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Why a Smoothie franchise failed; Rule of Thumb Sales

I spoke with a former franchisee of Nrgize, a smoothie bar by Kahala Corp of Stone Cold Creamery fame.  Nrgize has very good tasting healthy smoothies and complementary healthy foods.

The franchisee was open for about a year before closing its doors.  The location was in a popular suburban fitness center.  At first, the thought of exposure to all the healthy clientèle sounded like a sure win.  However, sales were lower than expected from gym members and public walkins from non-members to buy smoothies was extremely rare.

It’s a good lesson on understanding visit rates from a given population and repeat visits.  I’ve heard this rule of thumb and it seems to makes sense —– If you have a great food product and are the only provider, you will likely get close to 20% of the population to visit you twice a month.  With competition and a less than unique food offering, you should figure less than 12% will visit you twice a month.  You will quickly see that a 5k regular visiting member gym would yield at best 66 transactions per day.  If your average ticket is $5 at a 12% capture rate, your sales will be $118,800/year which is probably nowhere near profitable territory.

About Ryan Knoll

Attorney and advisor with an interest in franchising. Feel free to email me comments and questions on the "Contact Us" page.
7 comments
helpmebob
helpmebob

Anyone know a good franchise lawyer that can help us get out of our franchise contract? 

Ex-Cold Stone Creamery Franchisee
Ex-Cold Stone Creamery Franchisee

I think the real issue here is that Kahala is a very poorly operated company that engages in some underhanded tactics. As an Ex-Cold Stone Creamery franchisee, we had to endure lies, kickbacks, churning, intimidation, and more, all from a company with a broken business model. Though our stores were earning more than $500,000 a year, which was maybe $150,000 more than the company average, we were unable to turn a profit. As cnn.com recently noted in a short article ( http://money.cnn.com/galleries/2010/smallbusiness/1004/gallery.Franchise_failure_rates/4.html ), Cold Stone Creamery has an 31% SBA failure rate. Even the much maligned Quiznos only had a failure rate of 25% and they prbably have four times the number of stores as Cold Stone. Cold Stone Creamery has been dubbed the worst franchise in American history. Kahala, its owner, has everything to do with that.

Todd Weiss CFA
Todd Weiss CFA

Interesting post Ryan. This is clearly helpful for people considering a unique food based concept. Seems it would be better to open one in a good retail location versus inside a facility. If you are going to locate on inside a facility a location with more foot traffic like a regional mall or an airport would be better. Thanks for sharing.

FuwaFuwaUsagi
FuwaFuwaUsagi

You don't think the high operational cost combined with the lower quality product in a seasonal concept had anything to do with it?

laura
laura

I've been investigating franchisees and reviewed Nrgize. The $30,000 franchisee fee put me off.

michael webster
michael webster

Also the high cost of opening a cold stone was going to mean high debt repayments.

@ToddWeissCFA
@ToddWeissCFA

Laura: What other concepts did you look into?