Jamba Juice Company

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Jamba Juice Company

17100 17th Street
San Francisco, California 94103
U.S.A.
Telephone: (415) 865-1200
Toll Free: (800) 545-9972
Fax: (415) 865-1294
Web site: http://www.jambajuice.com

Private Company
Incorporated: 1990
Employees: 210
Sales: $97.2 million (2000)
NAIC: 722211 Limited-Service Restaurants

Based in San Francisco, Jamba Juice Company has more than 350 company and licensed stores spread across 23 states and the District of Columbia that serve some 20 varieties of smoothies, 24 to 32 ounce drinks that the company positions as healthy meal replacements. Most of the blenderized concoctions rely on frozen or fresh fruit, supplemented with such optional “boosters” as bee pollen, ginseng, brewer’s yeast, and wheat grass. In addition, Jamba sells vegetable soups, breads, and gourmet soft pretzels. The bulk of the chain’s outlets are located in California, where juice bars have long been a staple. In order to expand rapidly across the United States, Jamba has taken on regional franchise partners, although the company has been reluctant to initiate overseas franchising.

Pursuit of a Dream: 1989

The individual behind the founding of Jamba Juice was Kirk Perron, who at an early age harbored a desire to start his own business. “I was inspired because my parents never owned their own home,” he told QSF Magazine in a 1999 profile. “My parents both worked at blue collar jobs and I knew that wasn’t the way to get ahead. So, I started developing ideas about retail business—the wheels started turning pretty early on.” Rather than engaging in high school sports, he began investing in real estate, accumulating a $12,000 down payment by turning to the adults he knew from school, including his bus driver, a librarian, and a guidance counselor. At the age of 16, he also began working at supermarkets—bagging groceries at Vons and ultimately becoming an assistant store manager at Safeway—and in the process he gained ten years of valuable retail experience. Perron was 25 in 1989 when he quit his management position at Safeway, electing to spend his days working out and bicycling, supported by his real estate ventures and a late-night job stocking grocery shelves. Often after exercising, he bought a smoothie at his health club, a drink he found far more nutritious and satisfying than a frozen drink he might buy at a convenience store after one of his long bicycle rides. Still looking to realize his childhood dream of running his own business, Perron soon decided to open a store to sell smoothies.

With a determination bordering on evangelical zeal, Perron recruited people to help him launch the business that would one day become Jamba Juice. He met his future director of research and development, Joe Vergara, at a Safeway store. Vergara was already involved in the juice bar business, managing a handful of stores in San Luis Obispo, California. He often went shopping for good deals on overripe bananas and was buying a dozen cases at a Safeway when Perron struck up a conversation that ultimately led to Vergara’s involvement in the new venture. Another person impressed by Perron’s passion was Kevin Peters, who helped him scout for the location of his first store and would become director of partnership development. A fourth person who would be credited with cofounding Jamba was Linda Ozawa Olds, the later head of marketing.

Although his colleagues believed in his vision of a healthful fast-food restaurant that relied on the sale of smoothies, Perron was less successful with the bankers, who quickly dismissed such a concept. To fund the business, Perron had to sell a small apartment building and borrow money from his mother and her boyfriend, in all scraping together $115,000. He then secured a 700-square-foot location in San Luis Obispo and in April 1990 launched his smoothie business, originally called Juice Club. During the first weekend the store was extremely busy, serving some 1,600 customers, but Juice Club was far from an overnight success. During the first year, daily sales hovered around the $500 level, and it was not certain that Juice Club would succeed, although some people already began to inquire about obtaining a franchise. Gradually, the store built up a loyal base of customers, many of whom visited several times a week to buy the store’s unique menu of smoothies, which were given such exotic names as Pacific Passion, Boysenberry Bliss, and Protein Berry Pizazz.

By the end of the second year, Juice Club was turning a profit and Perron was ready to expand. After failing to secure a Small Business Administration loan, he decided to grow through franchising. The second Juice Club opened in Irvine, California, and by the autumn of 1994 there were 16 franchises. Already, however, Perron recognized that franchising was not the best way to grow the Juice Club concept. Not only did he risk losing quality control—and it was the quality of the product that created customer loyalty—he lacked the necessary funding to make a franchise chain profitable. The franchisees had to foot the entire bill for land and facilities, resulting in a franchise fee too modest to allow the parent company to provide the necessary management training or monitor the quality of the product. For Perron, choosing profit over quality was simply not an option. Clearly what Juice Club needed was sufficient capital to own and operate all of its outlets—to bankroll its own destiny. Rather than seek out investors, however, investors sought out Perron. In September 1994, he received a telephone call from venture capitalist Bob Kagle, a general partner in Technology Venture Investors (TVI) and Benchmark Capital. By chance, Kagle had come upon the recently opened Juice Club in Palo Alto while on his way to lunch, attracted by the long line that stretched outside the store. He was struck by the zeal of the customers, later telling the Los Angeles Times, “It seemed like everyone had a tremendous sense of affirmation about buying this smoothie.” He canceled his appointments in order to conduct some impromptu research, asking questions and taking notes, and ultimately concluding that there was a growing market for healthy drinks like the smoothie and that Juice Club had a chance to define the category in a way similar to what Starbucks had done with coffee. In fact, Kagle enlisted Starbucks’ chairman and CEO, Howard Schultz, to participate in an initial $3 million round of funding for Juice Club. After meeting with Perron and finding that they shared similar values, Schultz subsequently agreed to join the board. Perron also turned to Starbucks’ real estate brokers to co-locate some outlets with Starbucks, since the two franchises were not in direct competition. With Schultz’s blessing, Juice Club was able to raise a further $19 million from seven venture groups, one of which was Microsoft cofounder Paul Allen’s Global Retail Partners. A wider group of investors would ultimately invest an additional $44 million in the business.

From Juice Club to Jamba Juice: 1995

Perron was now well positioned to take his business to a new level. He moved his corporate headquarters to San Francisco, increased the staff from 17 to 40, and changed the name of Juice Club to Jamba Juice Company. With a lot of imitators entering the business, all of whose names began with the word “juice,” Perron wanted to distinguish the company from the pack. Moreover, Jamba Juice became a store concept that offered a hipper, festive, more Starbuck-like quality, a decided move away from a bland health store look. The word “jamba” means “to celebrate” in Swahili, and in turn Jamba Juice celebrated a healthy lifestyle. The brightly colored decor of the new stores and the smoothie names contributed to the effort to brand the Jamba Juice sensibility. Perron was also quick to recognize infringements and displayed a willingness to go to court to prevent rivals from copying Jamba’s store layout, packaging, or drink names.

While Juice Clubs gradually made the transition to the Jamba Juice concept over the next two years, Perron initiated a site acquisition and development plan to roll out new Jamba Juice outlets at an accelerated pace, with a goal of reaching the 1,000 mark in a few years. He believed it was important to stake a claim in the fast-growing juice segment of the restaurant industry. By mid-1996, the chain had 30 stores, all located in California, 18 of which were company owned. A year later that number would virtually double, and California would top the 300 mark in total juice bars, with any number of competitors cropping up. In August 1997, Jamba took an initial step in expanding outside the state when it signed a licensing deal with Whole Foods Market of Austin, Texas, a major natural and organic foods grocery chain. Whole Foods’ staff, trained by Jamba personnel, were to operate juice stands under the Jamba name and logo. The agreement allowed for Jamba outlets in four supermarkets, two of which would be established in California. Whole Foods supermarkets in Boulder, Colorado, and Tempe, Arizona, were chosen as the first non-California Jamba Juice locations, with the ultimate goal of placing juice bars in all of the Whole Foods 75 supermarkets spread across 17 states and the District of Columbia. In addition to tapping into the organic and natural food store sector, Jamba targeted two other locales that management believed were fertile territories for its concept: universities and airports.

Company Perspectives:

We believe that food choices have a clear impact on personal well-being — as well as the health of our communities and planet.

Jamba’s infrastructure evolved along with its menu. In order to retain them for an extended period, store managers were treated as quasi-owners. Not only did the company pay managers a percentage of a store’s profits as an incentive, Jamba developed a retention plan, which it labeled “J.U.I.C.E.” In essence, a percentage of a store’s cash flow was placed in a retention bonus account, which would be awarded after three years. Should managers agree to another three-year term, they would be granted a three-week paid sabbatical. Moreover, employees in managerial positions received stock options. Jamba workers also received considerable training before being allowed to work alone, and were encouraged to make decisions in order to address customer problems without the need to seek managerial approval. It was Jamba’s focus on the needs of its customers that led to changes on the menu. While they waited for their smoothies to be prepared, many customers were known to visit neighboring shops to buy a bagel. The drinks may have been adequate meal replacements from a nutritional point of view, but they lacked what was called the “chew factor.” Jamba turned to the research and development firm of Mattson & Co., which produced a number of new food options. After much fine tuning, the chain introduced the results of that effort in 1998: the Jambola, a four-ounce, high-nutrient bread that was toasted and, accompanied by a smoothie, created a “Power Meal.” Rather than deal with the difficulties of a fresh-baked product, Jamba chose to have the Jambolas produced by a third party and delivered frozen to stores, where they would be prepared in a conveyor toaster oven.

Over the next two years, Jamba added to its food offerings, all the while introducing new smoothie concoctions. In 1999, a line of vegetable soups, Souprimos, was launched. Because customer feedback indicated that the product fell short on taste, Jamba decided to improve flavor and consistency by including some fat to the recipes. In early 2000, the chain added gourmet soft pretzels to its menu. In addition to the traditional salted pretzel, Jamba offered two exotic flavors, Apple Cinnamon and Sourdough Parmesan. Smoothies and soups were then combined with either the breads or pretzels to produce what the chain now called Jamba Meals.

Acquisition of Zuka Juice: 1999

The Jamba chain boasted some 125 outlets in early 1999 when Perron negotiated a merger with one of Jamba’s main competitors, Zuka Juice, which totaled nearly 100 stores, 25 of which were company owned. Zuka had been launched in Provo, Utah, in 1995 by Dave Duffin, who now elected to join forces with Perron rather than battle over the same territory and see the smoothie business degenerate into something like the 1990s bagel wars, which resulted in overexpansion and the bankruptcy of several aspiring chains. The addition of Zuka gave Jamba a presence in the Northwest as well as in Texas and Nevada. Only in Utah, where the brand was well entrenched, would the Zuka name be retained. To further accelerate growth, Jamba also began opening stores with major franchising partners. Jamba Hawaii Partners looked to open outlets in Hawaii, while a joint venture called Heartland Juice Company was created to bring Jamba Juice to Illinois, Minnesota, and Wisconsin. Although there would be some concern about the success of smoothies in cold climes, doubts would be eased considerably when the first store that opened in Chicago quickly developed into one of the most profitable units of the entire chain. Although there was already some interest at this time in franchising Jamba Juice overseas, the focus remained on the domestic market.

Perron was eager to take Jamba public, a move that would allow his equity partners a chance to realize a return on their sizeable investments in the company. In preparation for such a move, in January 2000 he brought in a seasoned fast-food executive, Paul Clayton, to take over as the chief executive officer. Clayton had 16 years of experience at Burger King as well as some time with McDonald’s in Germany. Thoughts of an initial public offering (IPO), however, would have to be postponed due to the poor results of most restaurant stocks in 1999. Under Clayton, Jamba continued to focus on internal growth while it waited for market conditions to improve. It introduced a catering service, which it called Jamba Go Go, and became involved in delivery by teaming up with Waiter.com, an Internet ordering and delivery service (with a minimum order of $60). To build on Jamba’s strong West Coast presence, Clayton continued to look for suitable development partners in order to enter new markets. The Jamba concept was also undergoing constant tweaking, with decor changes and an ongoing search for foods to complement smoothies in order to appeal to consumers who were less likely to view a smoothie as a desirable meal replacement.

By the summer of 2001, the Jamba chain had grown to some 330 units, far short of the 1,000 that Perron had envisioned yet still a significant increase over the 75 units the chain numbered just three years earlier. Sales were growing significantly, and there appeared to be a significant upside to the number of outlets the company could expect to open in the coming years. Whole Foods Markets was enjoying success with its 25 Jamba Juice stands and expected to expand the concept to its other 50 stores. In addition, Jamba began testing similar outlets inside California health clubs, which if successful offered great future growth potential. A major reason behind the success of the Chicago store, in fact, was its proximity to a large health club. Clearly, Jamba needed to be located close to its core customers, primarily college campuses, health food stores, and health clubs, as well as airports where travelers were receptive to the idea of a smoothie as a quick nutritious meal replacement. Clayton hoped to add 60 to 70 new stores each year for the next several years. This plan was given a significant boost in early 2002 when Jamba signed a licensing agreement with Sodexho, a major foods and facilities management company. Sodexho already ran Jamba outlets at Loyola Marymount University and the University of Nevada, but in addition to opening Jamba Juice stores at additional colleges it was considering the possibility of transferring the idea to its healthcare and corporate services divisions.

Prospects appeared bright for Jamba. There remained ample room for growth, both in the United States and overseas. Moreover, the category was not yet dominated by any major players and the Jamba concept was attractive enough to provide a competitive edge. What remained uncertain was investor response to Jamba’s seemingly inevitable IPO. Would they view Jamba and its smoothies as the next Starbucks? Or would they simply dismiss smoothies as a fad?

Principal Subsidiaries

Zuka Juice.

Key Dates:

1990:: Juice Club opens in San Luis Obispo.
1995:: The store changes its name to Jamba Juice.
1996:: Thirty stores, both franchised and company owned, are in operation throughout California.
1997:: A licensing agreement is signed with Whole Foods Market to open Jamba Juice bars in Whole Foods supermarkets in both California and other states.
1998:: Jambola bread is introduced.
1999:: Jamba Juice acquires its main competitor, Zuka Juice; Souprimos soup line is introduced.
2000:: Paul Clayton is named CEO.