Change

Your Business Has Two Options: Adapt or Die

Your Business Has Two Options: Adapt or Die

Quick-change artist: Mike Rotondo is mixing things up at Tropical Smoothie Café.

Image credit: Ray McCrea Jones
This story appears in the June 2015 issue of Startups. Subscribe »

In business, you change with the times or flame out. 

Case in point: More than a century ago, CCM was a Canadian bicycle and automotive manufacturer until it started making hockey skates with leftover steel. The brand has been synonymous with hockey ever since. IBM once made typewriters and PCs. As competitors came up with less expensive personal-computing technologies, the company had to transition or die, first to servers and IT services, and again to software and cloud services. The same rule of survival applies in franchising. Sometimes even the most trusted brands may find themselves in need of an extreme makeover to keep up with the demands of the marketplace. It’s not easy, but change offers the perfect opportunity for entrepreneurs who are willing to jump in and help a franchise redefine itself.

Five years ago the bestselling flavor at Tropical Smoothie Café was strawberry banana. Today? It’s Island Green, which includes kale, spinach, mango, pineapple and banana—a combo that would have been unthinkable when the franchise concept launched in 1997. In fact, a lot has changed at Tropical Smoothie Café in recent years.

“We overhauled everything, from our executive team to our marketing to our menu. We attacked every aspect of our business because sales had flatlined and competition was growing fierce,” explains CEO Mike Rotondo, who took over the top job after serving as Tropical Smoothie’s COO for years. “When I saw places like Wendy’s doing upscale items like pulled pork with coleslaw, I knew we had to get in on the chef-inspired, fast-casual market. This type of innovation has kicked us into high gear. We’re not afraid of trying anything—and customers have responded.”

“I knew we had to get in on the chef-inspired, fast-casual market. This type of innovation has kicked us into high gear. We’re not afraid of trying anything—and customers have responded.”

—Mike Rotondo, CEO, Tropical smoothie café

Tropical Smoothie used to distinguish itself from other smoothie and juice concepts by offering run-of-the-mill lunch options like turkey sandwiches. Since the reinvention of the brand began in 2012, however, it has added fish tacos with fresh pineapple and mango salsa, Thai chicken wraps and pesto flatbreads. There’s also a whole menu board of vegetable smoothies, including beet and avocado varieties. Now the company bills itself as a lunch destination and says it’s competing with restaurants like Panera Bread instead of other smoothie shops.

Image credit: Ray McCrea Jones

Sales numbers show the changes are working, with double-digit growth and same-store sales up for the last 25 periods. Franchisees are also taking notice—the company is currently at more than 450 units and expects to surpass 500 stores by the end of 2015.

All businesses that last more than a few years have to change with the times, whether it’s by updating technology, redesigning products, or adding or deleting items from the menu. But in some cases, technological innovation, demographic shifts or changing tastes alter the business climate so much that an entire organizational structure ends up in jeopardy. For those companies, the alternative to innovation is failure (see Kodak, Blockbuster and Radio Shack for what not to do).

In the franchise world, revamping or radically altering a business model has an extra layer of complexity. There are always stalwarts who resist change and the extra costs and operational redesigns it often brings. But some franchise brands, like Tropical Smoothie, face the changing market head-on, and end up in places they never expected.

Image credit: Ray McCrea Jones

Back in the early 1980s when Steve Greenbaum started putting together the mail and parcel businesses that would eventually become PostNet, he offered a customer-friendly option for shipping packages at a time when shipping with UPS or FedEx meant schlepping to a service counter in an industrial area at the edge of town. But Greenbaum quickly learned that people wanted more from his stores. 

“Customers would come in and ask, ‘Can you take a package, and do you have a copier, and can you handle larger, more fragile objects?’” Greenbaum remembers. “This is going back 30 years, and I realized that the business would need to evolve with consumer needs and technology. That set the tone for us. In the 1980s we were a pack-and-ship place; in the 1990s when we began franchising, we offered sophisticated copiers and fax machines; and in the last decade we had on-demand digital copiers—all based on consumers’ needs.”

However, his top-performing franchisees were mostly serving small businesses, and he wanted his company to shift to that model. “We made a decision back in 2003 and went through strategic planning,” he says. “We decided to focus on small businesses and understand how we could serve them.”

That meant printing, shipping and offering new services for small businesses, such as graphic design, branding and marketing. In late 2008 PostNet launched its revamped model, transforming itself from a B2C operation to a B2B company and branding itself the “Neighborhood Business Center.” “We were the first company in the industry to have the vision to say we want to be the business behind small business,” Greenbaum says.

In 2013 PostNet announced plans to add 200 new units to its current lineup of 300 stores. But Greenbaum acknowledges there have been challenges along the way. 

“There were some franchisees who looked at the changes and said, ‘This is more sophisticated than the brand I bought into,’” he relates. “They were a small but vocal minority. They were very concerned about the amount they would have to relearn or spend. But it comes down to the culture and core values of a company. We have a very strong relationship with our franchisees, and we’ve been honest and transparent about the objectives of PostNet.”

Michael Vivio, president of Valpak, the company known for its mailings of coupon-stuffed blue envelopes, agrees that the evolution of a brand can be difficult. “Change is hard in a franchise organization. The nucleus of the business is an original recipe that our franchisees invest in,” he says. “They got into the business because they believe in the recipe, so if that recipe changes, there are problems.”

“I think that a living, breathing company, whether a franchise or employee-based, must respond to consumers and a changing world.”

—Michael Vivio, president, Valpak

There have been plenty of changes at Valpak, including the addition of digital and mobile marketing, as well as customer services such as performance tracking, branding and more. “Change for us has been about finding solutions where we can leverage our core DNA into mobile and new audiences,” Vivio says. “We’re faced with two challenges: consumers’ emerging preferences for digital and mobile media, and the small businesses and ad buyers who are changing with them.”

He adds that Valpak franchisees, many of whom bought into the system because they were good at sales, now need to become small-business consultants. “Our No. 1 goal is to increase the capacity of our franchise network and the sophistication of our consultants,” he says. “It’s a terrific challenge for our organization to meet.”

Bring the kids: Buffalo Wings and Rings scores a family-friendly vibe.
Image credit: Ray McCrea Jones

To that end, Valpak has made a sizable investment in training. It runs business-consultant boot camps to get its 170 franchisees and their salespeople up to speed on changes in the tech world, as well as offering webinars and other educational options. It’s a slow process, but Vivio says the network is beginning to understand and embrace the new direction. 

In 2009 Nader Masadeh, president and CEO of the 60-unit Buffalo Wings and Rings franchise, had to face the future. With continued growth, there would be competition, and soon his wings restaurant would be going head-to-head with more established brands like Buffalo Wild Wings. He realized his company needed its own niche.

“Typically, when people think of Buffalo wings, they think of restaurants that are dark, masculine man caves, with mostly beer and lots of fried food and neon lights. The menu is often an afterthought,” Masadeh says. “What we decided to do is make a new experience, one that is more female- and family-friendly, but where we don’t forget about the needs of the traditional sports fanatic.”

That meant designing a new model and retrofit package with a new logo, interior design and lighting; an upgrade to dishes and silverware; and, most important, an improved menu, for which everything is hand-breaded, meat is never frozen and salads are featured prominently. So far, about half of BWR’s units have been through the retrofit.

“It’s amazing to see the progression,” Masadeh says. “We track the demographics of our guests, and so far they are exactly who we are trying to attract. And we’re seeing the unit economics we predicted as well.”

Sylvan Learning is one of the oldest after-school tutoring franchises in the country. In 2011, when students started using tablets in school, Sylvan’s tutoring methods were in need of a refresher course. But bringing tablets into its learning centers was just the beginning of the company’s modernization efforts.

“We found that once our franchisees have our curriculum on an iPad, they can take those tablets and go anywhere with a wireless signal,” says Julia Fitzgerald, Sylvan’s CMO. “Instead of having a large brick-and-mortar location, they can use a YMCA or community center to deliver classes at a satellite location. It’s a way for franchisees to expand their footprint without investing in expensive [real estate].”

The system, called Sylvan Sync, also appeals to parents, who can use the software to see how their child progresses and where he or she needs improvement. “Going from an analog platform to a digital one has put us far ahead of the competition,” Fitzgerald says. “The tablets enable the franchisee to expand their business model, and all of this data helps corporate and our franchisees adapt our products for greater student outcomes.” 

More impressive, the success of Sylvan Sync allowed the company to launch a new product called Sylvan Edge, an after-school enrichment program focused on robotics and STEM (science, technology, engineering and mathematics) activities, which adds another revenue stream for franchisees. 

Staying relevant is the main driver behind changes happening at Panera Bread, which dubbed the redesign it’s rolling out to its corporate and franchise stores “Panera 2.0.” 

At its core, it’s an acknowledgment that Panera’s laid-back bakery-café origins no longer apply. Serving more than 8 million meals per week, the company verges on the fast-food category, meaning some of its quirks, like ordering and waiting at the “scrum” near the counter, are no longer practical. 

Panera 2.0 completely revamps the ordering process. Customers have the option of ordering through their smartphones, the web or at tablet kiosks (technophobes can still use the counter). The new system also allows customers to pay from their mobile devices and have orders delivered directly to their tables.

Made to order: A tablet kiosk at Panera Bread.
Image credit: Ray McCrea Jones

“We asked, ‘How do we reduce friction? Where do you consume the food?’ Well, you consume it at the table,” explains Blaine Hurst, Panera’s executive vice president and chief transformation and growth officer. “What’s the major hassle at Panera? You have to stand in the mosh pit to get your food. We wanted to eliminate that.” 

Crossing that digital divide has led to new challenges. It turns out customers are much more likely to customize their orders on a digital platform. So Panera 2.0 requires that some employees shift from working the counter to handling quality control, making sure each order goes out correctly. 

Changes at the counter, Hurst says, have reverberations throughout the restaurant. “At lunch, if half of our customers order through the kiosk, what does that do for the cashier? Instead of looking at a line out the door and being grumpy, he or she is dealing with a reasonable line and can take that 10 or 20 seconds to make the customer feel special. Every place where we reduce friction allows us to reengage with our customers.”

While many franchisees resist change at first, most come to see a revamped franchise business model as a positive. “I think that a living, breathing company, whether a franchise or employee-based, must respond to consumers and a changing world,” says Valpak’s Vivio. “Being a franchise makes that more difficult in some ways, and sometimes easier. Franchisees are motivated to run their own business. When we have solutions that meet those needs and support their entrepreneurial spirit, then that takes over and the need to change is self-fueling.”