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Smoothie Barons Dream of Fast-Food Empires

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Why are there hot dog stands but not bologna stands?

To Dan Buckstaff, the question is more than academic. He and a number of other entrepreneurs are gambling that large fast-food chains can be built on the latest craze: the smoothie.

Smoothies, which are whipped-up conglomerations of fruit, juice, yogurt and ice, seem to be showing up everywhere. There's Planet Smoothie, Tropical Smoothie, Smoothie Island, Smoothie America, Smoothieville, Smoothie Central and Smoothie King. Ben & Jerry's makes a frozen smoothie in four flavors, including Chai Tea Latte. Wal-Mart sells a smoothie in a bottle. Even the U.S. House of Representatives' food court has a smoothie stand, one of Mr. Buckstaff's Frozen Fusions.

If Mr. Buckstaff and the others are right, the smoothie is no fad, but rather a groundbreaking beverage as certain to last as Coca-Cola. Proponents envision themselves endowing universities with their smoothie fortunes. Just as Ray Kroc is synonymous with the hamburger, smoothie purveyors expect the obituary of some famous billionaire years hence to lament the passing of the "smoothie king."

Is this possible?

Well, America certainly seems to be mad about smoothies. Retail sales have jumped to more than $500 million a year from virtually nothing five years ago. One San Francisco seller, Jamba Juice, has grown to 250 outlets and has already snapped up a smaller player. Smoothie King Franchises Inc., based in Kenner, La., has 204 outlets in 20 states.

But trendy foods don't necessarily make good candidates for fast-food chains. After all, millions of pounds of french fries are consumed every day, yet there aren't any big chains of french-fry stands. And remember all those frozen-yogurt stands from a decade ago?

Smoothies are cold, wet, sweet, nutritious and, to many people, delicious. "I feel healthy when I eat them," says Jordan Bookey, a senior at Wesleyan University, of Middletown, Conn. "I'm not a huge fan of shakes, but I love the idea of eating fruit," she adds. Another smoothie fan, Michael Moe, director of global growth-stock research at Merrill Lynch & Co., says, "They represent portability, convenience and food on the run."

Unlike Coca-Cola or Dove Bars, smoothies aren't the result of a manufacturing or laboratory innovation. Anyone who ever tossed fruit, juice and ice into a blender could call himself a creator of the smoothie.

In fact, although the term "smoothie" dates back decades, nobody seems to know who coined it. Orange Julius, based in Minneapolis, has sold its smoothie-like juice concoctions since the 1920s. But it wasn't until the early 1990s that the chain, now controlled by Omaha investing sage Warren Buffett, started calling one of its drinks a smoothie.

With no consensus on exactly what constitutes a smoothie, makers take liberties. Some use sorbet instead of yogurt. Some enhance their smoothies with powdered nutritional supplements, such as brewer's yeast, producing drinks that can cost as much as $7 each. Smoothie Island, a unit of New York sandwich seller Blimpie International Inc., calls some of its smoothies Brain Food Concoctions, including "Einstein's Cocktail," a blend of raspberries, Very-Berry sorbet, gingko biloba and "colloidal minerals."

Why is this the decade of the smoothie? It isn't because anyone elevated the quality of smoothies to new heights, the way Howard Schultz, chief executive of Starbucks Corp., did with coffee. Rather, it has a lot to do with the growing popularity of fruit. Upon the advice of doctors and dietitians, people are eating much more of it, but it can be hard to find outside home and the local supermarket. Few restaurants and still fewer fast-food joints offer it.

In addition to two or three different kinds of fruit, the smoothie also is a source of protein, via the yogurt and nutritional supplements. And protein is as trendy as fruit. Then comes the fact that America's most beloved utensil, the straw, delivers all this energy. One reason beverages are generally growing faster than foods these days is that time-pressed people are eating on the run.

Smoothies face at least one problem: Any restaurant with a blender can add them to the menu. At Chicago's Northwestern Station, railway commuters can buy smoothies from five counters at the food court; two of them are dedicated smoothie purveyors. With just one item, it "is very hard to survive now, given the real-estate costs," says Kumar Ramani, president of the small Soup Nutsy chain, of Fort Lee, N.J. After seizing on the soup craze, Soup Nutsy now is considering whether to reduce expenses by joining three other food concepts -- cookies, pretzels and juices, but not smoothies -- under a single roof.

Starbucks has its own take on smoothies. "We don't speculate on new products," a spokeswoman says, but she notes the coffee shops offer a blend of juice and tea. And Mr. Schultz, the CEO, has made a sizable personal investment in closely held Jamba Juice -- a vote of confidence in the smoothie's stand-alone potential.

Stephen Kuhnau, the founder and chairman of Smoothie King, is another believer in the future of dedicated smoothie stands. "It's not a fad. It's an ever-growing way of life for people to change and watch what the hell they're doing to themselves," Mr. Kuhnau says. "We really need to clean our diets up," he adds, with the zeal of a preacher. "Where better to start than with a meal replacement?"

The 51-year-old Mr. Kuhnau, a onetime soda jerk, says he began whipping up fruit-based drinks at home 25 years ago to combat his allergies. Eventually, he began selling the concoctions -- "Muscle Punch" was one bestseller -- at a health-food store. After customers who tried to replicate the drinks at home said his tasted better, Mr. Kuhnau got into the business full-time. Today, he says, Smoothie King fields several hundred calls monthly from people interested in becoming franchisees.

Although some Smoothie King outlets sell energy bars, they don't augment their menus with sandwiches and salads, as some of their competitors do. Rivals offering a multitude of products and relying on inexperienced help "hurt the industry with so many bad-tasting smoothies," Mr. Kuhnau says.

Some people in the food industry predict one or two major chains will come to dominate the smoothie market, just as they have in coffee, ice cream, cookies, cinnamon rolls and doughnuts. Other people think smoothies are destined to join the gallery of food fads that couldn't sustain even one national chain, including muffins, baked potatoes, chicken wings, chili, soup, and frankfurters on a stick.

Some of those ideas got swallowed up by larger players. You want pitas? Go to Wendy's. You want a bologna sandwich? Well, hardly anyone else does, either. That's why there aren't any bologna stands.

Copyright © 2003 Dow Jones & Company, Inc. All Rights Reserved

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