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Jamba Grows Through Franchising

SBUX JMBA

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Consistent with its strategy of expansion through franchising, Jamba Juice Company, a subsidiary of Jamba Inc. (JMBA - Snapshot Report), recently announced the opening of a new franchised store in California. This new store marked the company’s fourth opening with franchise company, Bright Works Incorporated. John Anderson is the president of this franchise company and a highly experienced franchise operator.

The new Jamba store is located in Westfield Palm Desert Mall - a shopping mall in Palm Desert, a city located in the heart of the Coachella Valley. The mall offers a lot of choices for shoppers and this new store is located in the food court inside the mall and is expected to benefit immensely from its strategic positioning. We also expect great variety in menu offerings at the new unit that includes a vast variety of blended-to-order, fruit smoothies, fresh squeezed juices and juice blends as well as snacks, sandwiches, and beverages to attract guests.

The franchise company opened first two stores in Temecula, California and in 2011, opened the third Jamba Juice franchise store in Murrieta, California. It is  committed to the expansion of Jamba Juice stores in California. The franchise plans to open three additional units in the Palm Desert area and four in South Orange County over the next several years.

The state of California is located on the West Coast of the United States. It is one of the most populous and a widespread state in the U.S. California flourishes on its agricultural industry. However, there are other important contributors to its economy namely aerospace, education, and manufacturing. According to Businessweek.com – ‘if California were a country, it would have the 8th largest economy in the world’. The promising restaurant industry in this state is a major driving force to the U.S. economy. In 2012, total revenue from the restaurant sector in California is projected to be around $63.8 billion.

However, the market is not free from competition. Many of Jamba’s peers like Starbucks Corporation (SBUX - Analyst Report) and Caribou Coffee Company Inc. enjoy a comfortable position in California. Furthermore, a sluggish macroeconomic environment acts as another short-term deterrent.

The company plans to sign more franchise agreements in 2012, which in turn will help expand its brand in the U.S. market. The new openings help the company remain in sync with this strategy. In mid September 2012, the Jamba Juice opened a new store in Indiana with franchise company, Blended Blessings LLC. The franchise plans to open four additional units in and around Indianapolis, Indiana by 2016.

In July, the company signed eight new franchise development agreements that will broaden its presence in the central and eastern regions of the U.S., adding a total of 32 stores over the next five to seven years. For 2012, Jamba plans to open 40–50 new stores in the U.S. locations and 15 new stores internationally.

Jamba, currently carries a Zacks #5 Rank, which translates into a short-term ‘Strong Sell’ rating. Our long-term recommendation for the stock remains ‘Underperform’.
 

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