ICE CREAM FRANCHISEE’S CLAIMS AGAINST FRANCHISOR BARRED BY ONE-YEAR CONTRACTUAL STATUTE OF LIMITATIONS PERIOD IN FRANCHISE AGREEMENT
Scott Krumholz v. AJA, LLC and Emack & Bolio (January 13, 2010)
All of the claims brought by the Emack & Bolio’s ice cream franchisees against a franchisor were time-barred by the one-year contractual limitations clause in the parties’ franchise agreement. The franchisees filed their complaint against the franchisor on December 24, 2007. The franchisees alleged that the franchisor had fraudulently induced them to invest significant financial resources in their franchise. The alleged misrepresentations occurred during a meeting between the parties on December 14, 2002. The franchise opened for business in May, 2003, and by the end of 2004 it was clear to the franchisees that the costs of construction, equipment, and inventory were significantly higher than the amounts quoted to them by the franchisor and that their earnings had fallen far short of the franchisor’s projections. In light of those facts, it could not be reasonably contended that, at least by December 2006, after closing the store due to $800,000 in losses, the franchisee did not have notice of the alleged cause of the harm-the franchisor’s alleged gross misrepresentations.
Quiznos Franchisees Walloped by Recession
Franchisees claim High Costs, Lawsuits and Rivalry With Subway are contributing to woes caused by the economy.
While the recession and banking crisis have taken a toll on the entire restaurant industry, Emily Bryson York writes in Advertising Age that a number of Quiznos franchisees claim to have been disproportionately affected. Beset by higher-than-average commodity costs, lackluster marketing, a bruising promotional war with Subway and a premium-pricing structure incompatible with a tight economy, the chain has shuttered 150 stores this year.
It’s also embroiled in three separate class-action lawsuits in which franchisees allege, among other things, that the chain overcharges franchisees for food and other supplies. The suits are pending in Colorado, Illinois and Wisconsin.
"We can’t make money," said Quiznos franchisee Marty Tate, who said his Erie, Pa., store leads the region in sales. Mr. Tate, who is not part of the lawsuit, said 40% of his sales go directly into advertising, royalties and food for the next week. He added that three of seven locations in his county have closed in the past year. Mr. Tate said that when his contract expires next spring, he will open his own independent store.
Quiznos admits there are problems but said they are common to the restaurant industry as a whole. "Anybody who hasn’t noticed a change has their head in the sand," said Quiznos Exec VP Rich Emmitt. "Consumers are reticent to open their pocketbooks, and the consumers have become much more keen on making sure that what they are purchasing is a value purchase."
AAFD Suspends Accredited Contract Status for Cuppy’s Coffee
The American Association of Franchisees and Dealers (AAFD) announced today that it has suspended its recognition of Cuppy’s Coffee and More, LLC as an AAFD Accredited Contract recipient, pending a determination of the Association’s Board of Directors that AAFD’s Accreditation of the Cuppy’s contract should be withdrawn.
In an Email to Cuppy’s CEO, Dale Nabors, AAFD Chairman Robert L. Purvin stated, “Due to the serious allegations that have been raised [regarding Cuppy’s failure to honor various contractual commitments], and your apparent decision to cease our communications, I have determined to suspend your Accredited status with the AAFD pending consideration and action of the AAFD Board of Directors.”
In a formal notice being delivered today to Cuppy’s Coffee, Purvin added, “In that the AAFD Board of Directors next meeting is set for September 4, 2008, I am acting to immediately to suspend Cuppy’s Accredited Contract status pending action of the AAFD Board. I am causing this action to be published on the AAFD Website, and to appropriate media. All listings of Cuppy’s Coffee will forthwith be removed from the AAFD Website, and we are instructing Cuppy’s management to remove all references to the AAFD from its Website and franchise marketing literature.”
Cuppy’s earned AAFD Accredited Status in May of 2007 in an admitted effort to reinvent its corporate personal and ‘arise from the ashes’ from legal and economic difficulties of its predecessor brand, Java Jo’z.
As part of its commitment to collaborative franchising practices, Cuppy’s adopted a new franchise agreement that substantially complied with the AAFD’s Fair Franchising Standards and further agreed to support the formation of an independent franchisee association, to collaborate with the development of a purchasing cooperative to be jointly owned by Cuppy’s and its franchisees, and to submit claims and disputes to mediation upon the request of any party.
In February of this year, the AAFD became aware of several claims that Cuppy’s or its affiliate, Elite Manufacturing, was not honoring promised construction deposit refunds. The AAFD commenced a publicly announced investigation of these ‘refund’ claims, including tracking some 22 refund demands that had been made between October, 2007 and April 2008. The AAFD reported that if it was determined that Cuppy’s was not honoring the provisions of its Accredited Contract that the AAFD would act to suspend or withdraw AAFD Accredited status to the company.
The AAFD was able to confirm that 18 claims had been resolved in a commercially reasonable fashion, and four claims were disputed. Cuppy’s issued a public statement of its intent to honor its contractual commitments, and to submit disputed claims to mediation through the AAFD. Through April, Cuppy’s fully cooperated with the AAFD’s investigation.
In April, 2008, Cuppy’s was sold to a new management team. The AAFD was subsequently advised that the company would abide by all written commitments, but that any oral commitments, including publicly acknowledged commitments to promised initiatives regarding an owners association, the purchasing cooperative and to mediate claims and disputes would be subject to further review.
Between July 15 and August 5, the AAFD became aware of a new series of complaints that Cuppy’s and/or Elite Manufacturing was not performing promised build outs of franchisee storefronts. Some claimants contended that they had been waiting for promised construction for months (and in some cases for more than a year), during which time the claimants were unable to open for business but were bound to pay rent on their premises. Around this time, the AAFD also learned that Cuppy’s had been sued by its retained general contractor for non-payment of construction invoices.
Despite diligent efforts of the AAFD to complete its investigation and to gain Cuppy’s fulfillment of promised initiatives with its franchisees to avoid sanctions from the AAFD, Cuppy’s new management has ceased to be cooperative, and since June 12, 2008, Cuppy’s has not replied to repeated invitations from the AAFD to respond to this new waive of complaints and allegations.
Mr. Purvin added that it is still not too late for Cuppy’s to avoid ultimate consequences by the AAFD. Said Purvin, “Our purpose remains to inspire fair contracts and collaborative relationships, and we are open to negotiating and mediating effective relief for all Cuppy’s franchisees in a manner that will effect restitution from injuries and will allow Cuppy’s Coffee to achieve the corporate goals set by new management upon its acquisition of the company.”
Purvin added, “The path to a successful resolution of the Cuppy’s quagmire is through communication, negotiation, collaboration, and if necessary, mediation. The path to certain destruction is to ignore the problem and face an inevitable and costly litigative path.”
An Insiders View on Why eBay Franchise Drop Stores Failed
Scott Pooler, a former official eBay Trading Assistant, and a master franchise representative for an eBay drop store franchise chain weighs in on the subject of franchising and stand alone eBay drop stores in Trading Assistant Journal, a weblog that provides news and commentary for eBay consignment specialists.
Scott’s experience on both sides of the fence reveals certain truths, and since he was at one time a proponent of the franchise model, his views are helpful to anyone considering the purchase of a new franchise eBay drop store or opening one on their own. These views are Scott’s opinion and do not reflect upon eBay any eBay franchise drop store chain in particular or upon eBay consignment as an addition to any other type of business.
His views regarding the stand alone drop store franchise model and why it has failed are worth reading.
Hot Franchise Trend Cools Off
In 2005, meal assembly shops were the hottest trend in franchising. But not anymore.
Dee Gill write in the New York Times that in 2005, meal assembly shops were the hottest trend in small business and franchising, a concept taken on with gusto by mom-and-pop entrepreneurs. In storefront and shopping-center kitchens nationwide, they sold millions of uncooked entrees in freezer-ready Ziplocs and to-go tins, with stick-on instructions for boiling, simmering, baking or stir-frying the contents into quick dinners at home.
The concept boomed, as the number of stores mushroomed from four in 2002 to 1,400 in 2007, almost exclusively by catering to women who wanted to provide home-cooked meals for their families, according to the Easy Meal Preparation Association.
The customers placed their orders online days ahead, paid about $200 for 12 meals and donned store-supplied aprons to personally assemble each dish at the site one or two times a month. They adjusted the recipes to their families’ tastes, maybe leaving the chopped onions out of the enchiladas. They often came with friends, sipped glasses of wine as they worked and treated the two-hour assembly sessions as guilt-free nights out.
The loyalty of these wives and mothers landed meal assembly companies on various lists of top franchises and hot new businesses throughout 2005 and 2006.
But growth in the industry has slowed sharply, long before reaching expectations. Industry revenue, which two years ago was forecast to reach $1 billion annually by 2010, is now projected around $650 million by then, said Bert Vermeulen, an industry consultant and founder of the easy meal association.
Some 264 meal preparation stores closed during 2007, Mr. Vermeulen said, more than three times as many as in the previous year. He forecasts fewer than 50 openings in the United States this year, compared with 562 in 2006.
Read More: It’s on to Plan B as a Hot Trend Cools Off
Will this evolution save the Meal Assembly business?
It was announced in Convenience Store News that Dinner by Design, a meal assembly chain based in Grayslake, Ill., has unveiled a new package of convenience services that the company expects will change the easy meal prep industry.
Specifically, Dinner by Design’s new services include:
- Delivery services that allow people to preorder entrees and side dishes and have them delivered to their company, daycare, school or other organization. Based on a test marketing effort, the company already has more than 300 group delivery clients nationwide. Home delivery will be unveiled and tested in one location in mid-March.
- Pick Up meals for busy people who don’t have delivery service. Take & Bake entrees, desserts and side dishes are premade and can be picked up anytime during expanded business hours. Orders can be placed online, e-mailed, faxed or phoned in.
- Dinner Tonight selections geared for people who need something for dinner without defrosting time. This service helps meet the needs of nearly 37 percent of people who don’t think about dinner until just before preparing it, the company stated.
- Group delivery, Pick Up service and Take & Bake selections are already available and operating successfully at most locations nationwide. Dinner by Design has nearly 60 kitchens open, and agreements for another 40 locations in the U.S. and Canada.
“This is the wave of the future,” president and CEO John Matthews said in a company statement. “This new business model has been very attractive to existing and potential franchise owners alike. We anticipate that the new meal assembly model will mean added growth for Dinner by Design owners and operators.”
It may be a move in the right direction, though I am always concerned when a franchisor introduces a whole new program before the program has received proper testing. I think the move is indicative of the fact that the industry is failing to provide an ROI to franchisees, and is scrambling to come up with a new business model that can deliver profits.
The challenge with this approach is that it may require additional investments by the franchisees to implement. You wonder if that is just like putting more “good money, after bad money”.
‘Seinfeld’ Soup Nazi Franchises Troubled
SoupMan Bid to Turn ‘Seinfeld’ Fame Into Empire Goes Off the Boil
David B. Caruso, Associated Press reports:
The chef who inspired the Soup Nazi character on “Seinfeld” makes a heck of a crab bisque, but a group of stewed investors says he’s having problems expanding his popular stand into a franchise empire.
Soupmaker Al Yeganeh closed his original Manhattan shop, famous for its strict ordering rules, in 2004 to focus on franchising Original SoupMan stores across the country. The company launched around 40 stores in its first two years and introduced its frozen soups to groceries.
But disgruntled franchisees say many of the new shops didn’t make it through their first year: At least eight have closed for good. Two more have shut their doors for now, although the company said it has deals in the works to reopen them.
Other franchisees told The Associated Press they want out of their contracts because of poor profits or bad relationships with the company. Several have sent the company letters threatening to sue.
Kevin Long, whose Original SoupMan franchise in Scranton, Pa., lasted just one winter, accused the company of misrepresenting how much it would cost to open and run the business.
He and other franchisees said the company also had early problems with its bowl and cup sizes, which were larger than expected and inadvertently gave patrons more soup than they paid for, and never lived up to promises to provide a product line that would sell during the summers, when demand for hot soups is low.
“They are just trying to get as many stores open as possible, and they aren’t supporting them whatsoever,” Long said.
Prices of $7 to $11 per 12-ounce bowl also made it tough to attract repeat customers, he added.
At least three stores have closed, at least temporarily, in New York City. Shops also have shut in Myrtle Beach, S.C., Harrisburg, Pa., Boulder, Colo., Colorado Springs, Colo., and Ottawa, Canada.
Franchisees in locations including Stratton Mountain, Vt., and Ridgewood, N.J., have asked to be released from their contracts so they may try staying open as a different type of business.
Original SoupMan spokesman John Rarrick chalked up the store failures to the normal “growing pains” associated with any new restaurant franchise.
“This is very common,” Rarrick said.
Of the struggling stores, he said, “They were really pioneers, and certainly there are risks associated with being a pioneer.”
Rarrick said the company had fixed the problem with the bowl sizes, abandoned an early idea of having most of its franchises operate as inexpensive carts and kiosks and struck a deal with Cold Stone Creamery that will create hybrid stores that will sell soup and ice cream.
He added that the soup company had delayed a plan to open 50 franchises in Britain while the it refined its business model.
“There are some really happy, really successful franchisees,” he added.
Original SoupMan opened its first stores in 2005, simultaneously capitalizing on and distancing itself from the “Seinfeld” episode that made Yeganeh famous.
On the show, a steely eyed chef makes his patrons follow a strict set of instructions dictating how they must order their soup, and he barks “No soup for you!” at those who fail to comply.
In real life, Yeganeh’s Manhattan store had similar rules posted: “THE LINE MUST BE KEPT MOVING. Pick the soup you want! Have your money ready! Move to the extreme left after ordering!”
Yeganeh, though, chafed at the Nazi nickname, which he felt insulting, and has discouraged his franchise owners from mentioning “Seinfeld” or saying “No soup for you!” on the job.
Quiznos suit alleges ‘Ponzi scheme’ actions
Blue MauMau: Justin M. Klein, lead attorney for the U.S. class-action suit against the Quiznos sandwich chain, has stated in the complaint that franchise-agreement terms are “extremely one-sided in favor of Quiznos.” If a location cannot be secured, Quiznos then threatens termination due to the franchisee’s failure to open a store within the time period.
Blockbuster’s CEO Gets Booted
Blockbuster the video store franchisor announced that CEO and Chairman John Antico was replaced on Monday, ending a reign that was frequently criticized by the billionaire investor, Carl Icahn.
See: Forbes.com
James W. Keyes is the company’s new Chairman and Chief Executive Officer. Keyes previously served as president and chief executive of 7-Eleven.
Under Keyes’ leadership as president and CEO of 7-Eleven from 2000 to 2005, the franchise company experienced record sales and profits and implemented new retail systems technology that improved product assortment decisions in every store. He also ushered in a new era for 7-Eleven through the introduction of a host of new electronic services, which helped the convenience-store chain become as well known for its cutting-edge use of technology as for Slurpees®. Additionally, he collaborated with manufacturers across all merchandise categories to develop new products, enabling the company to introduce as many as 50 new items each week in advance of the competition. When Keyes retired upon the sale of the company in 2005, 7-Eleven had produced 36 consecutive quarters of same-store sales increases and had some 6,000 franchises and company-owned stores in the U.S. and Canada with 30,000 stores worldwide.
Icahn has been loudly critical of Blockbuster and Antioco since taking a significant stake in 2004. As of March, Icahn owned 11.5 million Blockbuster shares, or about 9.6% of those outstanding. Icahn blamed Antioco for failing to acquire rival chain Hollywood Entertainment and for spending too much capital on its online division.
Icahn who is now a member of the Blockbuster board of directors, voiced his support for the selection of Keyes. “Jim is results-oriented, strategic and able to identify practical, yet highly creative solutions to complicated business problems,” Icahn said Monday.
iSold It announces that it has troubles in an open letter to franchisees
David Crocker, Sr. Vice President of Marketing and Business Development for iSold It, LLC has posted on Blue MauMau an open letter to iSold it franchisees from Chief Executive Officer Ken Sully.
The iSold It franchise opportunity has been named “Hotter than Hot” and the “Best New Franchise for 2007″ by a leading national magazine. However, a letter currently circulating the Internet indicates this American Dream may have become an entrepreneurial nightmare.
Mr. Crocker stated, “In the letter, it says that we are considering litigation, reorganization or liquidation.” Regarding a time frame to declare bankruptcy, he commented, “I cannot comment on when any liquidation might occur.” When asked whether the eBay drop off store model works, he said, “The model works for some and doesn’t work for others. There are stores that are profitable.”
Jim Coen, Mr. Franchise
I have learned franchising from the ground up. I’ve been a franchisee for a bad franchisor. I’ve worked for good franchisors and I’ve worked for marginal franchisors. I’ve helped many franchisees succeed.
I provide a consulting process that saves you time and money in your franchise search and provides you with the tools to make the right choice for you and your family.
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