Tropical Smoothie Café franchise opportunity: Are you considering it?
You should be aware that data released by the Small Business Administration (SBA) indicates that Tropical Smoothie Café franchise owners who qualified for SBA-backed franchise loans have a high loan failure rate of 24%*.
[Editor’s note: The SBA failure rate is disputed by the company. Read: TROPICAL SMOOTHIE CAFÉ Franchise Loan Defaults Overstated, Says Report]
That qualifies Tropical Smoothie Café for inclusion in UnhappyFranchisee.com’s list of WORST FRANCHISES IN AMERICA (by SBA loan defaults)
Are you familiar with the Tropical Smoothie Café franchise opportunity? If so, please share your experience, opinions or insights with a comment below.
If you are a Tropical Smoothie Café franchise representative or employee, please leave a comment or email us at UnhappyFranchisee[at]gmail.com.
Tropical Smoothie Café franchise owners have a 24% SBA loan default rate.
The overall net growth of Tropical Smoothie Café franchises by 23% (from 244 in 2008 to 301 in 2011) might give the appearance of steady, failure-free growth. However, data from the Tropical Smoothie Cafe FDD (see 2nd chart below) indicates that within that same period, 67 franchises were terminated or reaquired.
When doing your due diligence, it pays to dig into the numbers of the Franchise Disclosure Document (FDD) rather than rely on the overall growth figures available online.
|Tropical Smoothie Café Franchise|
|Tropical Smoothie U.S. franchises in 2008:||244|
|Tropical Smoothie U.S. franchises in 2011:||301|
|Growth in franchise units 2008 – 2011 (#)||57|
|Growth in franchise units 2008 – 2011 (%):||23%|
|SBA loans granted since 2001:||156|
|SBA loan failure rate:||24%|
|Sources: Tropical Smoothie Franchise Disclosure Documents (growth), Coleman report (SBA)|
The inability to repay an SBA-backed loan (or any franchise loan, for that matter) indicates a serious situation for the franchisee.
It’s likely that Tropical Smoothie Café franchise owners who received SBA loans may have collateralized their franchise loan with their homes or other personal assets, and many were unable to repay those franchise loans… despite the serious incentive to do so.
Tropical Smoothie Café terminated/reaquired 67 franchises (18%) between 2008-2011
The relatively high franchise termination rate of Tropical Smoothie Café is a franchise red flag.
|Tropical Smoothie Café Franchises 2008-2011|
|Franchises open January 2008:||244|
|Franchises added 2008-2011:||124|
|Franchises terminated/reaquired 2008-2011||67|
|Franchises terminated/reaquired (%)||18%|
|Sources: Tropical Smoothie Franchise Disclosure Documents (FDDs)|
At the start of 2008, there were 244 US Tropical Smoothie franchises. From 2008 through 2011, an additional 124 franchises opened for a total of 368 franchises. During the same time 67 franchises were either terminated or reacquired by the franchisor. At the beginning of 2012, there were 301 Tropical Smoothie franchises open in the U.S.
That would come out to a termination/reaquisition percentage of 18%, which (we believe) could reasonably be called a failure rate. (The 24% figure is a default on SBA loans since 2001, so it may be that the actual failure rate earlier in the decade was much higher than in recent years.) Perhaps the company can clarify.
How stable is Tropical Smoothie Franchise Development Corporation?
The FDDs raise a few additional red flags. The first is the financial stability of the franchisor, Tropical Smoothie Franchise Development Corporation. The 2011 Tropical Smoothie Cafe FDD states:
“December 2010 AUDITED FINANCIAL STATEMENTS SHOW THAT WE HAD A RETAINED EARNINGS DEFICIT OF $3,280,977 AND A DEFICIT IN SHAREHOLDERS’ EQUITY OF $3,097,524″
The 2012 Tropical Smoothie Cafe FDD states:
“OUR DECEMBER 31, 2011 AUDITED FINANCIAL STATEMENTS SHOW THAT WE HAD A RETAINED EARNINGS DEFICIT OF $4,702,096 AND A DEFICIT IN SHAREHOLDERS’ EQUITY OF $4,518,661″
Not only does that indicate that the franchisor appears to be in poor financial shape, but that it worsened by nearly $1.5M from 2010 to 2011. Minnesota requires the escrow of franchise fees due to the Franchisor’s financial condition.
The Tropical Smoothie franchise comes with no territorial protection
Another red flag is that the FDDs state that Tropical Smoothie Cafe franchisor does not grant an exclusive territory at all, and that another TSC can open up across the street and you’d have nothing to say about it.
What do you think?
Are you familiar with the Tropical Smoothie Café franchise opportunity?
What do you think accounts for the SBA loan failure rate of Tropical Smoothie Café franchise owners?
What steps should Tropical Smoothie Café be taking to stop further franchise failures?
Has Tropical Smoothie Café taken serious action to address the problems that led to these loan failures?
Please share a comment (anonymous is fine) or Contact UnhappyFranchisee.com.
ARE YOU FAMILIAR WITH THE TROPICAL SMOOTHIE CAFE FRANCHISE OPPORTUNITY? ARE YOU A CURRENT OR TROPICAL SMOOTHIE CAFE FRANCHISE OWNER? PLEASE SHARE A COMMENT BELOW.
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