For having such a cold product, it was a really hot franchise…for awhile.
It wasn’t so long ago that Cold Stone Creamery founders Donald and Susan Sutherland were scooping and mashing up their flavorful concoctions with Oprah on one of her shows where she trots out her favorite things and all her audience members freak out becuase they take all these fabulous goodies home with them. Now, Cold Stone Creamery’s problems are being chronicled by the Wall Street Journal as a case study for bad business.
Franchisees complain of a flawed business model; misleading pro forma revenue projections; a glut of new stores opening too close to existing ones; being forced to buy expensive ingredients in too-large quantities from a single source; and extensive 2-for-1 coupon promotions that have further cut any hope for profitablility. They’re closing or attempting to sell their stores in droves.
No amount of communications will fix a flawed business model, but you’ve gotta wonder about how the corporate folks work with their franchisees – if they ever truly communicate, or they just cram down a bunch of rules and policies. I don’t consider having an “ombudsman” and “area developers”, as Cold Stone calls them, near enough. There needs to be a full-scale plan, a process for free exchange of ideas, feedback and deliverables and the sincere building of mutual trust and respect for one another, just on the most basic level.
Internal communications is one of the most thankless aspects of public relations, and it generally gets no budget allocation (if you think external PR is a cost center, try selling in an internal program, especially if there’s no merger or crisis on the horizon). Yet it’s the most important.
I’m sure there are franchise chains out there that are great at communications - we only tend to read and hear about the bad apples because they’re such good press fodder. Alongside business model, business plan and balance sheet, communications should be scrutinized just as carefully. Anyone looking to buy a franchise should talk with a several franchisees from different locations and ask them their opinion of how the company communicates, both with them and with their customers. Ask for samples that aren’t confidential from their franchise communications handbook (hint: if there is no such beast, you have a problem). Life’s too short to be miserable – and potentially broke. Check out some Cold Stone Franchisee comments here. Brrrrrr.
June 20, 2008 at 1:09 am |
Nice writing style. Looking forward to reading more from you.
Chris Moran
June 20, 2008 at 1:56 am |
I was on Yahoo and found your blog. Read a few of your other posts. Good work. I am looking forward to reading more from you in the future.
Tom Stanley
June 20, 2008 at 3:46 am |
Thank you very much. I’m just getting started here and greatly appreciate the encouragement!
June 24, 2008 at 12:32 pm |
In my opinion, from an investment standpoint, Cold Stone is a DISASTER!!!
They have very good ice cream, but that does not necessarily compute to a good return on investment. If I had a penny to invest in a franchise, Cold Stone would be very last on my list.
I am an Ex-Cold Stone Creamery franchise owner. I am currently suing the company in federal court for among other things: (1) fraud in the inducement (i.e. for selling to potential franchise owners based on statements such as “profit by making people happy” and “Cold Stone’s franchise opportunities are about as solid as they come”); and (2) Cold Stone effectively charges more than the 9% enumerated in their franchise agreement because they negotiate and receive “kickbacks” from the very vendors that they require franchisees to use. Those “kickbacks” drive up food cost for its franchisees and makes many of them unprofitable. This is apparent by the large number of stores that are closing down throughout the nation.
Cold Stone has known for years that its franchisees have had serious profitability issues, yet they go out and negotiate deals that make their franchisees even more unprofitable. In my view, there is something inherently wrong with a company that negotiates deals with vendors that increase the cost to their franchisees. Those deals effectively pad the company’s own profits at the expense of its franchisees who suffer life altering financial failures and many are filing bankruptcy at an alarming rate. In my opinion, that is completely contrary to their core value to supposedly “do the right thing”. Cold Stone’s lack of care and concern for their franchisee’s well being is inexplicably disingenuous in my view.
On its website, Cold Stone Creamery boasts its average store generates $381,985 in annual sales. We had three stores and they were performing well above the national average. Two of our stores did $500,000 each in annual sales, which is more than $100,000 above the company’s national average. We operated a store near a large college campus that was among the top Cold Stones in the entire nation. With $1.4 million in sales between the three stores–Cold Stone Creamery repeatedly recognized us as outstanding performers among stores throughout the nation and within our region. Even with such a large sales volume, we still could not earn a profit. This from a company that promised us 20% profits.
There are Cold Stone Creamery franchisees who are pumping several thousands into their stores each month just to cover their losses. One franchisee told me, after investing $300,000 to open his store, he is losing $4,000 to $7,000 per month. A franchisee in Florida recently told me that he lost nearly $132,000 in just one store during 2007. That’s alarming.
We are also suing Cold Stone for scuttling a sale to a potential buyer. According to this comment ( http://www.bluemaumau.org/a_recovering_cold_stone_creamery_franchisee ) we are not alone in that complaint.
I have absolutely no confidence in Kahala’s management. If Cold Stone is their flagship brand, in my opinion, you have to wonder about the genius of Kevin Blackwell (Chairman & CEO of Kahala Corp) and its decision to merge with Cold Stone. This I do know, Cold Stone has been an absolute nightmare of an investment for many of its franchisees–myself included.
Cecil Rolle
Tallahassee, FL
cecilrolle@aol.com
July 16, 2008 at 1:10 pm |
If the franchising company is in another state and selling you a franchise in a different state, then the franchise regulations in this state where the Franchisor is will not help you. Because State franchise regulation agencies are in place to protect the consumers and residents of those states only.
September 1, 2008 at 11:46 am |
There’s an interesting article about the factors to look at BEFORE buying a franchise at the Franchise Foundations website. The Cold Stone case is mentioned, as are other franchise company mistakes under the individual factors. You can find it at this link
The author, Mr. Franchise (google him) is a San Francisco franchise attorney, author, instructor and franchise expert. He’s the one who was the franchise expert in the Nagrampa v. MailCoups case, where the California 9th Circuit of Appeals threw out the franchise arbitration clause.
Sorry, the correct link for the Buying a Franchise evaluation factors article is this buying a franchise article
One thing the author, Mr. Franchise, points out is the attorney who traded her briefcase for an ice cream scoop in the Cold Stone case failed to research the l-e-a-s-e aspects before buying the franchise. While you or me might possibly make this kind of mistake – but an attorney? Like he says, it’s almost another bad attorney joke – except she’s not laughing. Paying back a $350,000 loan balance isn’t funny.