- Aussie Pet Mobile (consent order)
- Bio Performance, Inc (Petition for Temporary Restraining Order, Temporary Injunction and Permanent Injunction
and Asset Freeze) - Candy King (permanent C&D, administrative fine of $25,000 against Candy King and $7,500 against Gladstone, Candy King barred for five years from offering biz ops in Connecticut, Candy King must offer rescission for approximately $100,000 to affected Connecticut purchaser investors, Gladstone barred for five years from acting as an officer or director of any entity selling biz ops in Connecticut)
- Coffee Beanery Ltd (consent order)
- Coffee Heaven (final order to cease & desist)
- Daily Grind (agreement)
- Garagetek (summary order revoking registration - New York)
- GNC (consent order)
- KaBloom (consent order)
- Lady of America (order to show cause)
- Pet Products Delivery
- Regal Nails LLC (Stipulation and Agreement, payment of $3,000 fine for unregistered business opportunity sales in Connecticut)
- Tax Recovery Group (permanent C&D from sales of unregistered tax service biz ops and notice of intent to fine issued)
Trench warfare in the franchise field
Tish Reisman has sunk $300,000 into her Rita's Italian ice franchise -- with no profit so far.
Eilene Zimmerman writes at CNNMoney.com that even in good times, the relationship between franchisors and their franchisees tends to be fraught. Toss in an economic downturn and things get downright nasty. Iconic brands are facing revolts in the trenches from owners fed up with their corporate parent.
Later this month, a Los Angeles jury trial will begin on a seven-years-old and still festering fight between UPS (UPS, Fortune 500) and a group of disgruntled franchisees of Mailboxes Etc., which UPS acquired in 2001. Quiznos recently settled a class-action lawsuit with its franchisees, while Burger King remains mired in a court battle with store owners over a $1 promotion for double cheeseburgers that cost more than a buck to produce.
Garth Snider, president of FranchiseOpportunities.com, a site that advertises franchises for sale, says the level of complaints by franchisees and franchisors alike “is commensurate with the hard economic times we’re experiencing. This wasn’t an issue three or four years ago, when there was plenty of money to go around, because franchisors weren’t looking to be as aggressive with their pricing.”
When margins are razor-thin and sales slip, disputes are more likely to blow up into major skirmishes. The Quiznos fight featured complaints that Quiznos forced franchisees to buy food and supplies at inflated prices while setting retail prices so low that store owners couldn’t make a profit. Discounts — like those Burger King offered on its double cheeseburgers — are another flashpoint. T.G.I. Friday’s had a small war with its franchisees last year over a two-month promotion that slashed sandwich prices to a money-losing $5 each.
“It’s the divergence between generating volume by forcing your franchisees to charge lower prices and the net effect of that on the actual business owner, who still has to pay the same royalty and the same price for goods,” says Justin Klein, a partner in Marks & Klein in Red Bank, N.J., and lead attorney for the Quiznos plaintiffs. “Essentially, it still costs you $5 to make the sandwich but you’re forced to sell it at $3.95.”
The pressures come on all sides. One of Klein’s current franchisee clients is being forced by its parent company to extend operating hours — even if those extra hours aren’t profitable. “Forcing them to stay open longer means they have more employees there,” he says.
Life in the trenches
Tish Reisman, owner of a Rita’s Italian ice outpost in Tampa, Fla., is facing many of the typical franchisee frustrations. She signed with the Trevose, Pa.-based parent company in June 2007, paying $65,000 for a two-store agreement. Reisman grew up in Philadelphia and had a fondness for Rita’s. She believed that in Florida “Italian ice would be a no-brainer.”
The first store opened in March 2008. The problems began just six months later.
A competing Rita’s opened five miles away. A corporate marketing campaign required her to stand in front of Wal-Mart and Kmart stores handing out coupons, sucking up time and resources she couldn’t spare. Rita’s requires her to sell every new flavor it introduces for 24 days — even if it tanks.
“In November, I had to sell caramel apple, which I was throwing away every two days,” she recalls. Rita’s projected waste from introducing new flavors is 7% and Reisman was given credit for that, but her actual waste was closer to 22%. “It would have been better if I could have decided what flavors would sell, rather than being forced to sell all of them.”
Reisman lost $86,000 the first year she was in business and hasn’t been able to afford to open her planned second store. She’s sunk more $300,000 into the franchise. A single mother with four children, Reisman is worried about bankruptcy.
Read more at: CNN Money
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.
Franchise Statistics Debunked Again!
- A 1999 Study by the United States Chamber of Commerce found that 86% of franchises opened within the last 5 years were still under the same ownership and 97% of them were still open for business.
- A U.S. department of commerce study conducted from 1971 to 1997 showed that during that time less than 5% franchise businesses were closed each year. Compare that to a U.S. Small Business Administration study conducted from 1978 to 1998, which found that 62% of non-franchised businesses closed within the first 6 years of their existence due to failure, bankruptcy, etc.
- In 2000, the median gross annual income, before taxes, of franchisees was in the $75,000 to $124,000 range, with over 30% of franchisees earning over $150,000 per year.
- US Department of Commerce/Industry and Trade Administration and Future Small Business in America Study says Franchises have a 90% success rate.
- Compare that to a U.S. Small Business Administration study conducted from 1978 to 1998, which found that 62% of non franchised businesses closed within the first 6 years of their existence due to failure or bankruptcy.
Jean Samper writes an enlightening post in Franchise Key International called The myth of guaranteed success in franchising. In summary, Jean says, in franchising, no method, or magic formula can guarantee success.
No doubt that a good franchise systems can reduce risk, speed up success, and help franchisees avoid the mistakes of others.
But not all franchises are created equal.
If franchising means uniting a concept that has been successful and a dynamic and brave franchisee that has the right profile for the job and who has the right financing, the chances of success can be incredibly high.
Here is the danger, a bad business model will not be saved by franchising it.
There are a number of brokers web sites out there that are publishing statistics about the success of franchising, what those brokers should be touting is the success of the business model they are representing.
Let’s stop wondering if franchising is a good formula. Let’s concentrate on whether the business model is sound, if the franchisor is legitimate and if the franchisee has the right profile.
Here are are some of the bogus statistics out there on broker web sites:
- Here are some of the web sites these bogus statistics can be found:
http://www.franchisenext.com/inner/faq.htm
http://www.gbizchoice.com/page/page/2765698.htm
http://www.smartchoicefinancial.net/franchise/statistics.html
http://dearbornwest.com/_wsn/page4.html
http://www.stonebridgebusinessadvisors.com/franchising.html
http://freefranchiseconsultant.net/FRANCHISE_STATISTICS.html
http://franchise-sales-net.com/franchise_facts_and_statistics.asp
http://www.careerpotential.com.yourtempsite.com/articles/franchising-information.html
http://www.franchiseindustries.com/franchise_industries_franchises_for_sale_statistics.html
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.”
Can You Profit as a Franchise Pioneer?
Buying a new, unproven franchise can be a high-risk venture. Professional advice can help minimize the gamble
Douglas MacMillan reports in BusinessWeek that in 2005, business partners and first-time franchise operators Karen McGinn and Gene Bowen bought an iSoldit an eBay drop-off franchise and opened it in a storefront on a busy street in Woodstock, Ga., about 30 miles from Atlanta. At the time, the Solana Beach (Calif.)-based franchisor, which also lists items on marketplaces such as uBid and Amazon, had a novel concept, but it would soon spawn its share of imitators in pursuit of its promising, untapped market: people who want to sell their stuff but don’t want to go online to do so.
For McGinn and Bowen, starting an iSold It was relatively inexpensive—about $150,000 to get a store up and running, compared with the $500,000 to $1 million price tag of the average McDonald’s. Plus, the pair says company executives told them in person and in conference calls that their stores would be profitable within three months of opening. ISold It Chief Executive Officer Ken Sully denies that any iSold It representative made earnings estimates.
The pair says it never turned a profit. “The problem is, the whole concept doesn’t work,” says McGinn. Having to auction off a wide variety of items on eBay made it hard to compete with sellers who specialized in one category, she says. To make matters worse, each new drop-off store that opened was a new source of competition, since most buyers shop online, not locally. Instead of earning money, the pair ended up spending $1,500 to $3,000 a month to keep the business going.
Long Odds, Lots of Competition
And finally, when they replaced iSold It’s software system with a new system—citing its unreliability—the franchisor terminated their franchise agreement explaining they had violated its terms. The process took less than seven months, and the pair estimates it spent between $300,000 and $350,000 in total—including fees for legal counsel.
Few franchisees fall as hard or as fast as McGinn and Bowen did, but their story could serve as a warning for prospective franchisees who assume that a new franchise is a sure bet.
There are more new franchise opportunities than there were just a few years ago, increasing the odds of picking a concept that doesn’t work out as expected. According to Arlington (Va.) franchise industry researcher FRANdata, the number of businesses that submitted franchising applications more than doubled between 2003 and 2005, from 208 to 521. Last year, that number dropped to 394.
Read more: Can you Profit as a Franchise Pioneer?
Meal Prep Industry Fizzling
News Video Highlights Slowdown in Texas Meal Prep Franchises
NBC 5 in the Dallas/Fort Worth did a segment on their evening news about the meal assembly franchises in the Plano Texas area: Meal Prep Industry Fizzling
The segment reported: After a boom in the business of helping busy people make homemade meals, the idea is beginning to fizzle out. Dinner-assembly frasnchises like Super Suppers opened all over North Texas, and now some are disappearing. “I think the idea of meal assembly got oversold quickly,” Super Suppers franchise owner Elizabeth Fletcher said.
Three weeks ago, there were five different meal assembly stores in Plano. Even the Meal Prep Association said that many was pushing it. The latest to go is one of Super Suppers’ first franchises. “We’ve seen some of our competition come and go,” At Home Dinners owner Kevin Anto said.
The owners said that competition and time consuming work got to them. Super Suppers stopped opening franchises in North Texas. “They don’t even want to stop by and pick up their meals,” Fletcher said. “They want it delivered to their home.”
It’s a time of transition for the industry, but owners said they’ll survive because they have a product everyone needs. “People eat dinner every night,” Dinner My Way franchise owner Karen Scholl said. “It beats the fast-food restaurants, and it beats the frozen entrees.”
See the Video: 5NBC
The Reality of Franchising
I was on the Franchise Pundit Discussion Board and came across this posting, it is one of the more honest and cogent explanation
of what its like to be a franchisee I have ever read. It was posted by a guest that used “A Franchisee” as
their moniker. I received permission from “A Franchisee” and the Franchise Pundit to share it with you at “Let’s Talk Franchising” Thank You, “A Franchisee” and The Franchise Pundit!
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« on: May 03, 2007, 08:58:15 AM » |
Project Fal$e Hope$
Project FAL$E HOPE$ is a state and federal (FTC) sweep by regulators and law enforcement agencies targeting bogus
business opportunities and work-at-home scams. We’ve all see the bogus ads for quick money making opportunities (”Make $5,000 week from home working only 10 hours per week!”).
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This state enforcement list from the State of California points out the franchisors who violated various state fraud and securities regulations. Some of these names are a surprise:
Franchise Fraud Imported from Canada
Don’t buy a franchise from this Canadian man!
The investigative television show W5 has a undercover expose about Reza Solhi (shown to the left) and his merry band of franchise bandits, CTV.ca Taking Your Dough.
Mr. Reza Solhi is depicted as a one man wrecking show, bilking new Canadians out of hundreds of thousands of dollars. A partial list of those judgments can be found at www.anthonysfranchiseinformation.com.
Watch out he’s trying to operate in the US!
Read When Gate Keepers Fail blog entry on BlueMauMau posted by the Michael Webster attorney representing some of Mr. Solhi’s victims (Mr. Webster is the lawyer shown in the video representing some of Mr. Solhi’s victims.)
SuperCoups Uses Fuzzy Math in Entrepreneur 500
In Entrepreneur Magazine’s recent Franchise 500, SuperCoups cooperative direct mail franchise is listed at #382, even though they dropped from #247 the previous year, they had still increased the number of franchises from 231 to 287, or did they?
In Entrepreneur Magazines’ print edition there is a footnote that reads: SuperCoups 2006 units affected by new definition of territory size from 80,000 households per unit to 60,000 households per unit.
It appears SuperCoups redefined territory size so as to inflate the number of franchise units. A 25% reduction of territory size resulted in a 24% increase in number of units.My math reveals that in 2005 they had 231 units at 80,000 households which equal 18,480,000 households, in 2006 they had 287 units at 60,000 which equal 17,200,000 they actually dropped 1.2 million households. Is that what they are trying to hide?
In the online edition of Entrepreneur Franchise 500 there is no mention or footnote of the change, yet it represented that SuperCoups has over 425 franchise units (even though it only lists the number at 287). Even Entrepreneur Magazine is confused by SuperCoups fuzzy math.
I’ve been involved with SuperCoups for over 20 years, in many different capacities. For the last 15 years I’ve worked for the largest franchisee of Super Coups, that mails 2.5 million households (SuperCoups calculates that this franchise contains 41.6 franchise units).
Press releases found on the SuperCoups website reveal that they added two franchisees in 2006 (not even close to the 56 their fuzzy math created).
Because of this new definition in territory size they were listed as #80 in Entrepreneur Magazines Fastest Growing Franchises. This distinction was awarded to SuperCoups by selling only 2 franchises? Being on Entrepreneurs Fastest Growing Franchise list should require more growth than 2 sold franchises, or am I missing something?
There are some legitimate fast growing franchises listed on Entrepreneur 100 but SuperCoups doesn’t belong even with its fuzzy math. I’m sure Number 101 (which doesn’t appear on the list) sold more franchises then SuperCoups.
Maybe SuperCoups really grew in envelopes mailed? I investigated that and came across an article that appeared in Direct in 2000 Super Coup for Super Coups where then President and COO Don McKenzie stated ”The company drops 75 million envelopes across seven mailings a year to 12 million unduplicated households, claiming 35% growth.”
On its website Super Coups claims: “Presently, SuperCoups mails nearly 65 million envelopes across 19 states and Puerto Rico and continues to sell franchises across the United States.” Well rapid growth certainly isn’t happening in envelopes mailed according to their own statements, in 6 years they have lost 10 million envelopes. By the way SuperCoups no longer has a franchisee in Puerto Rico, does fuzzy math now extend to fuzzy claims?
SuperCoups, is a wholly owned subsidiary of ADVO. Advo is one of the nation’s leading direct mail media company, with annual revenues of nearly $1.4 billion. Advo is being purchased by Valassis you may remember that in August 2006 Valassis sued Advo to stop the acquisition. Valassis tried to rescind its offer to merge charging that Advo misrepresented its financial status. Earlier this month it was announced that Valassis and Advo had agreed to merge with revised terms.
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.
Call: 617-469-3002
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