Cost to open jamba juice franchise

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JAMBA JUICE: MIXING IT UP & STARTING AFRESH *

On January 3, 2017, Dave Pace, CEO of Jamba Juice, rang the Opening Bell of the Nasdaq MarketSite in Times Square. As part of what Nasdaq had done for the last six years during its annual “Fit Week,” Jamba Juice’s appearance was meant to focus attention on those companies that helped individuals lead healthier lifestyles. It was especially appropriate for Jamba Juice, because the lifestyle brand with a passion for making healthy living fun was undergoing a refresh of its own. To be announced in March 2017, preliminary financial results for fiscal 2016 had indicated a decrease in revenue and a loss for the year. Although the company had tried to explain this by pointing to the non-recurring expenses of business model adjustment and corporate relocation, investors were wary as the stock price continued to slide.1 The largest shareholder and activist investor, Engaged Capital, had called on the company to “slash costs and close unprofitable stores”2 which CEO Pace was in the process of doing.

In May 2016 Pace had announced that Jamba would move its headquarters from California to a less expensive location in Texas, restructure the overall organization, and make changes to the leadership team to ensure support for the transition from company-owned stores to a full franchise model. Commenting on this decision, Pace said, “Jamba has pursued our vision to inspire and simplify healthy living for 26 years, starting with a single juice shop in San Luis Obispo, but as we continue to spread our healthy living mission globally, it has become increasingly clear that a relocation of our support center will better position the company to extend our brand and continue to support our franchise partners for the long term.”3

In January 2017 Jamba Juice announced the launch of its ReSet Super Blends, a protein smoothie line developed in collaboration with celebrity fitness trainer Harley Pasternak.4 The new line of protein smoothies included real fruit fortified with calcium, riboflavin, and phosphorus, making for an ideal pre- or post-workout snack or midday “pick-me-up.”

But the question remained, would these ongoing initiatives, mixing up the product line and starting afresh with franchise partners, be enough to keep Jamba Juice top-of-mind with its current customers and attractive to new consumers, especially given the increased competition from smoothies served at the likes of McDonald’s, Burger King, and Dairy Queen?5

Company Background

Juice Club was founded by Kirk Perron and opened its first store in San Luis Obispo, California, in April 1990.6 While many small health-food stores had juice bars offering fresh carrot juice, wheat germ, and protein powder, dedicated juice and smoothie bars were sparse in 1990 and didn’t gain widespread popularity until the mid- to late 1990s.

Juice Club began with a franchise strategy and opened its second and third stores in northern and southern California in 1993. In 1994 management decided that an expansion strategy focusing on company stores would provide a greater degree of quality and operating control. In 1995 the company changed its name to Jamba Juice Company to provide a point of differentiation as competitors began offering similar healthy juices and smoothies in the marketplace.

In March 1999 Jamba Juice Company merged with Zuka Juice Inc., a smoothie retail chain with 98 smoothie retail units in the western United States. On March 13, 2006, Jamba Juice Company agreed to be acquired by Services Acquisition Corp. International (headed by Steven Berrard, former CEO of Blockbuster Inc.) for $265 million.7 The company went public in November 2006 as Nasdaq-traded JMBA. Jamba Juice stores were owned and franchised by Jamba Juice Company, which was a wholly owned subsidiary of Jamba Inc.

In August 2008 Jamba Juice faced significant leadership changes. Steven Berrard agreed to assume the responsibilities of interim CEO.8 In December 2008, James D. White was named CEO and president, while Berrard remained chairman of the board of directors. Prior to joining Jamba Juice, White had been senior vice president of consumer brands at Safeway, a publicly traded Fortune 100 food and drug retailer. During what CEO White called the turnaround years from 2009 to 2011, he worked to eliminate short-term debt, innovate, expand the menu, and change the business model by refranchising stores, growing internationally, and commercializing product lines.

Ongoing Strategic Initiatives

Jamba pursued elusive financial health during James D. White’s tenure as CEO. Although revenue had been down, the company was profitable, and things appeared to be back on track in 2015 as White moved forward with his “BLEND 2.0” strategic priorities. This BLEND strategy was part of a business redirection that included shifting from a company ownership to a franchise ownership model, refreshing the product line, and accelerating global retail growth through new and existing formats. When he retired in 2015, White had been partly successful, growing revenue and returning the company to profitability in fiscal 2012, only to see a loss in 2014. (See Exhibits 1 and 2.)

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When White announced his retirement in October 2015, he felt the accelerated refranchising initiative was virtually complete, and that the company would benefit from a “new generation” of leadership.9 Nearly two years earlier, Jamba Juice CEO White had also rung the opening bell at Nasdaq in New York City. Headlines had announced “Jamba Juice Rings in the New Year with the Unveiling of Brand-New Jamba Kids™ Meals.” This new menu targeting Jamba’s newest and youngest customers involved smaller 9.5-ounce sizes of fruit smoothies—Strawberries Gone Bananas, Blueberry Strawberry Blast-off, Popp’in Peach Mango, and Berry Beet It—plus two new food items: a Pizza Swirl with Turkey and a Cheesy Stuffed Pretzel. The idea for this kid’s menu came from listening to customers, who had struggled to share the larger smoothie drinks with their young children. It also meshed with Jamba’s overall strategy: to create “good-for-you food that tastes good” and to continue to add more full-meal options to the menu for both kids and adults.10 The Jamba Juice Company had been expanding its product line over the years to offer Jamba products that pleased a broader palate. In addition, Jamba had been pursuing an aggressive expansion program, evolving from a made-to-order smoothie company into a healthy, active-lifestyle company.

EXHIBIT 1 Income Statements

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Source: Jamba 10-K reports.

EXHIBIT 2 Balance Sheets (in thousands of dollars)

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Source: Jamba 10-K reports.

EXHIBIT 2 Balance Sheets (in thousands of dollars)

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Source: Jamba 10-K reports.

Just after his arrival as the new Jamba Juice CEO in 2008, White had instituted a set of strategic priorities. Believing it was necessary to revitalize the company, White had outlined the following goals: 11

· Transform the chain through refranchising existing stores.

· Initiate international growth.

· Build a retail presence with branded consumer packaged goods and licensing.

· Bring more food offerings to the menu across all dayparts—breakfast, lunch, afternoon, dinner.

· Implement a disciplined expense-reduction plan and improve comparable sales.

In 2012, Jamba Juice had pronounced this turnaround complete and begun to focus on achieving a second phase of growth. CEO White had called this next set of initiatives an accelerated growth BLEND Plan 2.0. By 2016 this plan had evolved into BLEND 3.0 and included the following:

· Become a top-of-mind brand by simplifying and sharpening Jamba’s healthy food and beverage marketing message to better clarify value and make the brand more relevant through brand activation and leadership.

· Create new products, provide category leadership in smoothies, juices and bowls.

· Accelerate global retail growth through new and existing formats.

· Drive the asset-light business model to enhance shareholder value, continuing to reduce operational costs, driving store-level productivity and profitability, and improving efficiency in the supply, sourcing, and distribution process. 12

According to White, these strategic priorities supported the company’s mission to “accelerate growth and development of Jamba as a globally recognized healthy, active lifestyle brand.” 13

Top-of-Mind Brand

By 2017 Jamba Juice was the smoothie brand leader and #1 retailer for fresh squeezed made-to-order juices. Jamba also boasted over 1.8 million Facebook fans and over 100 million annual visits to its stores. The consumer messaging was centered around the theme “Blend In The Good,” centered on “Whole Food Nutrition,” designed to focus consumers on the benefits of the fresh fruits and vegetables that were used to make Jamba’s smoothies, juices, and bowls. This campaign was executed over multiple media sources, including digital, social, public relations, TV, radio and print. The campaign reached millions of Millennials through the power of social media in partnership with DanceOn, the number one ranked YouTube channel, and with Pharrell Williams. Jamba also entered into or expanded programs with strategic partners including with Spendgo, Google, Twitter, SoftCard, and Groupon, incorporating the Jamba Juice mobile application, helping customers locate stores, order ahead, speed up transactions, and improve the online and in-store experience.

In 2017 the Jamba Insider Rewards (“JJR”) e-mail marketing program had 2 million loyalty members who were rewarded with promotional offers such as discounts, free products, and advance notice of in-store events. Franchisees were provided with tools and technologies that targeted their customers through e-mail, social media, radio and out-of-home advertising, and in late 2015 Jamba piloted a first-ever television ad campaign in key markets.

Regarding its marketing efforts, historically, Jamba had not engaged in any mass-media promotional programs, relying instead on word of mouth and in-store promotions to increase customer awareness. However, Jamba was featured in stories appearing in the Wall Street Journal, New York Times, USA Today, and a host of local newspapers and magazines, as well as profiled spots on TV news shows such as Good Morning America. Jamba had also run an “Ambassadors of WOW” contest nationwide, encouraging fans to nominate themselves or worthy friends or family members to be the new faces of Jamba Juice, creating “wow” through support and involvement within their communities. These ambassadors would have the opportunity to appear in Jamba Juice advertisements and promotional campaigns.14

Jamba also capitalized on the openings of new sites as opportunities to reach out to the media and secure live local television coverage, radio broadcasts, and articles in local print media. Openings were also frequently associated with a charitable event, thus serving to reinforce Jamba Juice Company’s strong commitment to its communities. In addition, Jamba aligned itself with “active living” spokespeople, such as tennis star Venus Williams, who had partnered with Jamba to open two stores in the Maryland–Washington, D.C., area.15

Jamba also re-launched its corporate social responsibility initiatives under the banner of “Team Up For a Healthy Whirl’d,” a platform that encouraged consumers, partners, and employees to join in the company’s efforts to inspire healthy people, products, planet, and community. Through Team Up For a Healthy Whirl’d Jamba led sustainability initiatives, programs to inspire healthier employees, and a number of community engagement activities in the markets it served. Continuing on its mission to serve the community, Jamba launched a grant program, partnering with the National Gardening Association and their Kid’s Gardening program, continuing to drive awareness of the need to encourage better dietary and fitness habits in kids through the Team Up For a Healthy America program and through partnerships with the American heart Association, National Gardening Association, and the GenYouth Foundation.

New Products, Category Leadership
Jamba sought “top-of-mind” leadership by creating innovative and “craveable” menu items they could offer throughout the day—for breakfast, lunch, afternoon, and dinner. Jamba Juice stores offered customers a range of fresh squeezed fruit juices, blended beverages, baked goods and meals, nutritional supplements, and healthy snacks. Jamba smoothie and juice options were made with real fruit and 100 percent fruit juices. Jamba smoothies were rich in vitamins, minerals, proteins, and fiber, were blended to order, and provided four to six servings of fruits and vegetables. In addition to the natural nutrients in Jamba smoothies, Jamba offered supplements in the form of Boosts and Shots. Boosts included 10 combinations of vitamins, minerals, proteins, and extracts designed to give the mind and body a nutritious boost. Shots included three combinations of wheatgrass, green tea, orange juice, and soymilk designed to give customers a natural concentrate of vitamins, minerals, and antioxidants.

As complements to its smoothie and boost offerings, Jamba also offered baked goods and other meal items. Called “tasty bites,” each of these items was made with natural ingredients and was high in protein and fiber. One popular item was steel cut hot oatmeal with fruit, a low-calorie organic product that captured a “best of” rating by nutritionists when compared against offerings from McDonald’s, Starbucks, Au Bon Pain, and Cosi.16 Jamba also offered a variety of grab-and-go wraps, sandwiches, and California flatbread food offerings, as well as “energy bowls” that incorporated whole fruit, fresh Greek yogurt and/or soy milk, and an assortment of dry toppings.

Jamba featured an organic brew-by-the-cup coffee service and a line of Whirl’ns frozen yogurt and sorbet bar treats, with probiotic fruit and yogurt blends. In 2012 Jamba added to the hot beverage category by acquiring premium tea blender Talbott Teas. This acquisition was championed by ABC TV’s Shark Tank venture capitalists Kevin O’Leary, Daymond John, and Barbara Corcoran, who convinced Jamba CEO James White that this acquisition would be a good fit for Jamba’s strategy to “accelerate growth through the acquisition of specialty lifestyle brands that support the company’s expansion into new and relevant product categories.”17

Jamba also transitioned existing stores in selected markets to a fresh-squeezed juice emphasis. This addressed competition from both Juice It Up! and Starbucks, who were expanding their premium juice bar businesses. But the big announcement was when Jamba introduced its Kids Meals. This new menu was targeted toward children ages 4 to 8, with a complete meal—a smoothie plus a food item—containing fewer than 500 calories. The items included whole grains, 2.5 servings of fruit or vegetables, and no added sugar.

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One of the key objectives of Jamba’s growth strategy was to market itself in a way to increase sales year-round and significantly decrease weather and seasonal vulnerabilities. Seasonal issues were serious, since the traditional driver of Jamba’s revenue and profit was the sale of smoothies during hot weather. In southern states (e.g., California), where the weather remained warm year-round, Jamba experienced fairly steady sales. However, in the northern states (e.g., New York), where there was a cold and fairly lengthy winter season, Jamba experienced severe seasonal variability. To counter the seasonal slump, Jamba pushed to increase the presence of nontraditional stores inside existing venues.

Nontraditional Locations
Jamba had generally characterized its stores as either traditional or nontraditional. Traditional locations included suburban strip malls and various retail locations in urban centers. Traditional stores averaged approximately 1,400 square feet in size and were designed to be fun, friendly, energetic, and colorful to represent the active, healthy lifestyle that Jamba Juice promoted.

Nontraditional stores were considered those located in areas that allowed Jamba to generate awareness and try out new products to fuel the core business. Jamba’s nontraditional opportunities included store-within-a-store locations, airports, shopping malls, and colleges and universities.

Store-within-a-store: Jamba Juice had developed franchise partner relationships with major grocers and retailers to develop store-within-a-store concepts. The franchise partnerships provided it with the opportunity to reach new customers and enhance the brand without making significant capital investments. An example of this was the 2016 opening of a combination Timothy’s World Coffee and Jamba Juice franchise location within a Stop & Shop store in Long Island, New York.18

Airports: Jamba operated several airport locations and had the opportunity to develop stores in numerous additional airports. Jamba Juice Company’s highly portable product appealed to travelers on the go and provided them with an energizing boost.

Shopping malls: Jamba had opportunistically established stores in shopping malls that presented attractive expansion opportunities. In addition, as with the airport locations, the indoor setting helped to alleviate weather and seasonal vulnerabilities that challenged traditional locations.

Colleges and universities: The Jamba brand was appealing to the average college student’s active, on-the-go lifestyle, and Jamba had developed multiple on-campus locations across the United States.

Other potential nontraditional store locations: Additional high-traffic, nontraditional locations existed. Many large health clubs included a juice and smoothie bar within their buildings. Jamba could partner with a major gym chain or individual private gyms with high membership rates. Another possibility was to partner with a large school district. Schools across the country were under increasing scrutiny to offer healthy alternatives to the traditional fat-, carbohydrate-, and preservative-rich foods served in cafeterias, especially as a number of states were prohibiting the sale of junk food on K–12 campuses.

Jamba had introduced self-service JambaGO automated drink stations in nontraditional locations, including schools. Taking roughly the space of a soda fountain beverage dispenser, the JambaGo format, which CEO White called a wellness center, included the chain’s branded packaged products, as well as the option of several preblended smoothies. The JambaGO concept was a way to reinforce Jamba as a healthy, active lifestyle brand that was also convenient and portable. This licensed concept represented no capital investment for Jamba and used the razor/razor blade net profit model. White was hoping Jamba would become “the go-to resource for healthy solutions for school foodservice directors.”19 However, current CEO Dave Pace announced plans to exit the JambaGo platform in 2017, stating “the Jamba team has committed to strengthening its core retail business, improving franchise profitability, accelerating ongoing global development, and updating the Jamba Juice brand position. After a detailed review, the Company determined that the JambaGo platform does not align with these objectives and is not a viable option through which to drive long-term profitability and shareholder value.”20 Interestingly, customer feedback had indicated that the quality of the JambaGo product was not up the standards that consumers expected from Jamba; therefore Jamba management felt JambaGo would degrade the brand and impact the company’s opportunity to grow the core business and brand over the long term.

Building a Global Consumer Packaged Goods Platform
Jamba Inc. was also aggressively pursuing licensing agreements for commercialized product lines in the areas of Jamba-branded make-at-home frozen smoothie kits, frozen yogurt novelty bars, all-natural energy drinks, coconut water fruit juice beverages, Brazilian super fruit shots, trail mixes, and fruit cups. The objective was to reinforce the Jamba better-for-you message with convenient and portable products available at multiple consumer locations.

In aggressive moves, Jamba had expanded licensing agreements to include a line of fruit-infused coconut water, to be distributed through the Pepsi Beverage Company, Brazilian super fruit shots, and all-natural fruit cups to be produced in partnership with Zola and Sundia Corporation. Other Jamba-branded consumer products included yogurt and sorbet frozen novelty items manufactured under license by Oregon Ice Cream LLC out of Eugene, Oregon, and Jamba-branded apparel, including cotton T-shirts, beanies, and a canvas tote bag, developed in partnership with licensee Headline Entertainment.

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Jamba also promoted “At Home Smoothies,” a kit containing fruit and yogurt with a healthy antioxidant boost, one full serving of fruit, and 100% daily value of vitamin C. Available in the local grocer’s fruit aisle, the package made two eight-ounce servings by adding juice and blending. The blending was facilitated by Jamba’s new appliance line, offering a juice extractor, manual juicer, professional blender, and a “quiet blend” blender for quick midnight meals.

Transition from Company-Owned to Franchise “Asset-light” Format
Originally, Jamba Juice Company had followed a strategy of expanding its store locations in existing markets and only opening stores in select new markets. Jamba soon began acquiring the assets of Jamba Juice franchised stores in an attempt to gain more control over growth direction. Under CEO Paul E. Clayton, Jamba acquired several franchise stores and expected to continue making additional franchise acquisitions as part of its ongoing growth strategy. However, the company-owned franchises were not as productive and accounted for a disproportionately low portion of company revenues.21

Clayton stepped down after eight years, and was ultimately replaced by James White. White reversed the trajectory of the company-owned growth strategy, focusing on the acceleration of franchise and nontraditional store growth. The more heavily franchised business model tended to require less capital investment and reduced the volatility of cash flow performance over time. However, revenue sources then came more from royalties and franchise fees rather than retail sales. This plan, set into motion by CEO White in December 2008, saw the percentage of Jamba’s stores that are franchised increase from 30 percent to nearly 90 percent. Jamba Juice was recognized by Forbes in 2014 as one of the Top 10 Best Franchises in America.

Current CEO Dave Pace planned to oversee the continuing transition. The “asset-light” franchise model had several efficiencies that translated to increased profitability. When a company placed most of the risk for running a business in the hands of a franchisee, the franchisor, Jamba Juice in this case, did not have to pay for employees, rent, or upkeep on the store assets. The franchisee was expected to put his or her capital to work, running the business. In this case, store management was “more likely to act in the best interest of shareholders because the franchisee’s net worth is more often directly correlated with the outcome” of his or her store.22 The incentives were clear. The franchisee took the risk and earned the profits, while the franchisor made 7.5 to 10 percent royalty on all sales, and collected a marketing fee.

Going into 2017, Jamba Juice had 896 locations, consisting of 69 company-owned and -operated stores and 759 franchise stores, with 68 licensed sites overseas. (See Exhibit 3.)

International growth was also a priority. Starting with the first South Korean location in January 2011, Jamba Juice had grown to 68 stores internationally by 2017, with outlets in Indonesia, South Korea, the Philippines, Taiwan, United Arab Emirates, Mexico, and Canada, with additional franchisees to open in Thailand. International stores were located in prominent locations like the Mall of Asia, the largest integrated shopping, dining, and leisure destination in the Philippines.23

Competition
Jamba was the smoothie industry leader and initially had several competitors with similar health and fitness focuses, such as Juice It Up!, Planet Smoothie, and Smoothie King, but over time that had changed. Starbucks and Panera Bread had entered the smoothie market, and McDonald’s brought its marketing machine into the frozen drink category, launching its line of smoothies with a value pitch. When McDonald’s introduced a 12-ounce smoothie for $2.29, Jamba Juice’s berry smoothies started at $3.55 for 16 ounces. When asked about the McDonald’s push into its competitive space, Jamba Juice’s CEO White said, “We view the entry of McDonald’s into the smoothie category as an overall validation of the potential of smoothies. Their advertising will expand interest in the category.” Burger King had also entered the smoothie market, and Starbucks, with its smoothies already in place, had acquired both Evolution Fresh, the premium juice bar operator, and Teavana Teas. This positioned Starbucks as a head-to-head competitor to Jamba Juice.

Jamba Juice Company’s desire to grow by expanding its selection of nonjuice menu items seemed to follow the Starbucks model. Although originally just a coffeehouse, by 2012 most Starbucks stores offered a variety of muffins, fruit plates, sandwiches, quiches, and desserts. And with the 2012 acquisition of juice bar operator Evolution Fresh and premium loose tea purveyor Teavana, Starbucks had pushed boundaries even further. This menu expansion helped Starbucks attract customers who were looking for a light meal or dessert to go with their coffee and also attracted non-coffee drinkers who just came in for the food, tea, and juice beverages. Offering iced coffees, teas, and juices helped Starbucks overcome some of its seasonal variability, giving customers a cool-drink offering during hot-weather months. Offering ready-to-go-drinks in grocery and convenience stores also enabled Starbucks to get its products to a wider customer base.

Likewise, Jamba had set out to strengthen its customer reach by offering ready-to-drink products, and hot food and drink items to attract customers during the cold-weather months, plus a range of breakfast and lunch food items to complement its juice-based offerings and satisfy customer desires all day and all year-round. Could Jamba continue to follow Starbucks’ path of broadening its menu base but still maintaining its brand identity?

One of the issues with growth is how to manage the pace of innovation—by choosing a direction that capitalizes on the organization’s core competencies and then validating new ideas by testing them in the marketplace—and then making sure the financial and human assets are available to invest in sustaining needed operational components. Consultant Robert Sher advises CEOs of mid-market companies who are trying to plan for growth. He pointed to Jamba CEO James White as one who seemed to get it, explaining that White’s team uses “a well-disciplined ‘stage-gate’ process to de-risk each idea, from conception through testing.” As an example, Sher pointed to Jamba’s launch of its steel-cut oatmeal, a product that took two years of field testing but ended up a winner.24 page C249 The juice and smoothie bar industry had seen a reduction in growth since 2012 as competition increased from fast-food chains and yogurt shops. The category of smoothies and juices had seen increasing consumer acceptance as health claims become more commonplace, especially as the “cold press” juice option, yielding highly nutritious juice from chopped spinach, kale and ginger, gained in popularity. However, the juice category was still relatively expensive compared with other refreshment options, and more informed consumers became concerned about the high sugar content from natural fructose. This, combined with the fact that the regular quick-serve restaurants such as McDonald’s and Burger King were reported to make up nearly 40 percent of the juice and smoothie bar market, meant that the pure juice and smoothie providers such as Jamba Juice, Planet Smoothie, and Smoothie King were facing difficult growth options.25 Clearly international growth was possible, and there was always the additional possibility of consolidation through merger, acquisition or other cobranded partnerships. What would the future look like? CEO Dave Pace’s remarks during the third quarter earning call in 2016 restated the challenge: “I’d just like to reiterate the importance of the work being done by the new team in 2016 to eliminate distractions, tightening refocus of the portfolio, and thus allow us to direct our energy to reigniting core sales, and sales and profit growth in 2017 and beyond. You’ll see us continue to implement disciplined processes including deeper consumer insights and analytical vigor into all of our decision making. . . . 2016 is obviously a year of significant transition for Jamba. But as I hope you can see, we’re developing the organization, executing the strategy, and building the environment that we need to successfully deliver value to our shareholders over the short, medium, and long term.”26 Would Pace and Jamba be successful?