As Originally Published in Inc. Magazine
Seeking Quality, Juicer Squeezes Out Franchisees
Given the choice of franchising or setting up company-owned stores, here’s why a fruit-juice firm opted for the stores.
From: Inc., Jul 1997 | By: Hal Plotkin
COMPANY: Jamba Juice Inc., maker of fruit-juice smoothies
GOAL: Dominate a niche by opening 1,000 stores in five years, up from 47
STRATEGY: Keep rigid control over product quality by abandoning franchising in favor of company-owned stores
HIDDEN PITFALL: Rampant competition
Want to know why Kirk Perron guards his company’s operations manual so closely? Just imagine if information about the exact chemical composition of the Hawaiian Lust or the Pacific Passion, among other smoothies, fell into the hands of less-than-meticulous types. “There are too many temptations to cut corners,” says the founder of Jamba Juice.
Perron got a taste of how easily the company’s quality could slip back in 1994, when there were already 16 franchises of the concept he had started as Juice Club in 1990. Despite believing that “it’s a thousand little things” that lure repeat customers–from store design to a more consistent quality of strawberry than nature can produce on its own–Perron realized that growth would dilute Jamba’s distinctiveness. Short on funds, Perron hadn’t been able to buy or lease the land or the facilities for his franchisees, requiring them to pay their own way. That reduced the monthly franchise fee they’d pay Jamba, leaving the company unable to afford both extensive training and ambitious growth. In addition, Perron wasn’t able to monitor quality. “I just could not see a future with, say, 100 stores,” he says. “It would have been total chaos.”
Needing serious liquid assets–enough so that the company could quit franchising and bankroll its own growth–Perron got results from a technique even more far-fetched than injecting his smoothies with bee pollen. He answered the phone.
On the other end, one day in September 1994, happened to be Bob Kagle, a general partner in Technology Venture Investors (TVI) and Benchmark Capital, both in Menlo Park, Calif. Kagle had been on his way to lunch when he glimpsed a line snaking out of Perron’s Palo Alto store. Intrigued, he canceled his appointments and loitered, asking questions and taking notes. “It was an early-stage technology,” he says, “but the customers were certainly responding to the offering.” Kagle offered to pump some real juice into the operation. The first $3 million came from TVI and a group led by Howard Schultz, chairman and chief executive of Starbucks Corp., who also joined the board.
After that, Jamba raised an additional $19 million from seven venture groups, including Microsoft cofounder Paul Allen’s Global Retail Partners. Then came $44 million from a larger group of investors. Perron is now opening stores run by managers who are compensated based on their performance. “There’s too much upside potential in this business to give it away to franchisees,” says Kagle.
Reaching that potential means focusing on execution, which is why Perron insists that every new hire receive 24 hours of training before tending bar. Employees share the same goal: “To get customers and to keep customers.” Accomplishing that means having to “level out Mother Nature’s uncontrolled inconsistencies,” Perron says, a feat he achieves by freezing the best ingredients at the peak of the season.
Such adherence to quality will help Jamba fend off its many competitors–or so Perron hopes. “The stuff does grow on trees,” Perron admits, “but we have some advantages.” Financial muscle, for one. Recently, when Perron came across a particularly tasty variety of Indian-summer red peach, “we bought the whole crop.”
If you’re thirsty, it’s your own fault. There are almost 800 juice bars in the United States, with 275 in California. That’s one of the facts contained in a $360, 200-page market report and business-plan template offered by the Juice Gallery (2042 Big Oak Ave., Chino Hills, CA 91709; phone or fax, 909-597-0791 or 800-710-8163; www.juicegallery.com ). You also might want to take a look at The Juice Review Magazine , an on-line juice-bar-industry E-zine sponsored by the same company, which can be accessed through the same Internet address.
Similar consulting and resource packages, including smoothie recipes, can also be purchased from Total Juice + (1125 E. Glendale Ave., Phoenix, AZ 85020; 800-49-JUICE; www.juicebars.com/franchise/consulting.htm ).
JAMBA JUICE, Kirk Perron, 1700 17th St., San Francisco, CA 94103-5135; 415-865-1200 25
BOB KAGLE, Technology Venture Investors and Benchmark Capital, 2480 Sand Hill Rd., #200, Menlo Park, CA 94025; 415-854-8180 25
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