Read Case #35, Jamba Juicefocus is on the menu, from the textbook and answer the following question (please use full sentences; no bullet points or outline format):

1. How should Jamba Juice compete? What options does Jamba Juice have for managing growth? 2. What are key forces in the general and industry environments that affect Jamba Juices choice of strategy? 3. What internal resources and assets does Jamba Juice have that may give it a competitive advantage? 4. How should leadership manage innovation in this industry, and is Jamba Juice still entrepreneurial?

Zuka Juice Inc., a smoothie retail chain with 98 smoothie running the business. In this case, store management was retail units in the western United States. On March 13, "more likely to act in the best interest of shareholders be- 2006, Jamba Juice Company agreed to be acquired by Ser- cause the franchisee's net worth is more often directly cor- vices Acquisition Corp. International (headed by Steven related with the outcome of his or her store." The Berrard, former CEO of Blockbuster Inc.) for $265 million. incentives were clear. The franchisee took the risk and The company went public in November 2006 as Nasdaq earned the profits, while the franchisor made 7.5 to 10 per- traded JMBA. Jamba Juice stores were owned and fran- cent royalty on all sales, and collected a marketing fee. chised by Jamba Juice Company, which was a wholly owned In addition, Pace worked to achieve a cost reduction in subsidiary of Jamba Inc. both cost of goods sold, by leveraging national purchasing In August 2008, Jamba Juice faced significant leader scale to renegotiate produce costs, and SG&A spending by ship changes. Steven Berrard agreed to assume the re- reducing headcount and wages through the relocation of sponsibilities of interim CEO, and in December 2008, corporate headquarters from California to Texas. He also James D. White was named CEO and president, while began to offer the drive-thru as a franchise option, and Berrard remained chairman of the board of directors. encouraged lower-quality operators to leave the system in Prior to joining Jamba Juice, White had been senior vice favor of those franchisees who preferred to operate multi- president of consumer brands at Safeway, a publicly unit locations. traded Fortune 100 food and drug retailer. During what Although it decreased the need for readily available cap- CEO White called the turnaround years from 2009 to ital to run the company, allowing Jamba Juice to hold onto 2011, he worked to eliminate short-term debt, innovate, more cash, the transition to a franchising model caused rev- expand the menu, and change the business model by re- enue and GAAP reported profitability to fall, resulting in franchising stores, growing internationally, and commer- less than ideal financials (see Exhibits 1 and 2). When cializing product lines. Jamba Juice finally released financial results for the fiscal year ending January 2, 2018, total revenue had declined Transition from Company-owned to $8.7 million, but net income (loss) had improved $19.7 mil- lion, to a loss of $2.7 million. By the second quarter of Franchise "Asset-light Format 2018, although still a net loss, systemwide comparable store Originally, Jamba Juice Company had followed a strategy of sales had increased by 2.2 percent. CEO Pace commented expanding its store locations in existing markets and only on the revitalization of the Jamba business, pointing out opening stores in select new markets. Jamba soon began that "the announced transaction with FOCUS Brands was acquiring the assets of Jamba Juice franchised stores in an only possible due to the significant progress made in reset- attempt to gain more control over growth direction. Under ting the foundation of the business to materially improve CEO Paul E. Clayton, Jamba acquired several franchise performance over the past several quarters...I continue to stores and expected to continue making additional fran- be optimistic about the performance of the brand and look chise acquisitions as part of its ongoing growth strategy forward to seeing this progress continue under FOCUS However, the company-owned franchises were not as pro- Brands ownership.") ductive and accounted for a disproportionately low portion In March 2018, CEO Pace had announced Jamba Juice of company revenues. was actively seeking both single and multi-unit franchise Clayton stepped down after eight years, and was ulti- partners to more aggressively expand franchise locations on mately replaced by James White. White reversed the trajec- the east coast. These new partners would have a unique op- tory of the company-owned growth strategy, focusing on the portunity to be among the first to deploy the concept's new acceleration of franchise and nontraditional store growth. store design, characterized by new technology, digital menu The more heavily franchised business model tended to re- boards, modern colors, and contemporary elements. In ad- quire less capital investment and reduced the volatility of dition, franchise owners were also encouraged to consider cash flow performance over time. However, revenue sources Jamba Juice's new drive-thru format, which created greater then came more from royalties and franchise fees rather accessibility and convenience, as well as an increase in cus- than retail sales. tomer traffic. 12 Although, including a franchise fee of When Dave Pace, an industry veteran formerly with $35,000, the initial investment for a Jamba Juice ranged Bloomin' Brands, took over in 2016, he focused on improv- between $236,100 and $501,800-lower than the average ing franchisee relationships and continued the strategy of food franchise investment-this expansion had stalled going refranchising company-owned stores. The "asset-light" fran- into 2019 because the Company did not have an active chise model had several efficiencies that translated to in- Franchise Disclosure Document (FDD) to solicit prospec- creased profitability. When a company placed most of tive franchisees through much of 2017, due to the delayed the risk for running a business in the hands of a franchisee, financial reporting. As a result, through 2019, Jamba Juice the franchisor-Jamba Juice in this casedid not have to single store and drive-thru expansion had been led by exist- pay for employees, rent, or upkeep on the store assets. The ing franchisees. 13 January 2, 2018 January 3, 2017 December 29, 2015 December 30, 2014 $ 44,673 $ 51,282 137,025 198,737 26.253 28,341 19.311 24,651 161,676 70,926 79,623 218,048 10.231 12,601 33,737 52,236 15,653 17,872 44,732 61,749 6,487 7,659 18,951 25,152 27,630 33,089 8,228 9,285 3,549 5,749 6,569 10,084 37,278 28,260 37,958 36,872 688 790 (21,609) 1,031 (2.957) 763 711 1,224 3,410 175 297 4,160 (Dollars in thousands, except share and per share amounts) Revenue: Company stores Franchise and other revenue Total revenue Costs and operating expenses (income): Cost of sales Labor Occupancy Store operating Depreciation and amortization General and administrative Gain on disposal of assets Store pre-opening impairment of long-lived assets Store lease termination and closure Other operating, net Total costs, operating expenses, and gain Income (loss) from operations Other income (expense): Interest income Interest expense Total other expense, net Income (loss) before income taxes Income tax expense Net income (loss) Less: Net income attributable to noncontrolling interest Net income (loss) attributable to Jamba, Inc. Weighted average shares used in the computation of earnings (loss) per share attributable to Jamba, Inc.: Basic Diluted Earnings (loss) per share attributable to Jamba, Inc. 2,523 1,669 1,795 575 15 1,083 726 74,119 101.791 122.168 151,422 10.254 221,348 (3.300) (3,193) 250 137 74 (439) (220) (195) 105 (325) (220) (3,413) (83) (189 (22,357) (79) (121 (3.421) 671 10,171 (701) 9.470 (168) (2.742) (22,436) (3,589) 52 43 $ (2,742) $ (22,436 9,418 3,632) 15,513,028 15,787.806 17.197,904 15,229,102 15,229,102 15,513,028 16,228,033 17,197,904 common stockholders: Basic $ $ 0.60 $ $ $ (0.18) (0.18) (1.47) (1.47) (0.21) (0.21) Tainted $ $ 0.58 $ January 2, 2018 January 3, 2017 December 29, December 30, 2015 2014 $ 10,030 $ 19,730 $ 7,133 11,778 $ 17.750 16,977 10,098 16,932 465 534 818 2,300 127 243 356 474 776 1,053 1,682 504 206 22,845 8,105 4,194 2,757 4,495 25,69 23,704 44,01 68,955 10,928 12,512 18,744 17,988 1,181 1,183 1,184 945 1,327 1,464 2,360 1,211 791 847 2,241 2,894 $ 41,620 4,211 $ 69,616 $ 40,648 $ 92,489 (Dollars in thousands, except share and per share amounts) Assets Current assets: Cash and cash equivalents Receivables, net of allowances of $618 and $280 Inventories Prepaid and refundable taxes Prepaid rent Assets held for sale Prepaid expenses and other current assets Total current assets Property, fixtures and equipment, net Goodwill Trademarks and other intangible assets, net Deferred tax asset Notes receivable and other long-term assets Total assets Liabilities and stockholders' equity Current liabilities: Accounts payable Accrued compensation and benefits Workers' compensation and health insurance reserves Accrued gift card liability Accrued expenses Other current liabilities Total current liabilities Deterred rent and other long-term liabilities Total liabilities Commitments and contingencies (Notes 8 and 17) Stockholders' equity: Common stock, $.001 par value, 30,000,000 shares authorized; 18,447,023 issued and 15,588,206 outstanding Additional paid-in capital Treasury shares, at cost, 1,948,004 and 910,813, respectively Accumulated deficit Total stockholders' (deficit) equity Total liabilities and stockholders' equity $ 3,279 $ 2,749 $ 3,815 $ 3,926 1,900 3,580 3,788 6,325 222 675 633 1,311 38,184 27,469 24,131 29,306 6,791 7,658 8,052 18.093 7,664 46,457 16,454 66,200 47.713 55,635 7.509 8,940 8,990 9,544 55,222 55,397 64,625 75,744 18 18 18 17 409,518 407,273 403,605 396,629 (40,009) (384,101 (40,009) (358,623) (11,991) (368,041) (40,009) (381,059 (13,777 $ 41,620 (14,574 4,991 16,745 $ 40,648 $ 69,616 $ 92,489 EXHIBIT 3 Store Type and Locations January 2, 2018 Fiscal Year Ended January 3, December 30, December 31, 2011 2015 2014 66 70 263 268 1 1 2 - - 2 26 (5) (13) (1) (13) ( (16) (179) (1) (18) 53 66 70 263 Company Stores: Beginning of year Company Stores opened Company Stores acquired from franchisees Company Stores closed Company Stores sold to franchisees Total Company Stores Franchise Stores - Domestic: Beginning of year Franchise Stores opened Franchise Stores purchased by Company Franchise Stores closed Franchise Stores purchased from Company Total Franchise Stores - Domestic 726 706 504 535 39 44 44 43 - (26) (2) (19) (29) (25) (27) 13 179 18 749 = 726 706 543 International Stores: 70 75 62 48 10 19 22 24 Beginning of year International Stores opened International Stores closed Total International Stores (9) 19 (10) (24) 70 71 75 62 Sources: Annual Report. Jamba, Inc, 2015, Annual Report. Jamba Inc, 2018 Going into 2019, Jamba Juice had 908 locations, con was centered on "Whole Food Nutrition," designed to focus sisting of 51 company owned and operated stores and 737 consumers on the benefits of the fresh fruits and vegetables franchise stores, with 60 licensed sites overseas. Interna- that were used to make Jamba's products. This campaign tional growth was also part of the strategy (see Exhibit 3). was executed over multiple media sources including digital, Starting with the first South Korean location in January social, public relations, TV, radio, and print. 2011, Jamba Juice had grown to 71 stores internationally by In 2014, the Jamba Insider Rewards (JJR) e-mail market- 2018, with outlets in Indonesia, South Korea, the Philip- ing program was introduced, and by 2017 it had over 2 mil- pines, Taiwan, the Middle East, and Thailand. International lion loyalty members who were rewarded with promotional stores were located in prominent locations like the Mall of offers such as discounts, free products, and advance notice Asiathe largest integrated shopping, dining, and leisure of in-store events. In 2019, franchisees continued to be pro- destination in the Philippines.14 vided with tools and technologies that targeted their cus- tomers through e-mail, social media, radio, and out-of-home Top-of-Mind Brand advertising, and Jamba had piloted a first-ever television ad By 2019, Jamba Juice was the smoothie brand leader and campaign in key markets. #1 retailer for fresh squeezed made-to-order juices. Jamba Regarding its marketing efforts, historically, Jamba had also boasted over 1.8 million Facebook fans and over not engaged in any mass-media promotional programs, rely- 100 million annual visits to its stores. The consumer messaging ing instead on word of mouth and in-store promotions to CASE 35 :: JAMBA JUICE: FOCUS IS ON THE MENU C293 Strategic Management: Text and Cases increase customer awareness. However, Jamba was featured Jamba also transitioned existing stores in selected mar- in stories appearing in the Wall Street Journal, New York kets to a fresh-squeezed juice emphasis. This addressed Times, USA Today, as well as profiled spots on TV news competition from both Juice It Up! and Starbucks, who shows such as Good Morning America. Jamba had also run were expanding their premium juice bar businesses. But the an "Ambassadors of WOW" contest nationwide, encourag big announcement was when Jamba introduced its Kids ing fans to nominate themselves or worthy friends or family Meals. This new menu was targeted toward children ages 4 members to be the new faces of Jamba Juice, creating to 8, with a complete meal-a smoothie plus a food item- "wow" through support and involvement within their com containing fewer than 500 calories. The items included munities. These ambassadors would have the opportunity whole grains, 2.5 servings of fruit or vegetables, and no to appear in Jamba Juice advertisements and promotional added sugar. campaigns." 16 One of the key objectives of Jamba's growth strategy was Jamba also capitalized on the openings of new sites as to increase sales year-round and significantly decrease opportunities to reach out to the media and secure live weather and seasonal vulnerabilities. Seasonal issues were local television coverage, radio broadcasts, and articles in serious, since the traditional driver of Jamba's revenue and local print media. Openings were also frequently associated profit was the sale of smoothies during hot weather. In with a charitable event, thus serving to reinforce Jamba southern states (e.g., California), where the weather re- Juice Company's strong commitment to its communities. mained warm year-round, Jamba experienced fairly steady In addition, Jamba aligned itself with "active living spokes sales. However, in the northern states (e.g., New York), people, such as NFL players Vernon Davis, tight end for where there was a cold and fairly lengthy winter season, the Washington Redskins, and Mohamed Sanu, wide Jamba experienced severe seasonal variability. To counter receiver for the New England Patriots. Davis and Sanu the seasonal slump, Jamba pushed to increase the presence partnered up to develop six Jamba Juice stores in the of nontraditional stores inside existing venues Washington DC metro area, and Davis was franchise owner of five Jamba Juice locations in northern California." Nontraditional Locations Jamba had generally characterized its stores as either tradi- New Products, Category Leadership tional or nontraditional. Traditional locations included sub- Jamba sought "top-of-mind" leadership by creating innova urban strip malls and various retail locations in urban tive and "craveable" menu items they could offer through centers. Traditional stores averaged approximately 1,400 out the day-for breakfast, lunch, afternoon, and dinner. square feet in size and were designed to be fun, friendly, Jamba Juice stores offered customers a range of fresh energetic, and colorful to represent the active, healthy life- squeezed fruit juices, blended beverages, baked goods and style that Jamba Juice promoted. meals, nutritional supplements, and healthy snacks. Jamba Nontraditional stores were considered those located in smoothie and juice options were made with real fruit and areas that allowed Jamba to generate awareness and try out 100 percent fruit juices. Jamba smoothies were rich in vita new products to fuel the core business. In 2019, and only mins, minerals, proteins, and fiber, were blended to order, available to existing franchisees, Jamba's nontraditional op- and provided four to six servings of fruits and vegetables. In portunities included store-within-a-store locations, an ex- addition to the natural nutrients in Jamba smoothies, ample of which was the 2016 opening of a combination Jamba offered supplements in the form of Boosts and Timothy's World Coffee and Jamba Juice franchise loca- Shots. Boosts included 10 combinations of vitamins, miner tion within a Stop & Shop store in Long Island, New als, proteins, and extracts designed to give the mind and York. 19 Other nontraditional venues included airports and body a nutritious boost. Shots included combinations of shopping malls, where the indoor setting helped to alleviate wheatgrass, orange, and lemon juice designed to give cus weather and seasonal vulnerabilities that challenged tradi- tomers a natural concentrate of vitamins, minerals, and an tional locations, colleges and universities. tioxidants. Additional high-traffic, nontraditional locations existed. As complements to its smoothie and boost offerings. Many large health clubs included a juice and smoothie bar Jamba also offered baked goods and other meal items. within their buildings. Jamba could partner with a major Called "tasty bites," each of these items was made with gym chain or individual private gyms with high member- natural ingredients and was high in protein and fiber. One ship rates. Another possibility was to partner with a large popular item was steel-cut hot oatmeal with fruit, a low school district. Schools across the country were under in- calorie organic product that captured a "best of" rating creasing scrutiny to offer healthy alternatives to the tradi- by nutritionists when compared against offerings from tional fat-, carbohydrate, and preservative-rich foods served McDonald's, Starbucks, Au Bon Pain, and Cosi. Jamba in cafeterias, especially as a number f states were prohibit- also offered a variety of grab-and-go wraps, sandwiches, and ing the sale of junk food on K-12 campuses. California flatbread food offerings, as well as "energy Jamba had introduced self-service JambaGO automated bowls that incorporated whole fruit, fresh Greek yogurt drink stations in nontraditional locations, including schools. and/or soy milk, and an assortment of dry toppings Taking roughly the space of a soda fountain beverage C294 CASE 35: JAMBA JUICE: FOCUS IS ON THE MENU Strategic Management: Text and Cases dispenser, the JambaGo format, which CEO White called a juice bar operator, and Teavana Teas. This positioned Star- wellness center, included the chain's branded packaged bucks as another head-to-head competitor to Jamba Juice. products, as well as the option of several preblended In response, similar to Starbucks, Jamba had strengthened smoothies. This licensed concept represented no capital in its customer reach by offering ready-to-drink products, and vestment for Jamba and used the razor/razor blade net hot food and drink items to attract customers during the profit model. White was hoping Jamba would become the cold-weather months, plus a range of breakfast and lunch go-to resource for healthy solutions for school foodservice food items to complement its juice-based offerings and sat- directors."20 However, former CEO Dave Pace announced isfy customer desires all day and all year-round. plans to exit the JambaGo platform in 2017, stating: The juice and smoothie bar industry had seen a reduc- After a detailed review, the company determined that tion in growth since 2012 as competition increased from the JambaGo platform does not align with these fast-food chains and yogurt shops. The category of smooth- objectives and is not a viable option through which to ies and juices had seen increasing consumer acceptance as drive long-term profitability and shareholder value. 21 health claims become more commonplace, especially as the "cold press" juice option, yielding highly nutritious juice Interestingly, customer feedback had indicated that the from chopped spinach, kale, and ginger gained in popular- quality of the JambaGo product was not up the standards ity. However, the juice category was still relatively expen- that consumers expected from Jamba; therefore, Jamba sive compared with other refreshment options, and more management felt JambaGo would degrade the brand and informed consumers became concerned about the high impact the company's opportunity to grow the core busi sugar content from natural fructose. This, combined with ness and brand over the long term. the fact that the regular quick-serve restaurants such as McDonald's were reported to make up nearly 40 percent of Building a Global Consumer Packaged the juice and smoothie bar market, meant that the pure Goods Platform juice and smoothie providers such as Jamba Juice, Planet Jamba Inc. was also aggressively pursuing licensing agree- Smoothie, and Smoothie King were facing difficult growth ments for commercialized product lines in the areas of options. In addition, these smoothie providers were under Jamba-branded make-at-home frozen smoothie kits, frozen increased scrutiny by health advocacy groups for mislead- yogurt novelty bars, all-natural energy drinks, coconut ing consumers into thinking their beverages were made water fruit juice beverages, Brazilian super fruit shots, trail from whole fruit and vegetables when, in reality. consumers mixes, and fruit cups. The objective was to reinforce the were "paying premium prices for products that are primar- Jamba better-for-you message with convenient and portable ily made of unadvertised, less nutritious, and cheap ingredi- products available at multiple consumer locations. ents like pear and white grape juices from concentrate." A For instance, Jamba promoted "At Home Smoothies," a class action lawsuit was filed against Jamba Juice in 2018 kit containing fruit and yogurt with a healthy antioxidant for making misleading claims about product ingredients. boost, one full serving of fruit, and 100% daily value of vita The message was "these drinks get an undeserving health min C. Available in the local grocer's fruit aisle, the package halo. You're better off eating actual produce and consid- made two eight-ounce servings by adding juice and blendingering Jamba Juice a treat instead of a regular meal."25 The blending was facilitated by Jamba's new appliance line, offering a juice extractor, manual juicer, professional blender. Acquisition and Consolidation Trends and a "quiet blend" blender for quick midnight meals. in the Restaurant Chain Industry The quick-serve, fast-food industry was a lot more competi- Competition tive than it was in 2008 when James White started the turn- Jamba was the smoothie industry leader and initially had around at Jamba Juice. Although there were "mega brands" several competitors with similar health and fitness focuses, such as McDonald's, Starbucks, and Chick-fil-A, the cate- such as Juice It Up!, Planet Smoothie, and Smoothie King, gory was increasingly under consolidation. As of 2019, 10 but over time that had changed. Starbucks and Panera companies controlled more than 50 of the biggest restau- Bread had entered the smoothie market, and McDonald's rant chains in the world. This included not only Yum! brought its marketing machine into the frozen drink cate Brands' KFC, Taco Bell, and Pizza Hut, plus Restaurant gory, launching its line of smoothies with a value pitch. A Brands International's Tim Hortons, Popeyes and Burger taste-test in 2019 of strawberry-banana smoothies from King, but also included Roark Capital, the private equity Auntie Anne's, McDonald's, Panera Bread, Planet owner of Inspire Brands-Arby's, Buffalo Wild Wings, Smoothie, and Jamba Juice found Panera Bread and Planet Rusty Tacos, and Sonic-plus FOCUS Brands, the new Smoothie both besting Jamba Juice in taste and texture.22 owner of Jamba Juice as well as Seattle's Best Coffee, This highlighted the ongoing competitive push in the Carvel, Cinnabon, Auntie Anne's, Schlotzsky's, McAlister's smoothie category. Regarding the juice bar and other bever- Deli, and Moe's Southwest Grill.26 These acquisitions made age categories, Starbucks, with its smoothies already in sense, because, as costs rose, a standalone brand faced sig- place, had acquired both Evolution Fresh, the premium nificant need for increased spending on corporate CASE 35 :: JAMBA JUICE: FOCUS IS ON THE MENU C295 Strategic Management: Text and Cases Zuka Juice Inc., a smoothie retail chain with 98 smoothie running the business. In this case, store management was retail units in the western United States. On March 13, "more likely to act in the best interest of shareholders be- 2006, Jamba Juice Company agreed to be acquired by Ser- cause the franchisee's net worth is more often directly cor- vices Acquisition Corp. International (headed by Steven related with the outcome of his or her store." The Berrard, former CEO of Blockbuster Inc.) for $265 million. incentives were clear. The franchisee took the risk and The company went public in November 2006 as Nasdaq earned the profits, while the franchisor made 7.5 to 10 per- traded JMBA. Jamba Juice stores were owned and fran- cent royalty on all sales, and collected a marketing fee. chised by Jamba Juice Company, which was a wholly owned In addition, Pace worked to achieve a cost reduction in subsidiary of Jamba Inc. both cost of goods sold, by leveraging national purchasing In August 2008, Jamba Juice faced significant leader scale to renegotiate produce costs, and SG&A spending by ship changes. Steven Berrard agreed to assume the re- reducing headcount and wages through the relocation of sponsibilities of interim CEO, and in December 2008, corporate headquarters from California to Texas. He also James D. White was named CEO and president, while began to offer the drive-thru as a franchise option, and Berrard remained chairman of the board of directors. encouraged lower-quality operators to leave the system in Prior to joining Jamba Juice, White had been senior vice favor of those franchisees who preferred to operate multi- president of consumer brands at Safeway, a publicly unit locations. traded Fortune 100 food and drug retailer. During what Although it decreased the need for readily available cap- CEO White called the turnaround years from 2009 to ital to run the company, allowing Jamba Juice to hold onto 2011, he worked to eliminate short-term debt, innovate, more cash, the transition to a franchising model caused rev- expand the menu, and change the business model by re- enue and GAAP reported profitability to fall, resulting in franchising stores, growing internationally, and commer- less than ideal financials (see Exhibits 1 and 2). When cializing product lines. Jamba Juice finally released financial results for the fiscal year ending January 2, 2018, total revenue had declined Transition from Company-owned to $8.7 million, but net income (loss) had improved $19.7 mil- lion, to a loss of $2.7 million. By the second quarter of Franchise "Asset-light Format 2018, although still a net loss, systemwide comparable store Originally, Jamba Juice Company had followed a strategy of sales had increased by 2.2 percent. CEO Pace commented expanding its store locations in existing markets and only on the revitalization of the Jamba business, pointing out opening stores in select new markets. Jamba soon began that "the announced transaction with FOCUS Brands was acquiring the assets of Jamba Juice franchised stores in an only possible due to the significant progress made in reset- attempt to gain more control over growth direction. Under ting the foundation of the business to materially improve CEO Paul E. Clayton, Jamba acquired several franchise performance over the past several quarters...I continue to stores and expected to continue making additional fran- be optimistic about the performance of the brand and look chise acquisitions as part of its ongoing growth strategy forward to seeing this progress continue under FOCUS However, the company-owned franchises were not as pro- Brands ownership.") ductive and accounted for a disproportionately low portion In March 2018, CEO Pace had announced Jamba Juice of company revenues. was actively seeking both single and multi-unit franchise Clayton stepped down after eight years, and was ulti- partners to more aggressively expand franchise locations on mately replaced by James White. White reversed the trajec- the east coast. These new partners would have a unique op- tory of the company-owned growth strategy, focusing on the portunity to be among the first to deploy the concept's new acceleration of franchise and nontraditional store growth. store design, characterized by new technology, digital menu The more heavily franchised business model tended to re- boards, modern colors, and contemporary elements. In ad- quire less capital investment and reduced the volatility of dition, franchise owners were also encouraged to consider cash flow performance over time. However, revenue sources Jamba Juice's new drive-thru format, which created greater then came more from royalties and franchise fees rather accessibility and convenience, as well as an increase in cus- than retail sales. tomer traffic. 12 Although, including a franchise fee of When Dave Pace, an industry veteran formerly with $35,000, the initial investment for a Jamba Juice ranged Bloomin' Brands, took over in 2016, he focused on improv- between $236,100 and $501,800-lower than the average ing franchisee relationships and continued the strategy of food franchise investment-this expansion had stalled going refranchising company-owned stores. The "asset-light" fran- into 2019 because the Company did not have an active chise model had several efficiencies that translated to in- Franchise Disclosure Document (FDD) to solicit prospec- creased profitability. When a company placed most of tive franchisees through much of 2017, due to the delayed the risk for running a business in the hands of a franchisee, financial reporting. As a result, through 2019, Jamba Juice the franchisor-Jamba Juice in this casedid not have to single store and drive-thru expansion had been led by exist- pay for employees, rent, or upkeep on the store assets. The ing franchisees. 13 January 2, 2018 January 3, 2017 December 29, 2015 December 30, 2014 $ 44,673 $ 51,282 137,025 198,737 26.253 28,341 19.311 24,651 161,676 70,926 79,623 218,048 10.231 12,601 33,737 52,236 15,653 17,872 44,732 61,749 6,487 7,659 18,951 25,152 27,630 33,089 8,228 9,285 3,549 5,749 6,569 10,084 37,278 28,260 37,958 36,872 688 790 (21,609) 1,031 (2.957) 763 711 1,224 3,410 175 297 4,160 (Dollars in thousands, except share and per share amounts) Revenue: Company stores Franchise and other revenue Total revenue Costs and operating expenses (income): Cost of sales Labor Occupancy Store operating Depreciation and amortization General and administrative Gain on disposal of assets Store pre-opening impairment of long-lived assets Store lease termination and closure Other operating, net Total costs, operating expenses, and gain Income (loss) from operations Other income (expense): Interest income Interest expense Total other expense, net Income (loss) before income taxes Income tax expense Net income (loss) Less: Net income attributable to noncontrolling interest Net income (loss) attributable to Jamba, Inc. Weighted average shares used in the computation of earnings (loss) per share attributable to Jamba, Inc.: Basic Diluted Earnings (loss) per share attributable to Jamba, Inc. 2,523 1,669 1,795 575 15 1,083 726 74,119 101.791 122.168 151,422 10.254 221,348 (3.300) (3,193) 250 137 74 (439) (220) (195) 105 (325) (220) (3,413) (83) (189 (22,357) (79) (121 (3.421) 671 10,171 (701) 9.470 (168) (2.742) (22,436) (3,589) 52 43 $ (2,742) $ (22,436 9,418 3,632) 15,513,028 15,787.806 17.197,904 15,229,102 15,229,102 15,513,028 16,228,033 17,197,904 common stockholders: Basic $ $ 0.60 $ $ $ (0.18) (0.18) (1.47) (1.47) (0.21) (0.21) Tainted $ $ 0.58 $ January 2, 2018 January 3, 2017 December 29, December 30, 2015 2014 $ 10,030 $ 19,730 $ 7,133 11,778 $ 17.750 16,977 10,098 16,932 465 534 818 2,300 127 243 356 474 776 1,053 1,682 504 206 22,845 8,105 4,194 2,757 4,495 25,69 23,704 44,01 68,955 10,928 12,512 18,744 17,988 1,181 1,183 1,184 945 1,327 1,464 2,360 1,211 791 847 2,241 2,894 $ 41,620 4,211 $ 69,616 $ 40,648 $ 92,489 (Dollars in thousands, except share and per share amounts) Assets Current assets: Cash and cash equivalents Receivables, net of allowances of $618 and $280 Inventories Prepaid and refundable taxes Prepaid rent Assets held for sale Prepaid expenses and other current assets Total current assets Property, fixtures and equipment, net Goodwill Trademarks and other intangible assets, net Deferred tax asset Notes receivable and other long-term assets Total assets Liabilities and stockholders' equity Current liabilities: Accounts payable Accrued compensation and benefits Workers' compensation and health insurance reserves Accrued gift card liability Accrued expenses Other current liabilities Total current liabilities Deterred rent and other long-term liabilities Total liabilities Commitments and contingencies (Notes 8 and 17) Stockholders' equity: Common stock, $.001 par value, 30,000,000 shares authorized; 18,447,023 issued and 15,588,206 outstanding Additional paid-in capital Treasury shares, at cost, 1,948,004 and 910,813, respectively Accumulated deficit Total stockholders' (deficit) equity Total liabilities and stockholders' equity $ 3,279 $ 2,749 $ 3,815 $ 3,926 1,900 3,580 3,788 6,325 222 675 633 1,311 38,184 27,469 24,131 29,306 6,791 7,658 8,052 18.093 7,664 46,457 16,454 66,200 47.713 55,635 7.509 8,940 8,990 9,544 55,222 55,397 64,625 75,744 18 18 18 17 409,518 407,273 403,605 396,629 (40,009) (384,101 (40,009) (358,623) (11,991) (368,041) (40,009) (381,059 (13,777 $ 41,620 (14,574 4,991 16,745 $ 40,648 $ 69,616 $ 92,489 EXHIBIT 3 Store Type and Locations January 2, 2018 Fiscal Year Ended January 3, December 30, December 31, 2011 2015 2014 66 70 263 268 1 1 2 - - 2 26 (5) (13) (1) (13) ( (16) (179) (1) (18) 53 66 70 263 Company Stores: Beginning of year Company Stores opened Company Stores acquired from franchisees Company Stores closed Company Stores sold to franchisees Total Company Stores Franchise Stores - Domestic: Beginning of year Franchise Stores opened Franchise Stores purchased by Company Franchise Stores closed Franchise Stores purchased from Company Total Franchise Stores - Domestic 726 706 504 535 39 44 44 43 - (26) (2) (19) (29) (25) (27) 13 179 18 749 = 726 706 543 International Stores: 70 75 62 48 10 19 22 24 Beginning of year International Stores opened International Stores closed Total International Stores (9) 19 (10) (24) 70 71 75 62 Sources: Annual Report. Jamba, Inc, 2015, Annual Report. Jamba Inc, 2018 Going into 2019, Jamba Juice had 908 locations, con was centered on "Whole Food Nutrition," designed to focus sisting of 51 company owned and operated stores and 737 consumers on the benefits of the fresh fruits and vegetables franchise stores, with 60 licensed sites overseas. Interna- that were used to make Jamba's products. This campaign tional growth was also part of the strategy (see Exhibit 3). was executed over multiple media sources including digital, Starting with the first South Korean location in January social, public relations, TV, radio, and print. 2011, Jamba Juice had grown to 71 stores internationally by In 2014, the Jamba Insider Rewards (JJR) e-mail market- 2018, with outlets in Indonesia, South Korea, the Philip- ing program was introduced, and by 2017 it had over 2 mil- pines, Taiwan, the Middle East, and Thailand. International lion loyalty members who were rewarded with promotional stores were located in prominent locations like the Mall of offers such as discounts, free products, and advance notice Asiathe largest integrated shopping, dining, and leisure of in-store events. In 2019, franchisees continued to be pro- destination in the Philippines.14 vided with tools and technologies that targeted their cus- tomers through e-mail, social media, radio, and out-of-home Top-of-Mind Brand advertising, and Jamba had piloted a first-ever television ad By 2019, Jamba Juice was the smoothie brand leader and campaign in key markets. #1 retailer for fresh squeezed made-to-order juices. Jamba Regarding its marketing efforts, historically, Jamba had also boasted over 1.8 million Facebook fans and over not engaged in any mass-media promotional programs, rely- 100 million annual visits to its stores. The consumer messaging ing instead on word of mouth and in-store promotions to CASE 35 :: JAMBA JUICE: FOCUS IS ON THE MENU C293 Strategic Management: Text and Cases increase customer awareness. However, Jamba was featured Jamba also transitioned existing stores in selected mar- in stories appearing in the Wall Street Journal, New York kets to a fresh-squeezed juice emphasis. This addressed Times, USA Today, as well as profiled spots on TV news competition from both Juice It Up! and Starbucks, who shows such as Good Morning America. Jamba had also run were expanding their premium juice bar businesses. But the an "Ambassadors of WOW" contest nationwide, encourag big announcement was when Jamba introduced its Kids ing fans to nominate themselves or worthy friends or family Meals. This new menu was targeted toward children ages 4 members to be the new faces of Jamba Juice, creating to 8, with a complete meal-a smoothie plus a food item- "wow" through support and involvement within their com containing fewer than 500 calories. The items included munities. These ambassadors would have the opportunity whole grains, 2.5 servings of fruit or vegetables, and no to appear in Jamba Juice advertisements and promotional added sugar. campaigns." 16 One of the key objectives of Jamba's growth strategy was Jamba also capitalized on the openings of new sites as to increase sales year-round and significantly decrease opportunities to reach out to the media and secure live weather and seasonal vulnerabilities. Seasonal issues were local television coverage, radio broadcasts, and articles in serious, since the traditional driver of Jamba's revenue and local print media. Openings were also frequently associated profit was the sale of smoothies during hot weather. In with a charitable event, thus serving to reinforce Jamba southern states (e.g., California), where the weather re- Juice Company's strong commitment to its communities. mained warm year-round, Jamba experienced fairly steady In addition, Jamba aligned itself with "active living spokes sales. However, in the northern states (e.g., New York), people, such as NFL players Vernon Davis, tight end for where there was a cold and fairly lengthy winter season, the Washington Redskins, and Mohamed Sanu, wide Jamba experienced severe seasonal variability. To counter receiver for the New England Patriots. Davis and Sanu the seasonal slump, Jamba pushed to increase the presence partnered up to develop six Jamba Juice stores in the of nontraditional stores inside existing venues Washington DC metro area, and Davis was franchise owner of five Jamba Juice locations in northern California." Nontraditional Locations Jamba had generally characterized its stores as either tradi- New Products, Category Leadership tional or nontraditional. Traditional locations included sub- Jamba sought "top-of-mind" leadership by creating innova urban strip malls and various retail locations in urban tive and "craveable" menu items they could offer through centers. Traditional stores averaged approximately 1,400 out the day-for breakfast, lunch, afternoon, and dinner. square feet in size and were designed to be fun, friendly, Jamba Juice stores offered customers a range of fresh energetic, and colorful to represent the active, healthy life- squeezed fruit juices, blended beverages, baked goods and style that Jamba Juice promoted. meals, nutritional supplements, and healthy snacks. Jamba Nontraditional stores were considered those located in smoothie and juice options were made with real fruit and areas that allowed Jamba to generate awareness and try out 100 percent fruit juices. Jamba smoothies were rich in vita new products to fuel the core business. In 2019, and only mins, minerals, proteins, and fiber, were blended to order, available to existing franchisees, Jamba's nontraditional op- and provided four to six servings of fruits and vegetables. In portunities included store-within-a-store locations, an ex- addition to the natural nutrients in Jamba smoothies, ample of which was the 2016 opening of a combination Jamba offered supplements in the form of Boosts and Timothy's World Coffee and Jamba Juice franchise loca- Shots. Boosts included 10 combinations of vitamins, miner tion within a Stop & Shop store in Long Island, New als, proteins, and extracts designed to give the mind and York. 19 Other nontraditional venues included airports and body a nutritious boost. Shots included combinations of shopping malls, where the indoor setting helped to alleviate wheatgrass, orange, and lemon juice designed to give cus weather and seasonal vulnerabilities that challenged tradi- tomers a natural concentrate of vitamins, minerals, and an tional locations, colleges and universities. tioxidants. Additional high-traffic, nontraditional locations existed. As complements to its smoothie and boost offerings. Many large health clubs included a juice and smoothie bar Jamba also offered baked goods and other meal items. within their buildings. Jamba could partner with a major Called "tasty bites," each of these items was made with gym chain or individual private gyms with high member- natural ingredients and was high in protein and fiber. One ship rates. Another possibility was to partner with a large popular item was steel-cut hot oatmeal with fruit, a low school district. Schools across the country were under in- calorie organic product that captured a "best of" rating creasing scrutiny to offer healthy alternatives to the tradi- by nutritionists when compared against offerings from tional fat-, carbohydrate, and preservative-rich foods served McDonald's, Starbucks, Au Bon Pain, and Cosi. Jamba in cafeterias, especially as a number f states were prohibit- also offered a variety of grab-and-go wraps, sandwiches, and ing the sale of junk food on K-12 campuses. California flatbread food offerings, as well as "energy Jamba had introduced self-service JambaGO automated bowls that incorporated whole fruit, fresh Greek yogurt drink stations in nontraditional locations, including schools. and/or soy milk, and an assortment of dry toppings Taking roughly the space of a soda fountain beverage C294 CASE 35: JAMBA JUICE: FOCUS IS ON THE MENU Strategic Management: Text and Cases dispenser, the JambaGo format, which CEO White called a juice bar operator, and Teavana Teas. This positioned Star- wellness center, included the chain's branded packaged bucks as another head-to-head competitor to Jamba Juice. products, as well as the option of several preblended In response, similar to Starbucks, Jamba had strengthened smoothies. This licensed concept represented no capital in its customer reach by offering ready-to-drink products, and vestment for Jamba and used the razor/razor blade net hot food and drink items to attract customers during the profit model. White was hoping Jamba would become the cold-weather months, plus a range of breakfast and lunch go-to resource for healthy solutions for school foodservice food items to complement its juice-based offerings and sat- directors."20 However, former CEO Dave Pace announced isfy customer desires all day and all year-round. plans to exit the JambaGo platform in 2017, stating: The juice and smoothie bar industry had seen a reduc- After a detailed review, the company determined that tion in growth since 2012 as competition increased from the JambaGo platform does not align with these fast-food chains and yogurt shops. The category of smooth- objectives and is not a viable option through which to ies and juices had seen increasing consumer acceptance as drive long-term profitability and shareholder value. 21 health claims become more commonplace, especially as the "cold press" juice option, yielding highly nutritious juice Interestingly, customer feedback had indicated that the from chopped spinach, kale, and ginger gained in popular- quality of the JambaGo product was not up the standards ity. However, the juice category was still relatively expen- that consumers expected from Jamba; therefore, Jamba sive compared with other refreshment options, and more management felt JambaGo would degrade the brand and informed consumers became concerned about the high impact the company's opportunity to grow the core busi sugar content from natural fructose. This, combined with ness and brand over the long term. the fact that the regular quick-serve restaurants such as McDonald's were reported to make up nearly 40 percent of Building a Global Consumer Packaged the juice and smoothie bar market, meant that the pure Goods Platform juice and smoothie providers such as Jamba Juice, Planet Jamba Inc. was also aggressively pursuing licensing agree- Smoothie, and Smoothie King were facing difficult growth ments for commercialized product lines in the areas of options. In addition, these smoothie providers were under Jamba-branded make-at-home frozen smoothie kits, frozen increased scrutiny by health advocacy groups for mislead- yogurt novelty bars, all-natural energy drinks, coconut ing consumers into thinking their beverages were made water fruit juice beverages, Brazilian super fruit shots, trail from whole fruit and vegetables when, in reality. consumers mixes, and fruit cups. The objective was to reinforce the were "paying premium prices for products that are primar- Jamba better-for-you message with convenient and portable ily made of unadvertised, less nutritious, and cheap ingredi- products available at multiple consumer locations. ents like pear and white grape juices from concentrate." A For instance, Jamba promoted "At Home Smoothies," a class action lawsuit was filed against Jamba Juice in 2018 kit containing fruit and yogurt with a healthy antioxidant for making misleading claims about product ingredients. boost, one full serving of fruit, and 100% daily value of vita The message was "these drinks get an undeserving health min C. Available in the local grocer's fruit aisle, the package halo. You're better off eating actual produce and consid- made two eight-ounce servings by adding juice and blendingering Jamba Juice a treat instead of a regular meal."25 The blending was facilitated by Jamba's new appliance line, offering a juice extractor, manual juicer, professional blender. Acquisition and Consolidation Trends and a "quiet blend" blender for quick midnight meals. in the Restaurant Chain Industry The quick-serve, fast-food industry was a lot more competi- Competition tive than it was in 2008 when James White started the turn- Jamba was the smoothie industry leader and initially had around at Jamba Juice. Although there were "mega brands" several competitors with similar health and fitness focuses, such as McDonald's, Starbucks, and Chick-fil-A, the cate- such as Juice It Up!, Planet Smoothie, and Smoothie King, gory was increasingly under consolidation. As of 2019, 10 but over time that had changed. Starbucks and Panera companies controlled more than 50 of the biggest restau- Bread had entered the smoothie market, and McDonald's rant chains in the world. This included not only Yum! brought its marketing machine into the frozen drink cate Brands' KFC, Taco Bell, and Pizza Hut, plus Restaurant gory, launching its line of smoothies with a value pitch. A Brands International's Tim Hortons, Popeyes and Burger taste-test in 2019 of strawberry-banana smoothies from King, but also included Roark Capital, the private equity Auntie Anne's, McDonald's, Panera Bread, Planet owner of Inspire Brands-Arby's, Buffalo Wild Wings, Smoothie, and Jamba Juice found Panera Bread and Planet Rusty Tacos, and Sonic-plus FOCUS Brands, the new Smoothie both besting Jamba Juice in taste and texture.22 owner of Jamba Juice as well as Seattle's Best Coffee, This highlighted the ongoing competitive push in the Carvel, Cinnabon, Auntie Anne's, Schlotzsky's, McAlister's smoothie category. Regarding the juice bar and other bever- Deli, and Moe's Southwest Grill.26 These acquisitions made age categories, Starbucks, with its smoothies already in sense, because, as costs rose, a standalone brand faced sig- place, had acquired both Evolution Fresh, the premium nificant need for increased spending on corporate CASE 35 :: JAMBA JUICE: FOCUS IS ON THE MENU C295 Strategic Management: Text and Cases