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Nékter’s Next Act

Nékter Juice Bar’s juiced, and ready for the next phase of the company’s scale.

Eleven years after Steve and Alexis Schulze started a next-generation juice concept they aimed to be the Starbucks of their category, the duo is in the midst of an aggressive growth strategy through franchising that has it tracking to end the year with over $111 million in systemwide sales, just under 200 locations and a new product line readying for launch. All this comes following a recent headquarters move from Santa Ana to Costa Mesa in June.

Longer-term projections push the Santa Ana-based chain—known for its vegan juices, smoothies, açaí bowls, and other healthy snacks—to location growth of at least sevenfold from where they’ll end this year.

Healthy lifestyles that initially trended as part of health kicks in larger markets like Los Angeles and New York have trickled into other parts of the country over the years, helping propel the brand.

“There’s been a seismic shift in how people view health and wellness. Fast forward to today and I think that health and wellness is top of mind for almost anybody, and I don’t think that idea of being healthy is ever going to go out of style. I don’t think anyone makes New Year’s resolutions about getting less healthy and says ‘Nope, I’ve ate too many fruits and vegetables.’ So, the wind’s at our back,” CEO Steve Schulze told the Business Journal.

Nékter is pushing into Chicago, San Antonio, Boise, Coconino County in Arizona, St. Louis, Taylor County in Texas and Danville, Va. this year. These are all new markets for Nékter, with more than 90 franchise agreements struck since the start of this year, good for 144 stores added to Nékter’s development pipeline.

This year will bear out in around 27 new locations, a little soft compared to other growth years, Schulze said.

However, the real ramp begins next year with Nékter expecting to open around 55 to 60 new stores. 2023 is looking at potentially over 100 new spots, according to Schulze.

The growth comes as Nekter has so far notched more than 50% growth in companywide sales this year and same-store sales so far this year are up 40% from the prior year.  

2020’s Opportunities

While the first few months after the lockdowns of last year were tough, leading to store closures and a royalty forgiveness program for franchisees, the company also utilized the time to create operational efficiencies. The company looked at underperforming menu items and removed ones that no longer made sense to offer.

Artificial intelligence helped. The Nékter app allowed the team to better understand the specific customers frequenting stores so they could market accordingly.

Ultimately, Nékter was able to trim the cost of goods by 4.5% and labor by 3%, according to Schulze.

The food shortages and supply chain challenges that face restaurant chains and other industries has caused Nékter to see some spikes in prices, but nothing that’s had a significant impact, Schulze said.

“We came out of the pandemic with a stronger balance sheet, stronger P&L and higher franchise interest—which remains at very high levels. We came out of the pandemic in a very strong position,” Schulze said.

Skin in the Game

The growth, although appearing seemingly out of nowhere, has been part of a calculated strategy that began a couple years after Nékter launched.

“In 2012, we had maybe 10, 12 locations opened and I wanted to test the franchise model, so we awarded six,” Schulze said. “I wanted to see—could they carry the culture, the brand standards? What’s going to be a profitable venture for them? What’s going to be a profitable venture for us?”

What was critical for Nékter management to understand in the years prior to this recent ramp in franchising was preparing for  every possible challenge the business could be impacted by—they can now include a pandemic on that list—so that they can provide the proper support to franchisees rather than sitting in an office passively collecting franchising fees.

“The experience that we gather is invaluable, so no matter what you’re selling, you [the franchisee] have to look at the company and make sure that they’ve [the franchisor] got skin in the game and make sure they understand the business. There’s nothing that we haven’t been through that a franchise hasn’t been through,” Schulze said.

“When the minimum wage goes up, we know what that feels like. When it rains, we know what that feels like. When it’s sunny and 80 degrees, we know what that feels like.”

Proof of Concept

To that end, the strategy now shifts for Nékter to a focus on franchising support.

Schulze doesn’t see a significant number of company-owned locations to open moving forward, with the logic being that company-owned locations should remain close to the existing headquarters infrastructure.

He did allow that Nékter, the company, would own the first stores it opens in new markets, and ensure there’s demand for its products before later likely selling those locations to a franchisee.

“You’ve got to have a proof of concept. If I go to Denver, and it doesn’t work, as far as I’m concerned, that’s on me,” he said.

“We go into an area, put our money up and test. And, if it works, we find the right franchisee.”

Nékter, by the way, is in Denver. The brand started in Orange County with three locations before branching out to San Diego, Phoenix, Texas, Denver and other markets.

Keeping Things Fresh

Nékter’s energized strategy aims to keep it pushing past the pack.

“You’ve got to be authentic in what you’re offering,” Schulze said. “You can’t be offering sweets and treats. We’re very much a lifestyle brand and, at some point, you’ve got to separate the lifestyle from the treats category.”

He pointed to competitors whose top-selling items may be sorbets or processed juices with high carbohydrate counts as an example of his point.

“They’re glorified Dairy Queens,” he said of those competitors.

“I think that the guest is starting to understand that, and the category really has to be broken up into a treats category and a lifestyle category. The reason I tell you that, is you [had] a lot of these legacy brands close stores in Chicago or Denver simply because the treats category is a summertime thing. For us, our season starts Jan. 1, so we have a three-month selling season before those guys can start.”

Nékter sees that as a point of differentiation for itself in the juice landscape. Schulze said he thinks there’s a portion of the consumer population that gets the difference. He pointed to a successful location in Stockton, which had a Jamba Juice a few stores down that closed. A similar situation occurred in Redlands, and Schulze said Nékter has been able to take over the real estate of some of its competitors that have been forced to close.

“There’s a certain segment of society that understands it. When people are asked, if you think of Nékter, what’s your next brand that comes to mind? They’ll say Panera, Starbucks and then maybe a legacy [juice] brand,” Schulze said.

The company ranked 14th on a Business Journal list released earlier this year of the largest restaurant chains in OC, which counts fast-casual chains like Chipotle Mexican Grill Inc. (NYSE: CMG) and Taco Bell Corp., alongside casual dining such as BJ’s Restaurants Inc. (NYSE: BJRI).

Locally, Irvine-based competitor Juice It Up also has seen momentum so far this year. The privately held company doesn’t disclose sales, but said comparable sales have surged 48.1% in the first half of the year compared to the prior-year period with more than 100 locations open or in development.

Smart Growth

To keep customers engaged, Nékter is planning the release of a retail line that will push it into the consumer packaged goods space. The plan is to launch the line on Black Friday and have it sold in Nékter stores, as well as traditional grocers.

The line could become more important as the chain scales up to what company research has indicated could be a brand with locations totaling anywhere from 1,400 to 2,100, according to Schulze.

“For me, I think growth is not about speed; it’s about doing it smart and with the right partner,” Schulze said. “I think we’re getting there and I think we understand it. Penetration could be quite vast and we expect it to be based on the franchised interest.”

Not all business lines of the company are growing.

The five Nékter shops within Whole Foods stores have been given over to the organic grocer, or soon will be, to run the shop-in-shops so Schulze and team can focus on franchising.

“It was a good test,” Schulze said of the Whole Foods experience, which was launched in 2019.

However, with COVID, consumers are popping into stores quickly to grab what they need and go. They aren’t necessarily drinking coffee or juice while shopping, especially with mask mandates, he said.

PE, IPO Interest

Schulze, who remains majority owner of the chain with Alexis, said the two have been approached by private equity a number of times, but declined any potential deals.

“I’ve enjoyed what I’m doing and I think there’s a lot of room to grow,” he said of the reason why. “I think at some point, if the right person comes along, it would certainly be something we’d entertain. But we’re very profitable and we enjoy the day-to-day.”

Schulze added, on a similar note, his preference is to keep the business private.

“We’re getting a lot of pressure to go public,” he said. “I think an offering would be very exciting and very well received, but I’m more of the ilk of being a privately held company. That doesn’t mean it’s off the table. We’re going to be private and remain as it is unless something gets too convincing to turn our backs on.” 

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