Managing the Intangible Is More Profitable Than the Tangible: Jamba Plans to Sell 100 Stores, Focus on Licensing, Royalties

That day-to-day physical stuff like employees and customers and products is just so messy and complicated. Making money off the idea around the reality, now that's a concept. JL

Ilan Brat reports in the Wall Street Journal:

Selling restaurants to franchisees cuts a chain’s revenue, but it also reduces volatility and labor and real-estate costs, leaving a more stable stream of revenue from royalties and licensing that generally carries higher profit margins than operating the outlets does.
Jamba Juice owner Jamba Inc. plans to sell about 40% of its company-owned stores to a franchisee group, the latest move by a restaurant chain to shed the costs and complications of running restaurants in pursuit of higher profit margins.
The company, whose outlets offer smoothies, juices and specialty foods, will sell 100 of its company-owned outlets in California for $36 million in cash to Vitaligent LLC, whose owners currently operate five Jamba Juice locations in the St. Louis area through a different venture and are building an additional 10 stores in Missouri and Kansas. Jamba Chief Executive James White said the company will plow a majority of the proceeds from the sale into buying back Jamba shares.
The sale comes 2½ months after Jamba agreed to appoint representatives of two activist shareholders to its board of directors. The investors, Engaged Capital LLC and JCP Investment Management LLC, had pushed the chain to close underperforming stores in New York, cut costs and take other measures to boost profits. Jamba has already begun to close some New York outlets.
Jamba, like a number of other eateries, has also been pursuing a so-called asset-light model that involves allowing franchisees to own most of a brand’s outlets. The strategy helps a brand preserve capital that might otherwise need to be invested into maintenance of its facilities and other expenses.
Franchisees already own 605, or 70%, of Jamba’s 862 outlets globally, and the company wants to raise its franchise percentage to at least 90% by 2016, Mr. White said.

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Franchisees “create more unique opportunities by being embedded in the local market,” he said.
Selling restaurants to franchisees cuts a chain’s revenue, but it also reduces volatility and labor and real-estate costs, leaving a more stable stream of revenue from royalties and licensing that generally carries higher profit margins than operating the outlets does.
In recent years, Restaurant Brands International Inc.’s Burger King brand has sold off its restaurants, leaving all but 52 of its 7,406 U.S. and Canada outlets run by franchisees as of Dec. 31. Last year, McDonald’s Corp., which owned about 19% of its 36,258 world-wide restaurants as of Dec. 31, said it would refranchise at least 1,500 stores, mostly outside the U.S., by the end of 2016. And in February, Wendy’s Co. said it would sell 500 of its restaurants to franchisees, which followed the refranchise of 237 outlets last year.
Dave Peacock, executive chairman of Vitaligent, said he hopes to use what the company learns from Jamba Juice’s operations in California to expand juice and other healthful offerings in the Midwest.
“What we’ve seen in the past is healthy trends start in the West and move east, and so this is an opportunity to capitalize on that,” he said.
In the year to Dec. 30, Jamba said sales at stores open at least a year grew 2.7% over the previous year but the costs from the launch of juice products and other expenses drove a net loss of $3.6 million.