Why Tropical Smoothie Cafe is bucking the ghost kitchen trend

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When it comes to one of the hottest trends in the industry, Tropical Smoothie Cafe, which recently crossed 1,000 locations, is not joining the herd. Ghost kitchens? CEO Charles Watson says they are not part of the chain’s significant growth plans.

For Watson, it goes back to the brand’s roots as a franchise-driven organization. Given that operators haven’t expressed overwhelming interest in stepping in, it’s probably not in the way for the company to go. But the reasons go beyond that.

“I see shadow kitchens, and they work successfully for many brands. But we’re just a traditional franchise model, and we think we have a better way to distribute our products,” Watson says. “We think brands are important, visibility is important, and connecting with the communities we operate in is important, and we think we can do that much better through traditional openings.

The United States had 1,500 ghost kitchens in July 2020, according to data from Euromonitor. And this number is only increasing. Kitchen United announced it was teaming up with Kroger Grocery Stores and DoorDash officially launched full-service kitchens, to name a few recent developments.

Watson recognizes that shadow kitchens are a great, inexpensive way to test markets and products. After all, the digital space has completely exploded out of the COVID trough, he says. Still, there are niches where it makes more sense than others.

“Do I think he has legs?” Absolutely,” says Watson. “However, I think it’s with specific brands and in certain geographies.”

Highly populated markets like Los Angeles, New York, Chicago and Miami offer plenty of opportunities for shadow kitchens, but in tertiary and secondary markets, Tropical Smoothie Cafe often targets it’s not as clear cut, says Watson.

He believes the general population is still very mobile with school, work and child practices all thrown into the mix, and business around the corner remains vital.

“What sets us apart is this really big pipeline, this growth and the excitement around the brand and the excitement of the communities that want Tropical Smoothie Cafe to open in their community,” says Watson.

Tropical Smoothie Cafe has distinguished itself for 25 years based on its confluence of health, convenience and taste. Even though one of the main tenets of shadow kitchens for consumers is convenience, Tropical Smoothie Cafe has long established its own strategy of providing consumers with fast food, whether through order options or healthy customizations.

Watson is clear, though: he’s not anti-ghosting. He just doesn’t currently see them in the Tropical Smoothie Cafe growth arc.

Speaking of expansion, it needs to be measured and sustainable for franchisee success, says Watson. He’s seen other franchise brands explode, opening thousands of stores, and he says it doesn’t always end well.

“No one at Tropical Smoothie Cafe gets paid without the hard work our franchisees put in every day in the field serving their customers and communities,” says Watson. “So this partnership is so, so key. We ultimately need to go at a pace where we can find great franchise partners.

Tropical Smoothie Cafe sold 270 franchises through the third quarter, and 70% were with existing franchisees. This is, for Watson, the biggest restaurant story – it shows that its existing franchisees love to work, make money in the business and want to grow even more.

Being on street corners across America helps drive brand awareness, but expansion is a game of “right place, right time, right franchisee,” says Watson.

When COVID hit, Tropical Smoothie Cafe wasn’t exactly a beneficiary, but it weathered the storm better than most, he adds. The brand has almost reached its goal of opening 120 cafes in 2020 with 99 new units. Most strikingly, Tropical Smoothie Cafe ended the year with a 7.5% increase in mockup sales.

“It was the advent of digital, the advent of third-party apps and so on, and the ability to set up all these channels and use the technologies that were in cafes or set them up to go capture this business,” says Watson. “Now that the infrastructure is in place, this business has been captured, and now it’s about growing.”

Watson credits the franchisees for finally getting through a stressful and difficult time, one that now continues with labor and supply chain issues. Job postings peaked at 10.1 million in July, according to the Bureau of Labor Statistics.

“They’re in there to fight because at the end of the day, remember, it’s their business,” Watson says. “It’s their livelihood. They are there to block and tackle every day. And I think that’s where a franchise model, especially like ours, can sometimes have a strategic advantage over a more corporate-owned model.

The courage and determination shown by franchisees has served the brand well over the past two years, says Watson. Some franchisees opened their first locations over a decade ago on a shoestring budget and now have 5-10 units.

Watson now expects Tropical Smoothie Cafe to open 150 units next year, up from its 2021 target of 130 (of which the brand has already launched 100). Chicago, Dallas and Houston are the main expansion markets on the bridge.

By 2024, Watson wants Tropical Smoothie Cafe to reach 1,500 locations with an average unit volume of $1.2 million. He also doesn’t see why the company can’t achieve an average franchisee profitability well above 20%.

“It’s about balancing brand growth with franchisee profitability and building brand awareness across the country as a rising tide lifts all boats,” says Watson. “So the more people who know and love Tropical Smoothie Cafe, from a customer perspective, the better off we will all be.”

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