Tropical Smoothie Expands, But What Are The Risks?

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Who doesn’t love a good smoothie?

Tropical Smoothie Cafe is banking that the answer is very few. With plans to open over 600 stores in the coming years, the brand is looking to embark on a major expansion a year after a record-setting year in terms of locations opened and franchise agreements signed.

Widespread Growth

And the numbers display the type of impressive growth one would expect from such an aggressive expansion. The summer months, clearly the ideal time for a smoothie, show significant year-over-year improvement. The summer months of June, July and August 2018 brought in visits that were 6.0% above, 0.8% below and 4.8% above the baseline for the period from January 2018 through December 2019. This was followed by 2019 numbers that spiked at 19.9%, 18.4% and 18.9% above the baseline, showing tremendous growth in this key period. 

Cannibalization Risks?

Yet, as important as the overall growth, is the way this expansion is executed. Looking at three locations in Southern Florida shows a tremendous overlap of True Trade Areas. This indicates that the locations are not just competing with other food options, but with each other, limiting the overall impact in the region. Looking at the trend data further bears this out as there is a strong inverse relationship between the locations – when traffic is high at one, it drops for the others.

Yet, the picture is not all bad. Looking at three locations in Georgia shows an excellent divide of True Trade Areas, indicating that when customers want to visit Tropical Smoothie Cafe, they know exactly which location to go to. This type of optimization helps the brand maximize its impact in the region, increasing the overall value for each location.

Takeaway: Optimize Positioning

Is it possible that the cannibalization risk caused by overwhelming an area with multiple locations is offset by a surge of overall popularity for the brand? Certainly. 

It is unlikely that such an approach leads to an optimized footprint? Equally certainly.

The surge in locations for Tropical Smoothie Cafe could help the brand position itself as one of the top rising players in QSR in the US. Yet, as important as the number of openings is the positioning of each new location in order to maximize the expansion. Should True Trade Areas reflect the situation in Georgia, Tropical Smoothie Cafe will end up with a fleet well-positioned to drive maximum value on a per-store basis. Alternatively, growth that doesn’t effectively address cannibalization could lead to a far smaller return for the brand and its franchisees.
How will the company’s expansion plan impact specific locations? Visit Placer.ai to find out.

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