COLD STONE CREAMERY: Ex-Franchisee’s Scathing Indictment
July 31, 2008 by Sean Kelly
Filed under COLD STONE CREAM., xBuyer Beware
(FranchisePick.Com) …this “golden child” of the ice cream industry continues to go undetected in their ruthless business practices, their flawed business model and their total disregard for the profitability of the franchisee.
If you are thinking about buying a [Cold Stone Creamery] franchise - DON’T DO IT!!!
J.B. Montgomery, ex-franchisee, from his Cold Stone Creamery complaint at Unhappy Franchisee
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Over at Unhappy Franchisee, a reader named J.B. Montgomery has left a scathing indictment against Cold Stone Creamery and Kahala Corp., alleging that he is an ex-franchisee victimized by franchisor “churning.”
In franchising, the term “churning” refers to the practice of reselling the same failed franchise or territory over and over for profit. It’s about as serious an allegation against a franchisor that can be made.
J.B. Montgomery alleges that he tried to sell his Cold Stone Creamery franchise, but each time he found a qualified buyer Cold Stone Creamery execs would find an excuse not to approve them. When Montgomery was finally forced to close his doors, it took Cold Stone less than two weeks to resell his failed store for a $42,000 profit.
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Good for Montgomery who tells of his bad experience with Cold Stone Creamery, and tries to warn others.
This kind of malicious treatment of franchisees is common in franchising because franchisors are subsidized by the FTC Regulatory Policy and the FTC Rule and State FDD’s that gives franchisors a blank check to lie, cheat, and steal under the law.
If franchisors like Cold Stone, Quiznos, The UPS Store, Coffee Beanery, and many others had to disclose UNIT performance statistics to new buyers of franchises, they couldn’t get away with the abuse and fraud they engage in on a routine basis. Because of regulation, they are able to withhold material information that should be disclosed to new buyers of their proven franchises.
We buy nothing of value in this country under contract where the seller doesn’t have to disclose MATERIAL information to the buyer —-except FRANCHISES.
Obviously, there hasn’t been a time in 30 years where the government has felt that franchising could survive “true disclosure” of the risks of the investment to new buyers because franchising is government’s solution to the lack of good jobs in the economy.
VooDo Economics and Greed and captured regulators all come into play when we look at franchising. Once franchisees sign the adhesory contracts wrapped in a government disclosure document, the franchisors know that they are home free in the courts. And, as Les Stewart of Franchise Fool indicates, litigation by franchisees against franchisors is like trying to “revive a corpse.” The deck is stacked and wrapped in contract law.
Do you believe, Sean, that franchising could survive the mandated disclosure of unit financial performance statistics to new buyers? Where are Americans going to work in the future? Is franchising REALLY the answer to good jobs in our economy and should franchise jobs be increasing in our economy? Should franchisees be sacrificed under the subsidy of dishonest regulatory policy to protect franchisors and the jobs they produce?
Rod, above, who spent a good deal of his life in the service of the law was a victim of what looks like common, ordinary fraud, when he purchased a L&W franchise. He fought back and was rewarded with a “restraining order” and a $10,000.00 bill from a member of the BAR who knew his client, the franchisor, was protected by the boilerplate franchise agreement, the contract, that gives franchisors the right to lie, cheat, and steal under the law, as long as they get your signature on that contract.
Rod was “terminated” and his franchisor thought that would be the end of him. They now had $80,000.00 of his hard earned and hard saved money as a public servant and “now, he would shut up and go away.”
In White Collar Crime, so often the “criminals” use the letter of the law like a fully loaded gun to silence their victims and maximize their profits. Only, when the media tells the public what is going on is there any outrage and action taken by government. So often, the white collar criminals sit close to the power structure of the country that appear now to control the media, who have to consult with their Corporate Boards to report the truth to the people.
The power of the Press to preserve our freedoms has not helped franchisees who have been BLEEDING for years, even in the Halls of Congress. It is because it is ONLY the franchisee who bleeds under the business model of franchising, and who is generally silenced in failure, that franchising has been so successful for franchisors and the other interested parties.
In franchising, the franchisor has immediate access to the Courts and can close the franchisee down almost immediately with an injunction from the Court if the royalties aren’t paid —even when the franchisee has been operating at a LOSS for months. He can then just take over the franchised unit and its assets for almost nothing, if the franchisor thinks this is in his best interests.
The great imbalance of power in this exploitive relationship is supported by the rule of law, process and procedure that has produced 30 years of case law and a “stacked deck” wherein franchisees can expect always to get a lousy deal. In their absolute power and protection, franchisors have become bolder and now we see more exploitation and fraud in the industry. The sweet smell of success of the so called good franchisors is overcome by the stench of the bad franchisors out there.
Congratulations to Rod, who wasn’t silenced and who tried to get law enforcement agencies to look at the fraud that he felt that he could prove to law enforcement agencies. Guts and courage and the perseverance of one who knows he is right is admirable and representative of the American spirit and of our good police officers and officials who protect us under the rule of law. How shocking this must have been to Rod who worked for law enforcement!
Rod knew that he was the good guy and he had the courage and the guts to fight back but then discovered the hard way that the “system” was protecting the bad guys. Strangely, their “theft” was legalized.
Congratulations to JB, a former CSC franchisee, who is trying to help others by telling his story to the public. JB thought this through and examined his own conscience before he went public with his scathing inditement of CSC and their mistreatment of him. JB discovered the “dark side of franchising” the hard way and had the courage to witness to others who might be saved from the financial and emotional devastation of a failed business.
The FTC investigates only 6% of the complaints it gets and the other complaints are filed. The State Attorney General Offices are not funded to regulate franchising, and the fraud of selling unviable and unprofitable franchises to the public continues because of the original sin of taking franchisors out from under the jurisdiction of the states for common law fraud offenses.
What is the purpose of little FTC statutes if they cannot be accessed in actual practice (because of the FTC Rule} to prosecute common law fraud and to provide a private right of action to victims who are, by the thousands. being fraudulently induced to contract with immunity and impunity under our laws?
Is there a solution? Wouldn’t the “unit performance statistics” and mandated “earnings claims” slow down some of the franchisors? Shouldn’t franchisors be subjected to truth in advertising laws and other constraints of the law before they are allowed to sell their franchises to the public.
Shouldn’t prospective buyers have material information provided by the franchisors on which they can access the risks and the rewards of the investment before they sign their due process rights away in a binding long-term adhesory franchise agreement?
Carol
This is not new to the Cold Stone Creamery corporation. They want to put franchisees in these stores at 1/8 the cost and when they make a profit it’s a success on thier part. “Look, we managed to find a franchsiee who can do it, why couldn’t you?” What a joke. I hope that others who are looking for the mom and pop ice cream parlor look elsewhere. Cold Stone has no innovation, just pre made pre frozen cheesecakes coming into thier stores and they are forcing thier franchisees to sell them at a 40% or more COG. I dare anyone, as I did to go into any Cold Stone shop and speak to the owner. That will be the person helping you to try and cut some costs. As them what it costs them to sell thier $10 cupcakes. ($4.30)After royalites and advertising, rent and expenses and labor and promotion they take only 5% of the sales and that I can only imagine has some other small business hidden costs.
They look to the franchisees for ROI, but when they price set to move thier product, it’s really upsetting to the franchsiees who signed on for premium ice cream. Let them blame it on the recession, Cecil Rolle, everyone really knows what’s going on and you don’t need to be a franchisee to see it. All you have to do is serch the internet. All this information is there for the reading.