Cold Stone Creamery Franchise: Hell Hath no Fury Like a Franchisee Scorned
March 29, 2008 by Sean Kelly
Filed under COLD STONE CREAM., xBuyer Beware
(FranchisePick.Com) In franchising, the Internet has changed everything. It used to be that angry franchise owners just went away quietly. Even those who sued the franchisor did not get the added leverage of press coverage.
But franchisors beware; these days vengeful franchisees spread the word across the Internet… which also happens to be where franchise buyers are doing their research.
The Dissed ‘n Franchised don’t need much of an opening to blast out their message. NJ Star Ledger’s sports writer Dan Graziano casually mentioned in his blog that while visiting the Yankees Spring Training Camp, there was a Cold Stone Creamery next to his hotel. That was all that was needed for frosted ex-Cold Stone Creamery franchise owner Cecil Rolle to leave this icy comment:
Cold Stone does have very good ice cream. However, in my opinion, from an investment standpoint, Cold Stone is a DISASTER!!! 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 franchisee. I am currently suing the company in federal court for among other things: (1) fraud in the inducement (i.e. for selling to potential franchisees 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…
…Cold Stone has been an absolute nightmare of an investment for many of its franchisees–myself included.
Cecil Rolle
cecilrolle@aol.com
Cold Stone, I know how you feel. Tonight over on BlueMauMau.org an anonymous “Guest” claimed I am a drunk and a liar (as if those were bad things) and was helping them choose a franchise and somehow tricked them into giving me their money. Unfortunately for “Guest” I don’t sell franchises. Even worse for guest, I’m an Irish marketing guy. Calling me a drunk and liar’s a bit redundant, wouldn’t you say?
WHAT DO YOU THINK? (ABOUT COLD STONE, NOT MY IRISH T’IRST) LEAVE A COMMENT BELOW.
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It is an interesting development that one post can resonate so much and effect recruiting.
Be interesting to see the franchisor’s response.
Betcha that they decide not to hire any more Irish Marketing guys!
I’m sure Kahala made that decision back when I was blogging on the wisdom of one of my favorite bad ideas: Cereality, the all-cereal restaurant. The article with Doug Ducey of Cold Stone Creamery (and Cereality) parent Kahala Cold Stone saying that they were going to kick off their growth by closing 7 stores was a franchise classic. In the same article, he simultaneously stated that the first 50 stores of a new concept are a crapshoot AND that their first 50 were going to be franchised was a little more revealing than even Stone Cold Doug Ducey intended.
Michael, I believe we’ve both been personally attacked online this weekend. Fortunately for me, my reputation was sullied long ago. Intentionally, of course.
Attacked! Oh no, we must hide from the hordes of “guest” posting.
I blogged about CS over at franchise-chat, must of have been 3 years ago.
I was whacking some VP shill - I pointed out that their income statement was largely receivables from their franchisees.
Not good when the help cannot pay and they stick you with a “promissory note”
i am thinking about buying a local cold stone that is in financial trouble. i will take your comments into consideration. i need to do some more research before my decision.
As the manager of an existing Cold Stone franchise store, I find it difficult to believe an owner who would accredit such a fiasco as a three-store failure to vendor costs. I’d be interested to know this franchisee’s prior experience and the open dates of all three stores. But given the million-dollar performance he specified it seems realistic to presume a combination of more likely suspects (product loss, high labor, poor management) may have played a part. My feeling is that this owner should have started with one well-managed store (I assume this was not the case) before trying his hand at three. Franchising is not a get-rich-quick scheme.
Sean,
I appreciate you blogging regarding my comment. It was brought to my attention Sunday evening by a group of MBA students at an Arizona university who set out to analyze Cold Stone as “a company whose business model had to do with making money off of ice cream, however as [they] looked deeper it seems that it has been at the expense of the franchisees.” An intuitive analysis may be persuasive in demonstrating that you very well may have been wrongly characterized, but I cannot imagine that you and Cold Stone enjoy the same juxtaposition; to wit:
First, a recent review of Cold Stone’s website indicated that the company had 392 of its approximate 1,400 stores for sale (that’s a whopping 28% of its total franchises). Why? Without knowing more, one can easily construct an argument that these are franchisees lined up to cash in on the appreciated assets of a hot brand, right?
Let’s look further.
Second, a recent review of bizbuysell.com and other sites revealed several Cold Stone stores with asking prices of less than $100,000 and one as low as $29,000. There is even a listing for a location that was opened in 2006 where Cold Stone corporate is attempting to sell a store that was apparently closed by the local taxing authority just last Thursday when the owner was unable to pay his taxes (see http://www.metrowestfyi.com/story_display.php?sid=9113 ). The price tag: $99,000. How profitable do you think that store is?
It cost me nearly $400,000 to start my campus location. If you invest $400,000 to develop a new Cold Stone and within a relatively short period, you are offering to sell it for $100,000, I doubt you will consider “Cold Stone’s franchise opportunities are about as solid as they come” as they claim on their website. If an investor is selling an asset for 25% of its cost within the time period of the Colorado franchisee, do you think there’s any profit to be found in that investment? I think he was just a hardworking man trying to do something positive for his family and his community and like so many other Cold Stone franchisees, ran out of personal assets to continue propping up his unprofitable business.
Third, in late 2007, Cold Stone claimed to have “more than 1,400 stores” open. As of this month, according to their website, they have “nearly 1,400 stores” open. If that is true, it would appear that during the past six months or so, Cold Stone has been closing more stores than it has opened. That is frightening for a company that has for years claimed to be the fastest growing super premium ice cream franchise in the nation. How can a franchisor thrive if its franchisees are failing in large numbers?
You have my email address. To the extent that you would like proof that you are likely the only victim among the two, email me. I will be happy to provide you with what I feel will be a persuasive argument in my favor.
Take care and btw, I enjoy your work.
Cecil Rolle
cecilrolle@aol.com
MBA students read this blog? My god. I thought I stopped damaging our institutions of higher learning when I quit teaching college.
I would be interested in reading their paper. They can send it to me at info[at]ideafarm.net. I promise I won’t post it for paid download at lazycollegestudents.com.
College students will admire my ability to turn out quick posts by the next morning.
How’s this for fast: Cold Stone Creamery Franchise Owners Caught Between a Cold Stone and a Hard Place