie, “like George Jetson.” Pinkberry screams “desserts, candy, girly, girly, girly.”
Carla Desormot-Saintil, with her husband, Remy Saintil, opened store 860 in Atlanta in 2009, and plans for a second. "I'm passionate about it, and if you're passionate about what you do it will flow through," she says. She's anxious for a new product, something corporate hasn’t delivered since 2012.
Then comes the feedback for Smoothie King’s logo, itself 20 years old: Focus groups said it looks like a fast-food sign for a 1970s-era drive-thru, and then it gets worse. “It looks like a car wash,” many people said in focus groups, or “It looks like a quick-lube express.” The audience groans.
Finally is the ta-da moment. “We’re on the freight train right now in fresh and healthy and companies are scrambling to get on board. The globe is changing,” the executive enthuses. And the new logo appears: Red, with three splashes that evoke the Smoothie King crown, or a community of people joining their hands together, or fresh strawberries like in their smoothies, whatever the viewer prefers.
Applause follows—louder than a golf clap, for sure, but not by much, and the audience gets up to take a break.
The company’s long-time printing vendor, Hank Cacamo of American Solutions for Business, is one of the few outside the inner circle who had seen the logo before the convention. He likes it, but he predicts trouble, especially from the “old guard,” the long-time New Orleans franchisees who were with the Kuhnaus from the beginning. They’ll be offended by the knocks on the old logo just presented on stage.
But in the hallway afterward they don’t seem so, and in fact Wan Kim & Co. are getting good reviews. “We need to go to a new level and he’s going to take us there. He’s got a track record,” says Charlene Carrouche, in her 24th year as a franchisee in New Orleans.
Tyronne Astugue is a 15-year franchisee. “He’s looking to move us into the future,” he says about Kim. “Change is good sometimes. We were getting a little stagnated.”
In a longer interview over lunch, Carla Desormot-Saintil, the franchisee who owns Store 860 in Atlanta, and whose favorite smoothie is Mangosteen Madness as it says on her business card, is enthused about the new identity. “It’s taking us to another level. It will be an international brand, not just the U.S. I think it’s going to take us very far.”
And Paul and Paula McCulloch from Nashville, one of the brand’s few multi-unit franchisees with six stores and the company’s first mobile Smoothie King truck, call the changes “completely positive,” and in line with Paula’s long-time devotion to healthy eating.
“I think they’re going to take Smoothie King even more in my direction,” she says, cutting out the “Grape Expectations” smoothie, for example, which corporate did last year because it implied a sugary treat, and adding “even more of those green energy drinks.”
The husband-and-wife pair tend to tease each other. “I have to tell on him,” Paula says about Paul when they were first deciding which franchise to buy. “He wanted to put in a donut shop.”
Back at the offices, again the day before the convention, some 60 employees in corporate headquarters are presenting a birthday cake to Kim with 41 candles. “I’m a little older than Smoothie King,” Kim says after the very brief party. Kim’s father, Hyojo, is visiting this week, in town for the convention, and he makes a stern and silent appearance, unable to speak much English, before retreating to his son’s office.
Kim grew up enjoying his father’s wealth, generated by the electronics company he built from scratch. Hyojo was 8 when his father was killed, during the Korean War that tore apart the populace, and the hard times after forged the elder Kim’s psyche. “It’s in his DNA, that anything can happen. It’s pretty much like survival mode,” Kim says.
Kim’s mother, a housewife, indulged him and his younger brother. “My mother and father’s philosophies are different. She would put me in first class” to encourage him to be successful so he could travel that way again and again. “He would put me in economy,” Kim says, “and said you had to stay humble.”
In his youth, Kim recalls Seoul as a go-go city in a developing country, growing at 7, 8, 9 percent a year. “I could feel it,” Kim says, especially compared to the 2 or 3 percent growth rate now. “The city was dynamic.”
Kim was sent to Boston University for his undergrad degree because he had cousins there, and it scared him silent at first. English was taught in school back home, but the South Korean culture prohibited the experimentation required to learn to be fluent. “In Korea, if you get it wrong, they blame you, but if you’re learning you’ll get it wrong.”
Diving into America was a shock. “When I came to Boston it was really hard. I lost 25 pounds. I didn’t have friends,” Kim says. “The culture was so different. It’s a bigger society and the openness—I couldn’t accept it. When I grew up there was a boundary, but when the boundary is gone, it’s scary.”
After three months, he says, “I start to realize, what the heck. It’s a great opportunity. So I started to speak,” and the diverse student body at Boston was a revelation. “I start to realize, different culture isn’t wrong, it’s different.”
A couple of years working for his father, in San Diego to supervise their Tijuana plant, went badly. He chafed when his father would enter the room and everyone would fall obediently silent, as expected in South Korea. He wanted to grow the company, called Kyung In, and expand the customer base, maybe selling to some rising Chinese companies, including in one instance the biggest company in China.
“He said no, because they’re not a No. 1 credit like Samsung or Sony,” Kim says, recalling his father’s adamant stance. “No debt. He always told me using debt is a dangerous idea. All the money he made he put in the bank. Not one dollar of debt” is on the company’s books. Add the fact that he didn’t like manufacturing—“there’s no interaction with customers, there’s no branding”—and the inevitable split came within two years.
So Kim went to the University of California-Irvine for an MBA, and reveled in the Silicon Valley boom—a time when Yahoo’s stock, for example, went up 1,000 percent over only a dozen months. “It was crazy time, but because I was young I thought that was the future.”
He took his optimism back to Korea and started that VC firm, “and in three years we blew up. The day we founded the company the stock market was at its peak.” And what did he learn? “We learned, in the good times prepare for the bad times”—a philosophy his father would likely approve. “And, you cannot bet against the trend.”
The trend in Korea, he says—which no longer is a fast-growing country but rather one with first-world concerns like obesity—was toward healthy food. He researched Jamba Juice, the leader in the smoothie sector, and Smoothie King, and found the former to be more formal and the latter “more like a family business,” each type with its pros and cons.
Steve Kuhnau impressed Kim with his passion for his products. By now Kuhnau had been blending smoothies for more than 30 years—long before they hit the mainstream—as meal replacements that he used at first to treat his own allergies and then his patients’ health concerns. Kuhnau worked as a nurse in a burn center early in his career, and he discovered patients thrived on his nutritious drinks, which he, like Kim, considers a meal replacement, not a snack.
COO Tom O'Keefe, left, became an instant fan of Wan Kim. "He's personally committed to making his dream come true," he says. With him is CFO Paul Ahn, Kim's countryman, who believes the brand is well set for capital.
But Kim wasn’t the only one trying to ride the trend. “There were three companies that wanted to bring Smoothie King to Korea, so I was competing for it,” Kim recalls, and he ended up impressing Kuhnau with his zeal. “While I was in New Orleans, negotiating with Steve, I had a lot of smoothies, and he liked that,” Kim says. “For a week I think I had like 100 smoothies. It gave him a good impression.”
Once he won the rights as master franchisee, Kim had to learn the food business, which to him is about consistency, not innovation. For example, he explains, if you love the iPhone you want the latest model with fancy new features every time a new one is released. But if you crave a Big Mac, you want it exactly the same as the last.
“In our business we need to figure out how to deliver that consistently, and we don’t need geniuses to deliver that,” he says. Rather, he needs dedicated people who are passionate about the product, and Kim set about surrounding himself with same.
Kuhnau resisted offers to sell the company for years, and he refused to consider private equity firms as suitors. “He doesn’t think private equity guys can run the business; they’ll ruin it,” Kim says.
But Kim kept bringing up the subject starting in 2009, and one day Kuhnau called and said he was ready. Kim got moving. Standard Chartered had asked Kim to be COO for another brand they wanted to expand in Asia, but Kim had a better idea: Why don’t they invest in Smoothie King instead?
Kuhnau was firm on the price: He would accept $50 million, the amount he had written on a check made to himself when he first started the company. Literally, Kim says, Kuhnau pulled out that very document and showed it to Kim during negotiations. Kim walked around the office for a while, then decided he’d meet the price, and a few months later he owned the whole system.
But first he had to convince his wife, Hosun, to move to New Orleans with their three young children. She had visited only once, in 2003, and hated it. “She saw Bourbon Street and thought it’s not a good place to raise the kids. She said, that’s a sin city.”
He was planning to move the company to Dallas or Atlanta, a bigger metro where he was sure his employees would be happier—until he asked them. “It was shocking that nobody wanted to move,” he says, and he changed his plans because he likes loyal people working for him. So he ran around videotaping the parts of New Orleans more suited to family life, and sending them to Hosun—and she relented at last.
He hired Tom O’Keefe as president and chief operating officer, wooing him with a low-key conversation that O’Keefe’s describes “like two guys sitting in an airplane, talking business.” O’Keefe became an instant fan. “I had the unmistakable impression that he would achieve everything he set out to do and I wanted to help him,” O’Keefe says. “He’s personally committed to making his dream come true.” O’Keefe’s task is to triple the domestic footprint and quadruple the international.
Kim also hired Paul Ahn, his countryman and the new CFO of Smoothie King. Ahn lived in New Jersey in middle school so he doesn’t have an accent like Kim’s, which is one reason he seems like a taller, cooler counterpart to Kim with the laid-back attitude to match. They have been friends since high school.
Kim is only the third South Korean who has bought a U.S. firm, Ahn claims—usually it’s the other way around—and he gained great prestige in the republic when it happened. “When I saw the news it gave me the goosebumps,” Ahn says.
Ahn believes the firm has plenty of cash—20 percent of the equity raised is still available after the buyout—and will easily raise debt financing when needed, which is likely when it begins to build the 200 corporate-owned stores now in the planning stages.
“I do believe why the brand was born. The brand was born to help people live a healthy lifestyle,” Kim says. That’s his biggest task now, he believes: to return to the company’s roots, to change the perception so consumers consider Smoothie King smoothies as a healthy meal replacement, and align all of the company’s systems to fit that mission.
“Now it’s time, they need to believe me, and it’s not just my team but all our franchisees. We need to show the world that we will own it. Then I think it can be very powerful.”