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I really wish you the best.

I really wish you the best. It may set a precedent for other franchises.

An open letter to all current

An open letter to all current Cold Stone Creamery operators.

Stand up a make your voice heard. In its infancy, Cold Stone was an attractive decorated franchise that provided high quality ice cream products. Most were located in a busy market area. Stores were very crowded with lines extending out the door. Our operators were well trained and our stores experienced high sales volume.

So then why are our businesses failing at such an extraordinary pace? If it was Cold Stone that chose the operators and trained them, how can they now blame the high percentage of store failures on poor franchisees?

In most franchise systems, when the owner is working 7 days a week for 14 - 16 hours per day, that means the operator is not making money. He can only hope to keep from losing his shirt due to labor costs by working long hours and covering 2 or 3 employee hours.

When some one plans to have his own business, his first dream is to be his own boss, and to spend more time with his family. For Cold Stone operators to accomplish this however, our franchisees must sacrifice sleep and sometimes cover 2-3 shifts per day to have an outside chance that his entire savings will not be lost in Cold Stone’s fraud.

In my case, when I applied to construct my first store, Cold Stone offered me a second store existing store for $50k - $80k and they assured me they would fully support me. At the time I thought, wow what a great fortune with an outstanding company. Not realizing how badly we had been set up for failure, my wife and I celebrated as if we had won the lottery. Our family and friends traveled near and far to be with us during our grand opening.

From the very start, we had excellent cash flow. At the end of the first month however, our income statement showed that we were unprofitable. Upon consulting with the AD, he advised us to invest additional monies into our advertising budget and increase our cake drops. One month later, we had the same result. The AD then said that all businesses are going to struggle to turn a profit early on. He advised me I was going to have to invest money into the business to keep it operating and I would begin to turn a profit shortly. I was skeptical of his response because this was an existing business and the profits should have been immediate.

This was the beginning of a series of lies by my AD to cover for Cold Stone’s broken business model. Things never improved, they only continued to spiral downward. Eventually Cold Stone terminated my store and sold it to yet another victim. Kahala’s hope is that I would be embarrassed for having lost my store and therefore tell my family and friends that I sold the store and then I would go away quietly. They also hope that I would not contact the new owner to tell him just haw troubled the store is. They know that many franchisees in my situation end up divorced and serious health problems due to the stress associated with these failed businesses.

This is exactly what happened to me and so many other Cold Stone owners until I decided to join Cecil and fight against all that is so wrong with Cold Stone. What happened to me, my wife, my kids, my family can happen to you as well. It is therefore important that we all come together and fight Cold Stone until they repay what they owe us and promise to stop hurting others.

So True!!!

This person has it compeltely right!!! Cecil Rolle has ONLY helped the Cold Stone Franchisees! I’m an ex-franchisee, thanks god!!! I’m so happy I sold this franchise after two years of trying and got away alive and with “only” $60K of debt that I’m still re-paying. Cold Stone Creamery claims they received in-kind contributions, they are kickbacks, this franchisor lies all the time and NEVER helps their franchisees (except to help them go into more debt and cost them more money). I’ve never hated anyone but I hate these people who run this company!!! I will NEVER visit a Cold Stone Creamery for the rest of my life or until they all fail.

Where there is a rumour

False or not I would expect contacting franchisees to be a part of a CNBC reaction. One way to antagonize any media outlet or journalist is an attempted gag.

It makes sense that CNBC would reconsider Cold Stone’s due air time and they only have an FDD to work from not to mention the reaction here.

Scratch ‘media savvy’ from Mr Zarco’s CV.

fishing

apparently CNBC is out there fishing for franchisees to get on and talk
Let us see how this airs

Ray Borradale's picture

The limp starts next year

It just goes to show that it doesn’t matter how good or bad the product or the concept. If the franchisee financial model doesn’t work you have been stooged my friend.  Get over it and get on with it or lament on your shoes for a few years. The road to recovery only starts when you are out and you limp away.  Or the alternative short-cut is the day you wake up and have the guts to accept the inevitable and take intelligent action like grownups are supposed to.

The concept of selling ice

The concept of selling ice cream where it's warm 365 days a year has failed. This speaks volumes about the business model. As jbm says, the road to recovery starts today.

Cold Stone Business Model Fatally Flawed...

CS Corporate always held up the Hawaii stores as the example of operations, ownership and local marketing.  All of which were true - the owners did an outstanding job.  This simply demonstrates that the Cold Stone business model is fatally flawed.

Cold Stone franchise business model is not viable no matter how long the lines at the door or how high the revenue. The labor costs, product costs, corporate costs, kickbacks, operating expenses, taxes and management costs suck the life out of every franchisee until - eventually there is no choice but to "cut losses" and get out.  That is what Mr. Rolle is trying to get CNBC, BMM elites, current CS franchisees, future wannabees to understand.  IT JUST DOES NOT WORK.

Good luck to the Owstons, the road to recovery starts today.

Pualani Jensen's picture

Kauai Cold Stone Creamery Files for Chapter 7

Here's another sad end to a Cold Stone Creamery franchise. A couple who owns two Cold Stone Creamery locations on the island of Kauai have filed for bankruptcy. They started with Cold Stone in 2006 and now are indebted to Cold Stone Creamery, Kahala Corp., First Hawaiian Bank (probably the biggest bank in Hawaii), the Hawaii Department of Taxation, the IRS and the local electric utility. Ouch!

They have engaged a Honolulu bankruptcy attorney.

More at the Honolulu Star-Advertiser
 

FuwaFuwaUsagi's picture

Swordie: I passed no

Swordie:

I passed no judgement,I don't know the circumstances.  I just offered up something else to consider.  

Old Sword's picture

Re: First of all (Fuwa)

Fuwa, with all due respect (and much is due), this isn't just a "suck it up, reduce your expenses by not going out so often" situation.  This poor guy is in a franchise that took him for almost everything.  Sticking it out for the kids?  If he was truly making any money he wouldn't be at this point.  The longer he stays in the more he will lose.  You have even commented previously as to the "business model" of ice cream and CS in particular.  

As a business person, sometimes you have to be even stronger to "call the ball" and close when the alternative is falling further into the abyss. 

FuwaFuwaUsagi's picture

Mortgage Bankers Agree With

Mortgage Bankers Agree With Fuwa

 

Meow!  Well at least you did not say Lawyers agree with me, or I would be very hurt.

 

 

 

 

Lionel Hutz PA's picture

Mortgage Bankers Agree With Fuwa

John Courson, head of the Mortgage Bankers Association, criticized homeowners who defaulted on their underwater mortgages. He went on at some length about the fundamental immorality of this practice in words similar to Fuwas:

"What about the message they will send to their family and their kids and their friends by defaulting?" he said in a late-2009 interview (Wall St Journal).

Of course, what happened a few months later? You can guess, but this interview clip is worth watching.

FuwaFuwaUsagi's picture

First of all I read you

First of all I read your initial post several times.  It sounds to me that you are saying closing your stores is an option.  If that is true then, since you asked for suggestions, I suggest you take a strong look in the mirror, carefully assess your personal values, reflect on the values you hope your children aspire to, and do a gut check on how you feel about politicians who often do what is legally permissible but not ethical and then decide if the potential cost to your personal integrity is worth it to you.

Once again this is stated on the premise that this is optional to you.  I do not trade money for principle, nor do I knowingly do business with parties that do (often that costs me a great deal of additional revenue).    It is up to you how you wish to conduct your life, I just suggest you make ethics part of your overall assessment.   Then again, it is easy to be preachy when you have more than 2 dimes to rub together.  I have not been destitute in many years(but I have been there).  But I simply suggest you consider ethics in all that you do.

Good luck with the path you choose to walk.

Old Sword, by no means would

Old Sword, by no means would I recommend a Ch. 7 as a way to, somehow, remove the lein. As you stated, it won't. I used the Ch. 7 example as a franchisee who who may, potentially, have no way out and is ready to loose any assets to get out of such a mess. Hopefully, the individual is smart enough to call it a lose before it gets to that point. As for Kahala, you will most likely have nothing left for them after you settle with the SBA or declare bankruptcy. As Old Sword pointed out, don't forget to get an attorney who specializes in bankruptcy!!

Old Sword's picture

Re: the banks view housing

First let's both repeat to this franchisee:  Get a really good bankruptcy attorney.  Second, if the SBA has a lien on your home, Chapter 7 will not remove the SBA lien.  It is a "secured" loan.  While the bank may negotiate, I am hearing from friends that most banks are playing a game of "chicken".  If you show you really want to stay in your home then they have no reason to take $10,000 knowing you are going to continue paying your mortgage.  They feel they are in a stronger position keeping the lien on your home.

Third, as for Kalhalla, theirs is most likely a personal guarantee which means "unsecured" but you can't get rid of them without either a negotiated settlement or bankruptcy.  Best of luck - and get a damn bankruptcy attorney!!

Good point. I'm just an

Good point. I'm just an "outsider" looking in. I'm not on the contract as a co-franchisee. My husband has full control. In the meantime, we hope that this one interested party, who owns 5 other stores will buy it for at least $200,000 ( we paid $225,000 3 years ago).
With my husband's extensive experience in owning/running up to 4 stores, I'm confident that someone will see his young 53 year old face in restaurant management and say "you're exactly what we've been looking for!"
He's ethical, detail oriented, fantastic at what he does, and is constantly told he's essentially a failure.
At least he isn't being texted every day by the area supervisor to spend $3,000 on a new sign in front of his store, which is happening to neighboring franchisee who's at risk for bankruptcy. That franchisee finally said "your not my boss" and hung up on him. Wow, big story around here.

"The banks view the housing

"The banks view the housing mkt as being near its lows so they have been more likely NOT to accept a settlement - they feel that if you are that concerned with keeping your home then you will keep paying the mtge thus it is best for them to place a lien on the home and hope for a rebound in housing prices to get more money from the eventual sale."

Old Sword, you bring up some valid points, i.e. the equity in secured assets, hiring a good lawyer, etc. If you secured you loan with your home and there is little equity left in it, a bank may not want to take of risk of waiting several years to have the home increase in value and get more money; the housing market will take years to come back and there's a good chance the individual could file chapter 7 bankruptcy. Financial institutions may want to come to a settlement, take a write down on their loss and move on. It comes back to the time value of money; pay you $100 today or $120 in 5 years, who knows what will happen in 5 years!! Take the $100 today, invest wisely and have $150 in 5 years.

I agree with Old Sword; hire an excellent bankruptcy attorney. They will guide you through this process. Do not try to do it yourself. Any money you pay them would otherwise go to the franchisor.

amen

amen

Coldstone sanitation

Granville:
Yes, there is a "cold stone" on which they mush the ice cream product with various add-ins such as candies etc.

This is one of the reasons customers have concerns about sanitation. Even with a moderately cold surface exposed to ambient air temperature such as found in a retail shop, there is a concern about bacterial contamination.

The employees are also supposed to sing. They stopped doing this at the store near me, but they still do this at another store I have been to. The problem there is that most of the employees are black and the customers white, so it has been compared to a minstrel show and some people don't return because it really is disconcerting.

Some stores have older workers, and when you are 20-something and a 50-something guy is singing to you, it is creepy.

Ray Borradale's picture

And I'll wager you have

And I’ll wager you have a different franchisor from those days.  Perhaps you’ve had a few. This long, hard, drawn out ‘simmering’ process is a large part of way too many franchise brands around the world. No doubt CNBC realized that but Cold Stone stood out as a high achiever.

First the franchisee is emptied while waiting for the time it has nothing left to be drained of and its existence is becoming an embarrassment. It is then that the franchisee can be taken to boil unless there is a need for the premature exit of an unruly whinger. Those lot cost extra and are an abomination upon the good name of franchising.

In Australia we have many examples going way back before Midas Australia 2001-08 and the current Cheesecake Shop outrage. That so many brands continue their practices while franchisees go broke all over the place and then continue to attempt to sell more franchise contracts is seemingly protected around the world.

It is happening every day but today Cold Stone has centre stage.

Wow, after reading the NY

Wow, after reading the NY Post article and comments by franchisees and ex-franchisees, this reminds me of the pizza franchise that has forced it's franchisees to spend $30,000 per store for a computer system in which they can play "big brother" and follow your every move. Haven't got those pizza's in the oven within 3 minutes of taking their order? Your docked points by an area manager who's never ran one of those stores in his life. In the meantime, forcing drivers into a 30 minute demand that got the company sued in the past. My husband is under constant threat that his times aren't good enough despite the fact that the customers are thrilled with the service and product.
Despite his meticulously clean store, food products, storage and updates- they come in and give him a 0 out of 5 scores. The health dept will give a pass on the temperature of food coming out, makeline and fridge - but somehow these goofballs come in and say he's off my so many degrees and dock him for it. It's like a miserable dictatorship. There was a time, in the 80's when my husband made money with this company, and there was a teamwork spirit with all involved. Gone are those days forever.

Old Sword's picture

Re: New Year's Resolution? Close Our Stores

Alot of your situation will depend on what you used as collateral for your SBA loan i.e. your home, investment portfolio.  If your home,  what happens will depend on whether there is any equity in your home that the SBA can get their hands on.  Remember - its not the SBA as much as the bank who provided the loan.  The banks view the housing mkt as being near its lows so they have been more likely NOT to accept a settlement - they feel that if you are that concerned with keeping your home then you will keep paying the mtge thus it is best for them to place a lien on the home and hope for a rebound in housing prices to get more money from the eventual sale.  There is a way to remove completely the SBA from your home but it will be dependent on you filing bankruptcy (13) and having certain conditions occurring with your home's equity.

Just as when you bought into this you should have hired a GOOD lawyer - you must do the same here.  An excellent bankruptcy attorney can guide you.  Doing this yourself can ruin you.  I know of one person who tried it themselves, thought they had a "deal" with the SBA (lending bank) only to find out a lien was placed on their home afterwards because the i's weren't dotted and t's crossed.

It would be best if you register with Bluemaumau so you can talk to people privately - neither your email address nor your name will be seen by others.  However, you can message back and forth with other registered people here to get more info. 

List all your debts and

List all your debts and assets and consult with an attorney.

New Year’s Resolution? Close our stores this month.

After watching the CNBC show and reading all the comments on this and the NY Post article, my wife and I have been assessing our 3.5 years with Cold Stone. We feel it’s time for us to close our stores.

We own three stores with SBA loans totaling $620,000. We would like to close all three stores this month. Any ideas on how the SBA will treat the loan? What’s the best way to approach them? Also, how do we defend ourselves against Kahala’s legal department? We would like to avoid filing bankruptcy if at all possible, but we will if we have to. Assuming we are able to settle with the SBA, is there any way to get Kahala off my back without filing bankruptcy? Under no circumstance will we pay another dollar to them now or in the future.

We would appreciate any suggestions. Thank you.

Regardless, franchising with

Regardless, franchising with an icecream company is a guaranteed money loser. Doesn't matter how unbelievably wonderful it is. If there is so much money to be made, franchising wouldn't exist. Somehow, the corporate people would find a way to own and run them themselves- seems to me.

CNBC: Securitization Next?

Denise: Coincidentally, I also watched the CNBC special again, which is conveniantly recorded on my DVR, given last year's discussion on Cold Stone, ZESB, & Mr. Steinberg. I arrived at a similar conclusion. In NA: we say, "Thanks For Sharing..."

Now, I'm off to Fuwa's rubber room to read the 3 part serious on Bain Capital Partners. Can't wait to see Kosman's video clip.

Nice to see Mr. Steinberg getting up close and personal with Dunkin'. Hard to let go of Stephan Horn, I guess. But I do know how it feels...

Ray Borradale's picture

I would like to see it again

I watched it twice and thought it was building after a start where I initially wondered what wasn’t coming next and how many wouldn’t understand anyway. Darren Rovell did do a first rate job and so did those that worked on putting that segment together.

It was by far the clearest depiction that I have viewed of the potential good and very dangerous in franchising. I suspect that the program would have had a huge impact for those viewers with any interest in franchising.

I understand why Cold Stone would insist on reviewing the questions before committing to be interviewed. I understand why CNBC and Darren would hand over the questions.  

I understand why Cold Stone freaked out.

I do not understand why the program is not back on the air.  Surely not because Cold Stone freaked out about a couple of embarrassing questions? Where would civilization be without the ability to ask embarrassing questions?        X

Just name one country where you cannot ask embarrassing questions and then double check that you haven't moved.

Darren Did a First-Rate Job

Just watched this program for the second time from my DVR and was struck by the great job Darren Rovell did on this piece, zeroing right in on the right targets.

For instance, Darren or his researchers were able to pick up on the old chestnut that was on a Camp Bow Wow flier and that has years ago been proven wrong, "90% of franchises are still in operation after 10 years compared to just 18% for other forms of small businesses." Maybe Blue MauMau readers know that's wrong, but how many journalists would unthinkingly accept that at face value?

He highlighted that the franchise rule written by the Federal Trade Commission doesn't include a requirement to disclose historical financial performance. This is critical information and just what the viewer should rightly want to know. He followed up by saying only 20-30% of all franchisors choose to include substantial financial information in Item 19. He asked Lois Greisman, associate director of the FTC's division of marketing practices about it, and she said they encouraged potential franchisees to ask their prospective franchisors about it. Then he asked Heidi Ganahl, Camp Bow Wow's CEO and founder, about it and she said that she's amazed that more information is not required, adding that the FTC doesn't "allow us to provide some information on profitability and returns."

Darren didn't just take what Heidi had said at face value, instead asking Lois Greisman of the FTC about it. She responded, "Give me that person's name. That's a flat-out violation of the rule."

Rovell found out about the gag rule that franchisors impose on franchisees who leave their systems, reporting that he couldn't get any of Camp BowWow's former franchisees to talk on camera because of it.

He showed how it was possible that franchisees with hordes of customers can lose money while their franchisor makes money, as in the case of Cold Stone Creamery. This goes against common sense and is very important for the viewer to understand.

A reporter doing a first-rate job like this in getting to reality instead of accepting the fluff franchisors all too often hand out is most unusual. Some of those CEOs or management teams must have been caught off-guard. In the case of Kahala's "executive team" (notice they didn't put their names on the email attached to this article that went out to franchisees?), they refused an interview.

One wonders what questions Kahala, parent company of Cold Stone Creamery, didn't want to answer. Kahala didn't say.

Darren said on the show that he wanted to ask about Cold Stone's rebate system and their eroding U.S. store base (which slipped 15% over two years), among other questions. Those two questions are right on. Kahala said his questions showed he had an agenda. His program shows that his agenda was what it's supposed to be in this country, a free press informing the public. On top of that, he was able to take the fairly complex franchise industry, where people get bamboozled and befuddled all the time, and break it down to easy-to-understand essentials.

FuwaFuwaUsagi's picture

Richard is pretty much spot

Richard is pretty much spot on with this.  Blue Bell really is about the finest overall ice cream in the country. There are a couple of other dairies in its league, and it all comes down to taste but it is clearly among the best.  To give you an idea, I spent a great deal of time trying to arrange a supply chain arrangement with them for a series of scoop shops I wanted to open in the upper midwest.  They simply would not do it.  I won't bore you with the details, but essentially they felt that the supply chain process could not insure a quality product over that distance (which turned out to be true).  They are pretty humble too, as they offered up another producer they felt could fit the bill for me, but the did not meet my taste standard.  They really do have a great processed product.    Oberweis is in the same or higher class depending on your taste.

One last FYI for you, you can probably turn out a superior tasting product in your own kitchen even without an ice cream machine as long as you are willing to consume it rapidly.  The trouble with all ice cream is it rapidly deteriorates, so much so that even a half assed homemade process is likely to turn out a temporarily superior product.

That has always been THE edge ma and pa shops have over the franchises.   Hell my shop danced on the competition.  Small batches, trashed in 24 hours is the key.    We only ever ran at most three flavors at a time, vanilla and the flavor(s) of the day.

Frankly I personally consider the ColdStone product on the low end of the scale. 

 

Ray Borradale's picture

The best ice-cream

is any ice-cream with a drop or ten of Bundaberg Rum liqueur.  I acquired 2 bottles 3 years ago and I’m only just into the second bottle.

I hide it.

My wife likes healthy food so I’m safe there. Once I was going to give a bowl to my youngest daughter to try but realized there was no place to hide the body; and besides she has 4 children. I didn’t end up sharing;

I was able to live on with a clear conscience knowing I avoided one hell of a traumatic time dealing with her passing or alternatively; having to find a new hiding place every other week.

I can only see one central reason why an ice-cream franchise would not work and produce a healthy return for all investors.

RichardSolomon's picture

In Texas we have Blue Belle - best ice cream in the world

You buy it in a grocery store or otherretailer whoo has not dedicated his entire investment to the ice cream. It comes in ocntainers from the dairy - the size you like at the time you want it.

This is not what these

This is not what these franchisees want to hear, but personally, I don't like the ice cream at all. There is something very artificial and gummy about it. Hard to explain, but I went for my last time in San Diego 4 years ago. It was awful. And the store was filthy. Your better off.
Baskin Robbins needs to get their act together also.
Personally, nothing beats Haagan Daaz. We need more Haagan Daaz in California.
But, in my opinion, there is NO money in Frozen Yogurt or icecream. Think about it, it's seasonal, and how can the cost of a scoop of icecream cover those horrific energy bills.
These Yogurt people on this bandwagon will find out the hard way also.

Granville_Bean's picture

An actual question:

I've never been in a Cold Stone store.  There isn't one within 30 miles of me.  I've seen them while on the road but never stopped in.  Is there actually a "cold stone" in the store that figures into the 'concept' or is it just a name?  If there is a stone, how does this figure into a benefit to the customer?  (Kinda like the big toaster in a Q compared to the countertop toaster in a Subway?)

Schadenfranned?

and those of us ripped off by the rogue franchisors like Cold Stone and Q would be schadenfranned? Although I feel like I've been schadendickd.

This is me

As a franchisee
I sit in my store and I as i am reading all of the woes and the tales
I say to myself "this is me "
The words that are coming out of the mouths of all the franchisees are my words
All the years they made it seem as if this was my fault the crew fault everyones else fault but never their fault
but it is not and I started to believe it
CNBC opened the eyes of many franchisees

Which is why we are selling.

Which is why we are selling. But yes, my husband, like Cecil is the eternal "optimist" - and now, he has finally come to his senses. We have the store up for sale - and we have interest.

Granville_Bean's picture

coin a new word?

I think we need to coin a new word: "Schadenfran".

To make money off the misery of others.

More Cold Stone Franchise Misery

RE: Does Anyone actually make a profit?? (9/25/2006 10:59:54 AM)

Do I make a profit? Depends what one considers a profit. Does one consider 80 hour work weeks at about $4 an hour profit at the end of the year? The concensus seems to be that VERY few stores are making a profit, let alone the 10-20% that the Creamery says we should be making. I have been at this now for nearly 3 years and my sales continue to drop with NO relief in sight. Is it all Cold Stones fault? NO, they can't do anything about the economy, but they set ALL of us up for failure with the astronomical cost of buildouts. And now they just keep pushing more expenses at us. In my case this new insurance will cost me as much as $10,000 to $15,000 more per year. Any idea where I can get that type of money from?

Good luck with selling your stores if you are up for transfer. My guess is that at least 25% of all stores across the country are up for sale. Unless you are willing to take a loss, which might be a wise descion at this point, I would speculate that you are stuck with your store(s).

Ray Borradale's picture

We should encourage entrepreneurial optimism

And understand that insanity is not a consideration of the insane.  These are very small and colorful worlds.

Hey, I don't want to be too negative, as we are desperate to sell this thing in the next two months,

Don’t worry – you could be in the middle of an earthquake and still sell a vibrant business opportunity in any franchise market.

Granville_Bean's picture

" My husband is part of a

" My husband is part of a popular pizza franchise (don't want to be negative - their spies might be reading this) for over 25 years and has had to beg his dad for over a quarter million to pay off debts with this money loser. We had ALL business debt payed off a year and 1/2 ago, and are now back $65,000 in debt with the business even though he works nearly 70 hours a week."

Why oh why didn't you quit after paying off that 1st $250k?  When you find yourself in a hole - STOP DIGGING!!!

Open Letter to Cold Stone from 2006 Fanchisee

An Open Letter to the Cold Stone Community (12/18/2006 6:02:20 PM)

This is an open letter to the Cold Stone community. I am writing this now, in advance of the 2007 AFM in Las Vegas, because I do not know whether I will still be here to write this for the next AFM in 2008. This is not meant to be a rant, but rather my attempt to communicate some points that I think are important and that the Creamery should take to heart. You may not agree with everything I have written here, and I don't expect you to. But hopefully this will generate some useful discussion and perhaps even encourage some important changes to take place.

A year ago at the 2006 AFM I was awed by the Cold Stone image and message communicated superbly by Cold Stone's highly-polished marketing machine. I came away convinced that my wife and I had made the right choice in signing with the preeminent force in the ice cream business. A year later I have the following observations to convey on my first year as a Cold Stone Franchisee:

Profitability

* After investing my life savings and working almost non-stop 7 days a week for an entire year, I have actually lost money, not made money.

* We have endured a year of no income, my wife having a nervous breakdown, and nearly losing our home. Only significant financial help from my family has kept us afloat during this difficult period.

* Virtually every new idea that the Creamery promised would add to my profitability this year has cost me money, not made me money.

* Over-portioning: Yes, we know we over-portion. Using flat spades to pull ice cream will always result in over portioning. "Weighing-in" is not an effective solution. it is more of a way for the Creamery to pass the buck back to the franchisee. If you really want to make an impact on over-portioning, give us some 6 oz scoops we can use to pull the ice cream with before mixing it on the stone with our spades.

* If I saved every drop of ice cream that we are over-portioning and was able to always hold "Labor + Food cost" to below 50% of net sales, it would still not be anywhere close to enough to keep us in business. There simply aren't enough top-line sales to begin with to pay for all the overhead.

* My Profit Keeper and Prime Pay: I have tried them both and gone back to Quickbooks for both accounting and payroll. From my experience, it is a far better way to go but that is only my opinion.

The "Q"

* In spite of having an ultra-clean store, on a recent Q inspection we were almost rated as unacceptable because I took down the "Corporate Pyramid" signs hanging in my store. (I took them down because they kept sending me a subliminal message that I had invested my life savings in a pyramid scheme!)

* On this same inspection most points were lost because the Q inspectors were unimpressed by one of my daytime crew member's execution of the PCST. This particular crew member is intellectually challenged and not particularly handsome. As a result, he is shy and has low self esteem. Working at Cold Stone is the best thing that has ever happened to him. He is the most reliable employee I have and will do anything I ask of him without question. In spite of his handicaps, he has learned to do almost every thankless job in my store. I have never received one customer complaint about him. Customers who encounter him will almost certainly notice his social handicaps and lack of polish, but they probably also appreciate that he does a good job of making their ice cream in a timely fashion. I expect they also appreciate the fact that we have given this worthy, deserving young man an opportunity to work when many other employers would not. None of these factors are considered by the Q, but these are the factors that matter most to me.

* Q inspectors often get hung up on exact temperature settings for the freezers. They don't seem to understand that these readings fluctuate all day long due to people constantly going in and out of them during the day, defrost cycles, ambient temperature in the store, and the location of the product in the freezer / Ghea. We try to set the thermostats to produce an optimal consistency across all the ice cream / sorbet products based on our real life experience working with these products every day in our store.

* The Q inspectors keep telling us that our dipping chocolate temperature is too high when they measure it. The reality is that we have to turn up the temperature or the chocolate won't melt. We turn it back down again once it has melted.

* The Q inspectors always seem to get upset that we have a Decopac display cake in our store that I accidentally ordered once when trying to order some cake toys. It has served as a good example to show customers what our medium rectangle kids cakes look like when they are flipping through the cake display. Nevertheless, our various Q inspectors never miss an opportunity to take a point off because we have this display cake in our store. Now how important is that really, and is this something you really want your Q inspectors to worry about? What does this have to do with saving my business? (That is the only thing I really care about.)

Singing

* Singing at Cold Stone is a double-edged sword. When done well, it is usually appreciated. When done poorly, it is never appreciated. In general, as many people hate it as love it and it has no bearing on whether or not I will survive as a business next year. When I have hired crew members because they were entertaining and good at singing, I have usually had to get rid of them because they were so into themselves that they didn't want to do the real work and also had a habit of irritating customers and their fellow crew members with their constant self-indulgence. Some of my best crew members would never have passed a Cold Stone audition, but I couldn't run my store without them.

The New Drink Program

* The new smoothies are a bust. The system used to make them is infuriatingly slow and cumbersome, hard to control, and produces smoothies that taste different depending on who is making them. In general they taste OK, but not great. Sales spiked initially on their introduction but have settled back down to where they were before, after customers came to these same conclusions on their own.

* The new shakes are good and sales are about double of what they used to be. It's hard to say though if we have attracted many new customers with them or just converted existing ice cream customers to shake customers. In any case, we didn't see any noticeable change in our total sales after their introduction. As a side note, over-portioning is worse on shakes than almost anything else we make.

Marketing

* Cold Stone marketing seems to spend a lot of time generating monthly packets of information that I don't have time to read. They spend money running national promotions that few of our customers show interest in (e.g. Shake it up Dance Contest) and that have little or no affect on my bottom line. They push novelty cakes and pies that few customers buy and that cost me money to produce. They ship me very expensive, colorful signs to hang in my store that usually just add to the clutter and an already overwhelming array of information that bombards customers when they walk in.

* Last year we were told that LSM (local store marketing) was the way to go when marketing our store because advertising on TV was too expensive. A year later, I am here to tell you that LSM, while helpful, is nowhere near enough. I can also tell you that running radio spots from time to time has very little impact as well.

* The mass-couponing that the creamery has done in the fourth quarter of this year HAS helped bring in new business. For that I am grateful. I am concerned, however, that we are training our customers to not come in without a coupon.

The Cold Stone Business Model

* I do not believe Cold Stone's current business model is viable in most locations. The initial investment is way too high, the build-out is too expensive (the creamery is working on this problem I'm told), stores are too large and fancy, too much labor is required, there are too few "non-stone" products for sale in our stores (see Starbucks), and the system of running a Cold Stone is WAY too complex.

* Making minor changes to the "Stone" business will not save Cold Stone. Besides adding new "non-stone" products for us to sell in our stores, Cold Stone needs to reinvent itself by turning its stores into ice cream distributors, not just ice cream parlors. They need to enable local franchisees to sell Cold Stone products through local restaurants and other suitable venues in their community. The franchisees function in this regard does not necessarily need to include manufacturing and delivery, but should focus more on the sales aspect – building relationships and servicing orders.

* To help boost sales, Cold Stone needs to allow our customers to place orders via the web. Done correctly, I believe this could possibly double our cake business and enable us to run a highly profitable catering business - both to consumer and corporate / restaurant accounts. It would probably also give a boost to our take-home container sales.

* In general, coming up with a Cold Stone Catering business model would be extremely helpful. Right now everyone out there doing catering has to figure it out on their own and basically re-invent the wheel.

Final Thoughts

Cold Stone - in your quest to become the #1 ice cream brand in America, you have grown too fast, built too many stores too close together, set up new franchisees for almost certain failure by putting them in bad locations and saddling them with excessive debt and high rents. The net result has been devastating on a personal level for a lot of families that bought in to all the hype. In many cases this devastation has resulted in personal bankruptcy, divorce, loss of homes, depression, nervous breakdowns, and even thoughts of suicide. I implore everyone working at the Creamery to think hard about what you are working on. Are you working on something that could add $100,000 or more in net sales to every struggling store in the country? If you aren't, then your efforts will probably have little significance to people like me. Are you spending your time on trivial details or frivolous programs of one kind or another? If so, you are just making my job harder. From my perspective, if more folks at the creamery don't start thinking along those lines, then the Creamery itself could well end up facing bankruptcy just as many of its own franchisees already are. The time to deal with these issues is running out quickly and has already run out for many of my fellow franchisees."

FuwaFuwaUsagi's picture

but let's face it, owning any

but let's face it, owning any FOOD franchise is a big mistake. Or any independent food operation for that matter. Just work for someone else.

I am not sure if every food franchise is a mistake, there are a handful where the branding literally herds clients to your door, and have showed a great deal of ability to adapt to the future, and convert emerging demographic groups into customers.  That aside, I have  few other comments regarding independents.

I talk to and work with independent businessmen all the time.  I have only ran into a handful of B2B or B2C owners who actually enjoyed what they do for a living.  they make a very good buck but it is not a happy buck.  On the other hand I have met hundreds of independent restaurant owners who are absolutely delighted with how they earn a living, love what they do and found their nirvana.  My advice is and remains, do not go into the restaurant business unless you want to be hands on and delight in the actual concept.

And to add a bit of credibility to my words, I have started several concepts over the years and all of them made money.  Granted I did not earn what I wished off of them (176K or so net in today's dollars) but they all made enough a man could support a family in lower-middle to middle-class fashion.  And I tell you this, outside of my pizzeria  it was a delight to get up and go to work everyday and seldom did I feel more fulfilled.

One last comment, I think anyone who opens a franchised better burger, pizzeria, ice cream, yogurt, fried chicken, sub shop, sandwich, buffet, Mexican food (exception to Taco Bell as I have no idea what that is), Soup/Salad concept, Steak House, Sportsbar, is being the fool.  And if you go into the food business with no experience in the industry, you are taking on a very large risk that can only be measured by a 100% loss plus any outstanding obligations, less salvage.

 

 

The 2010 FDD store count is

The 2010 FDD store count is probably 2009 count
I believe that their 2010-2011 count is now 1000 stores

Old Sword's picture

Re: Cold Stone Unit Economics

Interesting - because I have been told that in years prior franchisees were given a much higher AUV - among other issues - to use on their SBA loans to reach the SBA minimum requirements for approval.  If banks had to underwrite these loans themselves they would never have provided the funding - more important, they would demand proof of the profitability of these "proven" business models.  Another example of the stupidity of our government at work:  Creating a false "small business" market.

No free speech allowed in America?

There is a difference between slandering a company and simply exposing the facts. My husband is part of a popular pizza franchise (don't want to be negative - their spies might be reading this) for over 25 years and has had to beg his dad for over a quarter million to pay off debts with this money loser. We had ALL business debt payed off a year and 1/2 ago, and are now back $65,000 in debt with the business even though he works nearly 70 hours a week. We shop at thrift stores, we rent, we have no personal debt, but CANNOT make a profit. It all goes to the government and CEO and ridiculous food costs.

The company PRESSURES owners for faster out the door times and faster delivery, putting the driver at risk for accidents, and forcing owners to pay out the nose for labor they cannot afford. Meanwhile, forcing 1980's pricing 30 years later. They PUNISH the franchisees for minor matters, but not so minor to them when it forces you to lose $3,000 a month or so. It was SO bad, a veteran franchisee in Arizona abandoned his 6 stores, and hasn't been heard from since April 2010. All the while - during their "meetings", you cannot speak your mind honestly, and they have tunnel-vision as one franchisee after another is near bankruptcy or in bankruptcy. They don't value long-time franchisees ONE BIT, and I believe are seeking to squeeze them out and get new investors in. I know they are making HUGE expansions in India.

Hey, I don't want to be too negative, as we are desperate to sell this thing in the next two months, but let's face it, owning any FOOD franchise is a big mistake. Or any independent food operation for that matter. Just work for someone else.

John Gordon's picture

Cold Stone Unit Economics

Michael, thanks for reposting the 2008 Cold Stone WSJ article for reference.

While I don't have current data, a Cold Stone Store AUV of $360,000 in 2008 could represent a real economic problem as there simply isn't enough variable profit generated --sales less cost of goods sold, variable labor, supples and other like expenses--to cover fixed costs like rent and debt service, among others. I wonder  the 2009/2010 AUV level.

In the restaurant universe, it is an axiom that the concept must appeal to at least two dayparts--breakfast/lunch, lunch/dinner, dinner/late night, etc to have the balance to be successful. An upper end ice cream/snack focus might be problematic except in very dense markets like Times Square or Waikiki.

Glad to hear you dodged a

Glad to hear you dodged a bullet on Cold Stone.

Kahala is actively engaged in flipping stores. Flipping the stores works out great for Kahala, in that they can get rid of "troublemakers", and also unprofitable first generation franchisees all in one fell swoop. On top of that, Kahala pockets $15-30k for every store they churn.

Cold Stone management started a Soviet-styled system of silencing dissent about 4 years ago. Kahala willfully continued the program. Anyone that spoke up about ANY of the decisions made by management suddenly found their inspection scores drop dramatically into the "out of compliance" category. This made it easy for Cold Stone to claim you were a "bad operator" and start termination proceedings against you.

Cold Stone also realized that most of their most vocal detractors were the first-generation franchisees that were bleeding a slow and painful death due to the overwhelming debt service. Replacing the franchisee with another with no debt service allowed the store to continue to operate and churn out royalties and kickbacks to Kahala - all while silencing a critic and generating a $15-30k "transfer fee" to Kahala. Truly a win-win for an unscrupulous operator.

When you see people on here claiming to be "successful multi-unit operators" ask them how many of those stores were churned by Kahala.

"Hijacked"?

"Hijacking a thread to make your point is generally frowned upon, here.

I fail to grasp your assertion of "hijacking a thread".
I have responded to several posts using my own experiences with, and observations of, CertaPro as examples.

As an example, when the too-often-used remark about a prospective buyer was proffered, I used my own knowledge of the manner in which CertaPro seeks to prevent it (non-disclosure agreements).

Then there was the "he (Cecil Rolle) had his day in court" assertion.
From what I've gleaned in a cursory google search, there was an action AGAINST him by Cold Stone, which Cold Stone won by summary judgement. If he was in the situation in which most failed franchisees find themselves, he had no money for legal representation.

While this discussion revolves around Cold Stone Creamery, the "franchisee lawyer" representing it, and discussion by Cold Stone franchisees' of their experience, the Cold Stone/CNBC fiasco is representative of what transpires broadly across the franchising arena: Money, lawyers, contracts drafted by the scheming and signed by the trusting but uninformed, greed, and gross misrepresesentation.

If citing one's personal experience with one franchise system, when discussing another franchise system, is "frowned on", then perhaps participants should be pre-screened to ensure they conform to communal norms prior to being allowed to post.

Hell, I haven't even mentioned franchise-forum.com, so cut me some slack.
Or not.

michael webster's picture

Certa Pro

Ok, we get that you think Certa Pro is a bad system.

Hijacking a thread to make your point is generally frowned upon, here.

I have reviewed your website.

Why don't you do a more measured post here on Certa Pro, instead of making these somewhat inane remarks?

That Poor Pooch

Whatever the reason, CNBC's counsel has now so screwed the pooch

How has CNBC's counsel screwed the pooch?
(and was it done doggie-style?)

Amen

CNBC is under no obligation to report on the misdeeds of any source. That is what Cold Stone/ Kahala could have discussed on-air had it chosen to be interviewed. Mr. Zarco and his paymaster (Kahala) are trying to have it both ways: refusing to be interviewed and then suing when they don't like the reportage.

Great observation.

Corporate media only serves us when it is not bothersome for it to do so.

Oh?

Competent inquiry would obviously have revealed that Mr. Rolle had his day in court and failed to prove wrongdoing.

Cite?
Curious about "his day in court".
Was he represented by experienced and competent counsel?

Whether a franchise oppportunity is a good or bad investment prospect can be vetted professionally if the potential investor wishes to devote resources to the job of due diligence.

Which is a horse/barn sort of thing in most cases.
You know how much propaganda and misrepresentation exists.
Too many people simply don't believe somebody would lie so meaningfully to them about a purchase that may cost their life savings plus loans.
And then there's the matter of "non-dicslosure" (gag) agreements such as the one CertaPro Painters has used to silence former/failed franchisees. Could a professional vetter obtain information from them (and there are probably hundreds of them)?

I just had to say, "thank

I just had to say, "thank you" to Mr & Mrs Very Lucky. I am one of those franchisees, losing everything and no where to look. I am happy to hear you were able to get out before drinkng the coolaid.

I too have two young children and their inheritance is a $400,000 debt. I'm a horrible parent.

Thank you

Thanks, Doug, for your glowing endorsement!

STFU

Wake up, idiot.
Most people in this country came from another country.
And it's because of those hard-working immigrants (whom you diminish by your sophomoric remark) that the phrase "The American Work Ethic" was born.

Ask any employer: Immigrants are the best.

chupame un huevo

Robert W Sisyphus's picture

If Kahala can afford Zarco

If Kahala can afford Zarco now is probably not the time to consider walking. Now Coldstone captives are critical and tied to the FA. However; if you can see no alternative to bankruptcy then what you save might only be 1 or 2 years. No money – just a few saved years to scrape a life back together. Franchisors don’t sue when there is nothing to collect.

Re: Re: Paul while i did expect it

Well if there was a negative or zero EBITDA and someone paid good money for nothing they'd have to be idiots.

Old Sword's picture

Re: Paul while i did expect it

Correct, I am just using rough numbers.  However, in the first scenario there is no "E" at all - but franchises were still able to be sold on the secondary mkt for significant sums without it in the past.

Re: Paul, while I did expect it

Not so fast! Multiples are seldom if ever calculated on Net Profit, they are typically calculated on EBITDA or adjusted EBITDA.

Old Sword's picture

Paul, while I did expect it

Paul, while I did expect it to mean Average Unit Volume I wanted, given franchisor proclivity to manipulate information, to confirm franchisor usage.  Several methodologies are used by franchisors to create the illusion of profitability when it comes to gaining  SBA loan approval.  CS is no different.  Having spoken to some franchisees and reading what is here, there appears to be a consistent "theme" in each franchisees SBA application.

"Some buyers may be unable to exit since the balance of the bank loan exceeds the current market value. In some cases the bank will do the equivalent of a homeowner "short sale" and take the haircut, but most of the franchisees have signed personal guarantees and would lose their other assets (home, savings, other businesses, etc)."

As for your quote above, three things:

1.  Prior to 2007, many franchises were selling in the secondary mkt near or at "gross revenue" - not net.  The IFA and franchisors in general had the public believing franchising's success and therefore a "premium" value was established.  Even if the site was generating a loss, the franchisor would spin it and say 'the current owner doesn't know what they're doing, heck its a franchise - its proven to make money'. 

2.  Given the above, a site with a SBA loan of $300,000, grossing $250,000 and generating a loss (let's say of $30,000) would still garner a price tag above $200,000.  Add a rising housing mkt into the equation and a failing franchisee could get a decent price for the site and take a home equity loan out for the rest and the SBA loan would be paid back. 

3.  The tables have now turned.  That same scenario above would generate no more than a $20-30,000 bid.  Going valuation now is around 1.5-2x's NET profit.  So that same site above if grossing $500,000 and netting $75,000 would now only sell for $100-150,000 bid.  BIG difference in valuation.  Add onto this a falling housing market (no equity to tap) and even the "successful" franchisee can't sell because they can't cover the loan. 

All this means that SBA loan failures over the years were UNDERSTATED because franchisees in the past could cover the SBA loan repayment due to inflated valuations and home equity - both of which bubbles have now burst.

cost to crash or keep the store(s) operating

At some point, a franchisee should do a quick calculation; what is the cost to close the stores and pay off the outstanding note compared to keeping the store open, paying the note and the loss you will take? Multiply this by the number of years you have left on you franchise agreement. Unfortunately, in most cases for CS franchisees, this number will be smaller if they choose to close the store and pay off the note. At least in this case, the upside is they can negotiate with the bank based on their personal assets and liabilities instead of loosing everything and going bankrupt.

CNBC must continue to warn the public of the dangers!

My husband and I were in the process of buying multiple existing Cold Stone franchises from Kahala. During the process, we asked them, what happened to the franchise owner? Cold Stone told us that they were BAD OPERATORS so they turned over the store to the company. Each of the stores was very busy so we thought it must have been true. With all the business the stores were doing, they had to be profitable. We were convinced but still we were a little uncomfortable about it all because all they would give us were the sales, no expenses. We kept praying and asking God to send us a sign.

On Thursday, the week before the CNBC program, our banker informed us that our loan for the purchase was approved. We had pledged our home and a CD as collateral for the loan. That weekend, we were watching CNBC and saw the promo for the show. When the gentleman said he’d talked five franchisees out of suicide, our jaws dropped to the floor. We watched the program and we were stunned at what we heard given what Cold Stone had told us. We have been following it ever since online.

Needless to say, we are no longer considering buying those or any other Kahala franchise and never will be. The failure rate and store closings were compelling, but what stuck out in our minds were of course the suicides and that Cold Stone refused to come on the show or to respond to questions. My husband is a criminal justice professor and he kept equating it to pleading the 5th Amendment to avoid self incrimination.

It’s important that CNBC continue to air their program so that people like us can know the truth. Kahala wants to hide the truth. They hid it from us. We have that huge FDD that Mr. Rovell showed and it didn’t say anything about suicides or petrified franchisees. They should be ashamed of themselves.

The money we were going to use to buy those stores came from the death of my parents. My parents worked hard and lived modestly so that they could leave me and my brother something. My husband and I have two young children and one on the way. We talked about leaving these businesses for our kids. Instead we almost had a disaster on our hands because there is no doubt in my mind that we would have been in the same position as the many franchise owners we have read about online. Kahala wants to make Mr. Cecile look bad, but we see right through it.

My heart goes out to those who have suffered at the hands of Cold Stone but if the CNBC show is not put back on air, this will all fade away and others will fall victim to Kahala. It is therefore extremely important that CNBC continue to air your program as a service to the community. We are thankful we were saved from certain devastation.

Our thanks to Mr. Rovell. He is a wonderful man, an excellent reporter and we are now his fans.

Truth is 75% failure at a minimum!!!!!!!!

Anyone who has been a franchisee for the past 7 years knows that the CNBC report was misleading only in that it reported a 30.6% failure rate at Colstone Creamery. If we were to go through the records of the franchisees who bought Coldstone Creamery Stores as first time locations, the truth would come out that the actual failure rate is upwards of 75%. They have blown over as a house of cards in a cold wind one after the other through the entire country. Every store in the city of Chicago failed and was sold or given to a new franchisee for pennies on the dollar! All across our region I have known other franchisees who have been so devastated by losing hundreds of thousands of dollars and years of their lives, that by the time they collapse they are so happy to be done with the ordeal that they don’t have the strength to take action. There are many more who collapsed than those who are left in the system which is now totally dominated by bottom feeders. The corporate people at Coldstone are very sharp tongued and have never shied away from making insults about franchisees as they fail. Once they have failed, the franchisee gets to suffer the repercussions of bankruptcy and Coldstone moves on with a debt free new franchisee and considers the episode a TRANSFER! This is why you see the laughably low failure rate published by CNBC at 30.6%. The actual rate is so, so much higher.

Now to address the matter of our corporate president Dan Beem. It seems if Mr. Beem had studied at the collegiate level, he may have taken a course in ethics and we might be on an entirely different track here. In ethics class we learn the difference between right and wrong and how to apply that knowledge in our daily affairs and our business transactions. I really must say that all of our franchisees are at a considerable disadvantage having an uneducated corporate president. Anyone who has personally met with Mr. Beem can see clearly that he is none other than a slick salesman and a corporate figurehead who will never discuss anything that has not been pre approved for conversation by the legal staff. Now after years of horrible decision-making he has created his signature opus by hiring Robert Zarco to “represent the franchisees.” So now he is spending huge piles of our money defending the lies that have gotten him in so much trouble in the first place. Does he want to be the Macbeth of the franchise business world? Does he even know who Macbeth is?

In reading Mr. Zarco’s letter to CNBC, which caused the network to shut the program down, many things are very clear. First, Mr. Zarco doesn’t know anything about our business at Coldstone. He has no idea what it is like to run one of these operations, how there is no money in the stores, how difficult it is to manage your huge loan at Coldstone and how pitifully inept the entire corporate support staff is at aiding you in doing so. For Mr. Zarco to suggest it is outrageous that Cecil Rolle said in the interview that he had talked five franchisees out of suicide is way off base and inappropriate. It’s exactly the type of heartless, demonstrative treatment corporate has been involved in for so long that leads people to desperation and suicidal tendencies in the first place. Inherent in that statement is the notion that what people FEEL as the result of the evil actions of their business partners and financial ruin is irrelevant. I would like to see Mr. Zarco in the shape he is in, try to run one of our stores with the extremely labor intensive nature of our business. He would never make it and he is unqualified to open his mouth on the subject.

Mr. Zarco claims he is representing the National Independent Association of Coldstone Creamery Franchisees. The existence of such a group is news to me and I have been suffering through life at Coldstone for many years. I have never even heard of such a group. Perhaps they are a group of second-generation franchisee’s that got their stores for free and are looking to improve the reputation of the brand? Again I have never heard of this group.

For Robert Zarco to suggest Mr. Rolle is “neither indicative nor representative of the typical Coldstone franchisee” is categorically false and shows Mr. Zarco has not done any homework. Do your research Mr. Zarco and you will find that I am speaking the truth. The failure rate is upwards of 75%. You claim in your letter that CNBC’s irresponsible reporting “deprives consumers of the truth regarding the relationship that exists between Coldstone as the franchisor, and its franchisees.” If the chain of events that have unfolded over the past years at Coldstone weren’t tragic and criminally fraudulent I would be tempted to laugh at that statement. It seems the business of fraud is alive and well at Coldstone Corporate now that you are claiming to represent US!!! If anything you should thank CNBC that they published 30.6% as the failure rate.

And now to my brothers and sisters who have suffered through bankruptcy, poverty, wasted years, divorce, and insult at the hands of this company who willfully has done this to you. I say let us be one. Let us come out of the woodwork and stand for what is right. Contact Cecil and get to know your rights. As we come together we can defeat these people. Our suffering will eat the insides of our oppressors out and they will bend to our demands. Pray and be bold. Never surrender!

Paul Steinberg's picture

Borradale correct, and Cold Stone also has unique problem

Borradale's observations about failing franchisors entering the "death spiral" are correct.

Cold Stone has an additional problem with an extraordinarily high rate of default on business loans taken out by Cold Stone franchisees. This is a difficult enough credit environment, where even slight dings on a FICO can preclude the granting of even a fully-secured loan. This may be a serious problem unless Kahala is willing to provide financing or guarantee the loans provided by third party lenders.

Apart from the obvious problems for franchisees wishing to remodel and new entrants seeking to become franchisees, this credit default rate impacts liquidity and hence the exit strategy for existing franchisees. The more difficult it is for a prospective purchaser to get purchase-money financing, the smaller the group of prospective purchasers.

The logical end result is an inability to exit the Cold Stone system and/or lower sale prices since buyers would have to be cash money purchasers.

Some buyers may be unable to exit since the balance of the bank loan exceeds the current market value. In some cases the bank will do the equivalent of a homeowner "short sale" and take the haircut, but most of the franchisees have signed personal guarantees and would lose their other assets (home, savings, other businesses, etc).

Ray Borradale's picture

How it often ends; scratching the surface

Franchise numbers in decline eventually lead to an inability to sell franchises so as franchisees fail the franchisor closes ‘territories’ – rogue franchisors have no expertise or interest in unit profitability and cannot generally operate any number successfully – closed doors lead to more closed doors.

As the network numbers go down franchisor infrastructure costs can shrink but only slightly. Legal costs explode. Royalty revenue is down due to a shrinking network but for many reasons individual unit royalty drops as well [has anyone seen the ad fund – it was here a minute ago].

Franchisor cash flow goes down the tube and suppliers and landlords begin to apply pressure. Eventually someone decides to pull the franchisor pin. Enter Chapter 11.  Almost everyone loses.

Meanwhile the franchisor has been preparing for that day for some time. The franchisor plan at some point acknowledged it would fail. Any franchisees left become an unrecognized number in the sale of any contracts. Then for franchisees it starts again with a new investor franchisor looking to maximize its return. Look out!

Senior franchisor execs start again at Q or Franpro or UPS or wherever. The gouged franchisee money re-enters the market disguised as a dog poo recycling franchise. Then for new and unwitting franchisees it starts again. More poo than they ever dreamed of.

IFA aligned legal sponsors are aghast. No one noticed but so many SLAPP suits have been mislaid amidst so many SLAPP suits. The regulator woke in time for lunch ….

Meanwhile quality franchisors vigorously shook their collective heads in disgust and hoped this one didn’t make the news.

Like franchisees through an ‘S’ bend; those are the days of our lives ….

Paul Steinberg's picture

Average Unit Volume

Old Sword writes:

Please tell me what "AUV" stands for and what EXACTLY does it mean?

AUV is an acronym for "average unit volume" and it is a common metric in the restaurant industry.

You can get AUV data from a number of private sources, but those reports tend to be expensive. You can also look at trade publications such as Nation's Restaurant News or Franchise Times.

AUV numbers are just one of many data sets to use in evaluating purchase of a restaurant (or restaurant company stock).

CAUTION: Be careful about using AUV data from a company which is a fad item. Often in such cases, there may be an initial high AUV but then the number drops sharply. As such the metric may be very misleading in the early stages of a company's expansion. One solution is to only use AUV data from stores open 13 months or more, and to delve deeper where the AUV numbers drop off sharply after the initial public interest fades.
 

Old Sword's picture

Re: CNBC Please Investigate Further (to "Guest")

Out of all the commentary on this story thus far one sentence truly stands out and it is from this post.

Guest, you wrote:  "I, for one, operated two unprofitable stores that I closed. Both grossed well over the system AUV, both achieved outstanding corporate inspection reports, and in all ways we followed the Cold Stone model - right to the brink of bankruptcy."

My questions to you are: 

1.  Please tell me what "AUV" stands for and what EXACTLY does it mean? (Since franchisors tend to "redefine" and "relabel" words I want to make sure we are on the same page.)

2.  WHAT IS THIS NUMBER!!!

3.  WHERE did you get this number from and is it published anywhere in any documents from CS?

PLEASE, if you read this, I would greatly appreciate your answers.

The Tarnishing of a Brand

CNBC did not tarnish this brand
You can also say that Kahala did not tarnish this brand
It all stems back to Cold Stones and the executives
Instead of taking something years ago and turning it around
they said let us keep staus quo
THis could have all been changed years ago and they would not be in this mess
THe hiring of Zarco firm by the francisor is a way of saying to the franchisees that
Hey Look we are doing this for you
We are making sure that when you sell your stores for 200,000 let us say
that you will not have to sell it pennies on the dollar
Which any internet surfer can see that stores for the past few years were and are being sold for pennies on the dollar
They seem to care less on profitability and more on lining their pockets
and this is how they have come to this mess
It seems that Act One of this play is over
Zarco is also tarnishing the brand by going to the NY Post and announcing that we are winning
victory
What is next for Mr Zarco the David Letterman Show or Tonight SHow or Entertanment Tonight

If Cold Stone cared about their franchisees they would have taken care of this mess along time ago
Here is a good scenerio of greed
over the years there were less and less stores going out of business therefore there was less buying from suppliers so inturn they needed more money so from the 1-5 percent they got greedy and up popped 18.5 percent and the prices from their suppliers steadily rose and those franchisees that were making money are now crying that they are not
They are in the same predictament as those franchisees before them
So is this how the 100 so call franchisee got to do an association

Ray Borradale's picture

Coldstone distraction

If Zarco’s ‘job’ in attacking Mr Rolle was to demean Mr Rolle’s influence with franchisees it would actually counter Zarco’s own claims that Mr Rolle has been ineffective in as much as the Zarco attack recognizes Mr Rolles influence not just on franchisees but that he has been central to costing Kahala and benefiting franchisees.

How do we rate Kahala’s opinion of Coldstone franchisee intelligence when Kahala hires Mr Zarco to win over franchisee confidence with an ‘independent franchisees association’ suspiciously just before receiving the infamous ‘retainer wire’ and conveniently just before CNBC goes to air.

A point made earlier, I believe by Paul, is that Mr Zarco had Kahala sign a nice waiver when it should have been a waiver signed by franchisee clients whereby franchisee clients agree to allow their lawyer to represent their franchisor.

Did any franchisee ‘client’ representative agree that their ‘independent franchisee association’ lawyer be given clearance to represent the franchisor that is intent on simmer screwing them?

The franchisee waiver didn’t happen so if any franchisee happened to spend anything at all with Mr Zarco than I would suggest they should be entitled to a refund. But did franchisees actually send money to Mr Zarco or was that usual need unnecessary?

The bigger issues for franchisees to come to terms with is that a) they will not recover their ‘lost’ money [they might minimize loss], b) the money Kahala is attempting to protect is huge and it will go to huge lengths to protect it, and c) Zarco and the CNBC program is now a distraction to franchisees becoming a force. Move on and get your action plans happening.

The bigger issue for Kahala is that Zarco will have pssed off CNBC which will probably replay with minor editing and with exactly the same message but CNBC will now be much more inclined to follow the decline of Coldstone over future years.

If Coldstone are to fall over in 3 years what is the size of a 3 year gouge and where inevitably does that disappear to when Chapter 11 creditors come calling?  Franchisors cannot survive if they cannot sell franchises and so far Kahala have ensured that won’t be happening. It cannot afford franchisee profitability and it has no chance of survival without it.

Zarco and the CNBC program is now a distraction to franchisees becoming a force.

Mr Rolle will need franchisees to contribute to get a smart dog in this fight but this is where so many franchisees say they have no money because they need to keep what they own and then they lose it anyway.  BMM should start a photo gallery for homes that went that way and without a fight.

Note: There is a point where franchisees can actually walk away from their franchise but obviously if Kahala can afford Zarco now is not the time. Now captives are critical.

RichardSolomon's picture

This comment by Mike could turn out to be the gem of this

entire discussion. Just think of it - a judiciary looking to put the last nail in the coffin of non productive contingent fee class actions, having the Quiznos debacle still sticking in its craw, now is presented a similar object lesson in which there is also the isue of the suitability of the class representative.

If Mike is right, this would be entirely worthwhile, as it presents an excellent vehicle to getting rid of the bozo class action where the class members get nothing and the class attorneys get everything.

While I doubt this will end this way, Mike is a genious for thinking through such a scenario.

dont be fooled

I owned two franchises and opened on store. The other store was nevre opened since we did not make profit to support another stoer in the same area. We would be splitting the customers, and making CSC richer and richer. We decided to sell our store two years after we opened it. It was painful but we just could not keep up with the long hours, and little profit. It was a high volume store. yet our profits were nothing but high.
We sold the opend store and the rights to the second store in 2006. The new owners worked hard and were dedicated to the store, they went out of business in July 2010. I DONT RECOMMEND ANYONE TO GET INVOLVED WITH COLD STONE..IT IS A HUGE INVESTMENT THAT ONLY MAKES CSC RICH NOT THE FRANCHISEES.
It is upseting to see how many hard working people have lost everthing. I know of another muti-store owner that even lost his marrige he could not even afford "braces for his kids"
BE WISE DONT INVEST IN THIS BRAND, i gurarantee you 100% YOU WILL NOT MAKE MONEY BUT WILL SURELY LOSE WHAT YOU HAVE

THANKS

Closing my CS locations was the best decision I ever made

I was a multi-unit franchisee for Cold Stone Creamery. The best decision I ever made was to close my stores and walk away from this nightmare. It was one of the hardest, yet, the best decision I ever made. Like many franchisees, I initially ignored the fact that the stores were unprofitable and things would never get better. It was only after forgoing any salary, working 80+ hours a week in the stores and still not turning a profit that I realized the fact it was a bad situation that would only keeps getting worse. When the teenage cashier you hire is making more than you, there's a problem. The experience of closing of my stores and dealing with the outstanding financial obligations was not even remotely close to the negative situation of continuing to run a failing business model. I got my life back. I just wish I had closed my stores sooner. CNBC and Cecil, please, keep up the great work. You haven't even scratched the surface.

CNBC Please investigate further

CNBC should investigate further and expand the scope of it's expose on Cold Stone. I'm sure it will find Mr. Rolle's experience confirmed by hundreds of other credible franchisees and find that there is even more to the story than they thought. They have only scratched the surface.

Although he speaks for a great number of current and former franchisees, CNBC should not rely solely on the representations of Mr. Rolle. This story would have much more credibility if they contact the hundreds of other former franchisees that will reiterate exactly what he says. Also, I'm sure if CNBC contacted many current franchisees it would find many that are operating unprofitable stores and barely hanging on, hoping against reality, till they exhaust their resources, because the fear of closure is harder to deal with (so they think) than the fallout of closing their stores. Mr. Rolle's situation is not the exception, it is the rule. Hundreds of us will tell you the same story of financial devastation, health issues related to stress of the stores, insomnia, depression and a company that just doesn't care when you request help. Some day they'll wake up and wonder how they got in this situation. Cold Stone knows the market to sell a going store is virtually nonexistent and even if you do manage to find a buyer for pennies on the dollar, they demand (per the franchise agreement) a $32,000 transfer fee from the SELLER of the money losing store. They don't care because when you lose your IRA, 401K, inheritance, kids college plan and your home and have no choice but to close your money pit of a store, they simply take it from you. They then sell it to another unsuspecting person chasing the American Dream and collect another initial franchise fee along with the proceeds from sale of a store for which the original franchisee paid for the equipment and build out costs. Store churning: nice gig for the company, 100% profit.

I, for one, operated two unprofitable stores that I closed. Both grossed well over the system AUV, both achieved outstanding corporate inspection reports, and in all ways we followed the Cold Stone model - right to the brink of bankruptcy. I'm glad I followed the advice of Mr. Rolle and got out when I did before I lost everything. In short, I saw the light and cut my losses. My health has suffered, my marriage has deteriorated, my credit has been wrecked, etc... I could go on. I lost a small fortune, but not as much as some, and I feel for all franchisees, current and former, who can't wake up from the Cold Stone Nightmare.

We are all good, hardworking people who were suckered into Arizona beachfront swampland. There is no way that hundreds of closed stores were the result of bad operators who "just didn't try hard enough." When I got in, I was told that Cold Stone only approves about 2% of applications for franchises; only the most qualified are awarded stores. Cold Stone's interests are aligned against it' franchisees from the word go. Former CEO Doug Ducey even said so on my first day of franchisee training when he proudly boasted that everything in the franchise agreement is for the benefit of the company. He acted shocked that so many of us would sign such an agreement.

The company will say that everything it does is legal, disclosed in the franchise offering circular. That may be, but even reasonable due diligence could not uncover the extent of the nefarious and unconscionable practices of this company. Not until it's too late, often a year or more into the system, does a trusting franchisee realize the extent of his misfortune. By that time they're stuck. Although they probably have nondisclosure agreements, CNBC should contact former Presidents Sheldon Harris and Donald Flaum for their input. Perhaps supply chain VP Bruce Burnham or Marketing VP Kevin Myers, or former General Counsel (I forget her name). These are some former members of the executive leadership, many who are good people, some who left on their own and some who were fired or "resigned." I can't help but think that many of them knew what was happening and "jumped ship" or they just weren't on board with the antics of Kevin Blackwell and Dan Beem and maybe Don Sutherland and the effect they were having on franchisees. There is so much more to this story and I hope CNBC brings it to light.

michael webster's picture

The Cold Stone Strategy

Thank-you, Anti Zarco for reminding us about what Cold Stone's response to the original  WSJ article on Cold Stone's bad business model.

Costs, meanwhile, "will depend on how well a store is operated," Mr. Prasifka says. Cold Stone says it uses a one-stop distributor to ensure efficiency, quality and economies of scale. It adds that franchisees can buy ingredients elsewhere at lower prices if the product is identical.

Now, I begin to see Cold Stone's overall plan, which up to now didn't make sense to me.

1.  Cold Stone doesn't want to repeat the mistakes they made in responding to the WSJ article, which gave the franchisees authority to seek the same products from Costco.  Clever that Mr. Rolle and others picked up using the Cold Stone response to get cheaper products, without resorting to a lawsuit.  Kudos.  Good media strategy.

2.  But Cold Stone has to have some response, and it has to cut out Mr. Rolle's role with the franchisees.  (Sorry, I couldn't resist.)  Especially since Cold Stone is trying to expand North into Canada.  (Pretty sure however Gordon Foods might be a bit wary of another Quinzo's rebate scheme.)

3.  So they bring in a top rank franchisee attorney to "run" their own "independent franchisee association" and "instruct" him to minimize Rolle's influence because Rolle is "demeaning" the system.  Rolle has given some but not all franchisees a way of reducing their costs -that is what is driving Cold Stone crazy.

4.  Here is my prediction: Zarco will launch a Quiznos class action against Cold Stone, with the same result that the Quiznos class action had: nothing for the franchisees, a nice big loss on the balance sheet to manipulate earnings with, and a whack of change for the attorneys.

BTW, Granville Bean is multi-unit franchisee; his scratchy demeanor is the result of being a former attorney -with an MBA to boot.

Ray Borradale's picture

How many CS franchisees

actually accept this?

… franchisees who are profitable, assuming one exists. For all other franchisees, it’s just a matter of time before we go under. You and I know that Kahala has never cared about the franchisees who struggle. They are a company that eats their young and move on.

Lionel Hutz PA's picture

Rolle didn't pay for beach house, but did pay for TP rolls

He don't need no stinkin' beach house. But having a house with 15 bathrooms does mean he's got a big bill for toilet paper.

Rolle baby, rolle!

Mr. Rolle’s done more in 2 years than the NAB has in 10!

Despite that I believe you are Kahala attorney or executive (you all hate Mr. Rolle because you have no answer for him), I will respond to your question.

First, I am an ex-member of Cold Stone’s NAB. Back in the early 2000’s, the NAB proposed on at least eight occasions that Cold Stone approved Sam’s, Costco and BJ’s as suppliers. At that time we were able to buy the same products at those stores for half the price of the kickback-ladened Sysco. Back then, many ADs, including mine, would check boxes of candy for the Sysco sticker to make certain that franchisees were not buying from one of the warehouses. I was at the Sysco meeting in 2006 when Bruce Burnham said: if you don’t buy your candy from Sygma, we’re going to put you OOC and take your store if you don’t comply. Harsh language but when $13 million or so in kickbacks is on the table, Cold Stone may have resorted to a gun if they had to.

In Cold Stone’s response to the Wall Street Journal article that was generated by none other than Mr. Rolle, Cold Stone said: “franchisees can buy ingredients elsewhere at lower prices if the product is identical.” You and I know that was the very first and last time we heard that. The FDD to this day says otherwise. However, me and a lot of franchisees who had ADs that required us to purchase from Sysco used that one quote as our authority to cut our purchase price in half, i.e. save $16 per box on Snickers, Crunch Bar, Heath Bar, Butterfinger, etc. We also saved big on bagged candies, juices, Oreos, paper towels, and other goods. We had two high volume stores and that one concession saved each of my stores, several hundred in food cost each week. That was Mr. Rolle, not Zarco.

Second, in Cold Stone’s response to the very same article, they said: “Cold Stone says it won't distribute national two-for-one coupons this year, after franchisee complaints.” Again, that was the first time you or I heard that but it was a huge money saver due to pressure brought by (drum roll please) Mr. Rolle.

Third, for nearly a decade the franchisees have been attempting to organize an independent association. A week after the CNBC program that feature who?: Mr. Rolle, Cold Stone announces not only that they’ll permit an association, but they have apparently at least indirectly funded it. I would be the first to say that I have no trust in a Zarco formed association funded by Kahala. However, the fact that one exists will make it difficult for Cold Stone to challenge Mr. Rolle’s association. Because Mr. Rolle has the overwhelming backing of the majority of the franchisees, another alternative is that he may be permitted to take on a leadership position in the current association once Kahala’s house of cards comes tumbling down. But in any case, that is progress based on Mr. Rolle’s efforts, not Zarco’s.

Fourth, Mr. Rolle has advised franchisees who want to remain in the system but were struggling and those who want to get out. Kahala on the other hand terminates franchisees once they complain of financial trouble or other things. Do you think Zarco will aggressively confront his employer about a franchisee who may be lost in several months? Mr. Rolle has zero, I repeat ZERO bias!!! As you know, he has turned down a lot of settlement money from Kahala to stand with the franchisees. Therefore his lawsuit was not about money, it was about the franchisees. Zarco on the other hand, the Kahala slave that he now is, is only in it for the money and cares only about franchisees who are profitable, assuming one exists. For all other franchisees, it’s just a matter of time before we go under. You and I know that Kahala has never cared about the franchisees who struggle. They are a company that eats their young and move on.

There is no doubt in my mind that many more concessions will come from this CNBC program because it is enormous, Kahala is under the gun, and Zarco within 30 days at the helm, I guarantee you, Zarco will crash and burn; and that might be 15 days too generous. Look at the start he is off to already. He’s millionaire, Kahala apologist and who has a obvious conflict of interest in being paid by Kahala but supposedly working for the franchisees, and his letter to CNBC proves that.

You Kahala attorneys love to dial up your legal victory against Mr. Rolle. Give me 700+ pages to write a contract and I can probably win every legal battle I come up against and I’m not even an attorney. Think about that, a 700+ page contract for one fraudulent ice cream shop. That’s ridiculous!!!

BTW, if Zarco had an ounce of credibility, he would call Mr. Rolle and thank him for the beach house Mr. Rolle just bought him.

It is very clear and easy to

It is very clear and easy to understand that the franchise and the owner were as separate group of one brand. Once the owner granted the store the relation between the administration and the owner is note there. Any time when the store is shout down, that means the brand is going down. Any unsuccessful store could harm the reputation of the brand. The administration and the store owner working to the same brand in deferent state of mind. There is up and down time for all business brands, then never seen as cold stone shutting down in a year after year.Yong franchise but short of devoted and honest personal. No one can denied as cold Stone miss guide and had a weakness to those owners, think most owner the education and business experience they have, it is clear that the system was not helping them. It is good that cold stone franchise able to open this business, it is crating a job to this beloved country, how ever in the process they lost trust .when it is based on honesty business relation, when time is bad the owner can help back to defend their brand, but this bond never been there, they undermined the power of the owners. Every business learns on its way and resolves a problem in a business manner.
Cold stone missed this opportunity before it is out of their hand. They should concern about every conflict, but as long as they have a lots buyers they didn’t care, that is why they took the store from some one, then they turn around and sale it to the next person in the line. Not any more that is why some stores that taken away by the franchises been shut down while the franchise is trying to run it.
If ever try to get 100 customers by spending more money in advertisement, the other way, they are losing 10.000 because of the bad news about their operational ability, would be better to handle every problem at early age. The best product they have, because of the poor business implementation, bad connection got into a serious problem.
thousand people became the victim of this franchisee, and I am one of them, it is sad that happen, then I am hopping good solution to both side.

Lionel Hutz PA's picture

Rolle should hire Zarco to sue CNBC for defamation per se

Howard Morrill is right.

And since Bobby Zarco is mad that Cecil Rolle is referred to as an attorney when (according to Zarco) he is not, I think that Rolle should retain Zarco to sue CNBC on the grounds that falsely calling someone an attorney is defamatory per se.

michael webster's picture

Breakage and Provincial Laws

Paul recalls:

 

Reviewing 2 consecutive Cold Stone offering circulars some years back, the Kahala franchisor only booked a profit from recording an arbitrary "breakage" of gift cards. In other words, they took money which should have been a liability (monies held in trust pending redemption) and turned it into an asset.

They can do that in the US due to a series of case law too long to discuss here.

We have similar escheat laws in the Provinces to many of the State escheat laws.  So it will depend on the jurisdiction, but I would assume that the Master Franchisor will be located in Ontario.  It could be that Tim Horton's is going to expand via co-branding.  

I didn't think what Cold Stone was legal in Arizona: ironically, the person who presided over booking the breakage as profit, Doug Ducey, is now the Arizona Treasurer!

Paul Steinberg's picture

Can Kahala steal the gift card money in Canada?

Webster writes:

They also report approximately 1100 Sold But Not Opened International Stores, half of which are in Canada.  (Lucky me.)

As I recall from reviewing 2 consecutive Cold Stone offering circulars some years back, the Kahala franchisor only booked a profit from recording an arbitrary "breakage" of gift cards. In other words, they took money which should have been a liability (monies held in trust pending redemption) and turned it into an asset.

They can do that in the US due to a series of case law too long to discuss here.

My question is: can Kahala do this with Canadian money?

I mean, sure it is funny play money with pictures of the Queen and toque-wearing badgers... but still, if they can not do this in Canada, then Kahala may have a real problem booking a profit on their Canadian operations.

michael webster's picture

CNBC Story and Coldstone

Paul, what puzzles me is this.  Cold Stone in their 2010 FDD reports 1163 US units, down 200 from 2007.  

They also report approximately 1100 Sold But Not Opened International Stores, half of which are in Canada.  (Lucky me.)

It is clear that their growth strategy is outside the US - but how many prospective viewers outside of the US watch CNBC?

In one sense, the CNBC story on Cold Stone was simply old news.  Why get all excited, now?  The WSJ article 2 years ago was more damning.  The US franchisees don't seem to be in revolt - unless you count writing Mr. Rolle as an act of revolution.  

I think that this is just a big miscalculation Cold Stone - of course they did get Zarco to conflate the value of a brand (increased traffic to location - franchisee interest) with the value of selling new franchises (franchisor interest) and do so in writing, which is probably worth something.

Paul Steinberg's picture

CNBC demographic (& Streisand) more important than eyeballs

JD writes:

As for the CNBC ratings they approx 250-280k viewers in back to back showings (not very many and actually the marijuana story that led in actually had more viewers).

The important criteria is the viewer demographic, not the raw viewership numbers. Most of my clients are business owners, and they watch CNBC (as do I). As one example, look at the most influential 5 minutes of TV in the past 2 years--this was a mid-day show on CNBC which led to a major realignment in American politics (whether that was a good thing is a different issue.)

In addition, Robert Zarco has now created his own Streisand effect. A very foolish move unless he can effectively rebut the substance of the Rolle allegations in the CNBC followup, and I suspect if he could do so then Zarco would have written a far different (and more civil) letter to NBC attorney David Sternlicht.

Premium Burger Category is a joke

Anyone can get into it since there are no barriers to entry. All I have to do is buy a flat top, fryers, make tables, menu board/signage, POS, quality beef, Idaho potatoes and bulk peanuts. I might even spend money on marketing since Jerry Murrell is proud that he doesn't.

Truth be known Five Guys franchisees in the Northeast to my knowledge are not doing so well.

Granville_Bean's picture

And Rolle gets you what?

"Robert Zarco doesn’t represent me. Mr. Rolle represents me "

In what does Mr. Rolle represent you?  What can Mr. Rolle get you?  What has Mr. Rolle gotten for himself from Cold Stone, that he will also get for you?

Re: Naive Sentiment

The CNBC show did very little to future store sales for Cold Stone, because I would imagine that most of those have dried up anyways based on their history in the last few years.  The negative attention that it is bringing will probably hurt the franchisees just as much.  You'll have people like the one that commented on the Post's article saying that her and her family will never visit a Cold Stone again.  That takes away more from the franchisee than it does the franchisor.  As for the CNBC ratings they approx 250-280k viewers in back to back showings (not very many and actually the marijuana story that led in actually had more viewers). 

In my opinion, I think Five Guys (if they try to develop the 2k stores that they have development agreements on) will be in this same boat in 5-7 years.  Just like Cold Stone, they are currently the media darlings.  As I posted to Michael earlier, the franchisee is required to purchase goods from an affiliate owed by them.  In 2008, that affiliate had $1mil profit on $12 or $13mil sales.  In 2009, they had $5mil of profit on $25mil of sales.  Pretty nice increase.

Look further into their financial statements, and see that they have a subsidiary that owned 8 stores.  Those 8 stores had an EBITDA of $1.38mil.  Sounds good, but the question would be, do these affiliates have to pay royalties to the main company.  The supporting schedules don't show any 'eliminations' of royalties in the consolidating schedules, so on the face of it, that would make me believe that they don't.  Take 6% of the sales, and that's $548k, bringing the EBITDA to $831k.  So roughly $100k/store if you didn't have to finance the store.  The other question would be, were they getting any breaks in their cost of sales (which were approx 30%) from their vendors, like their affiliate.  

The other interesting thing to see was that the 8 store affiliate had a goodwill write-down, meaning that they overpaid for these stores when they bought them back. 

Personally, if I'm a prospective franchisee of Five Guys, I would be looking the 'Supplementary Information' in the financial statements pretty closely, especially with an entity that owns stores.

Oh, if you don't think that they think like Cold Stone, look at the lawsuit that someone filed.  It's been a couple of months since I looked at it, but I believe it concerned a resale that was sold and they gave the buyer a 4 block territory, then the seller opened up shop 6 blocks away (at least that's what it looked like on the map)

CNBC is much more mainstream

CNBC is much more mainstream than WSJ. Sure, you need cable for CNBC but you need a WSJ subscription or online access, much of which is paid online access (unless you use a library). So there is the greater opportunity for to increase the number of people that view the message by re-running the CNBC piece.

Ray Borradale's picture

Naïve sentiment

Coldstone do not know how many prospects were turned off by the WSJ report or the CNBC program but we all know bad press has a negative effect and not just on prospects. Some may sign but how many did not. Suppliers and landlords also get nervous.

Play your cards to those 2 audiences when the planets begin to align and the franchisor cash flow gets very tight and uncomfortable as extended payment terms are dragged back to a few minutes past due.

It costs what Coldstone cannot afford. It cannot be measured but it costs.

Press won't help Cold Stone franchisees

If the Wall Street Journal warning people away from Cold Stone didn't work, why would people think that CNBC continuing to re-run the piece would help the people who ignored the 2008 Journal article, or worse, read it and bought in anyway?

Like so many other former

Like so many other former franchisees of Cold Stone Creamery, I too suffered devastating financial losses. I owned two stores in the Washington state area, and even though I had almost 30 years of experience in the fast food industry, as a McDonalds Franchisee, I was not able to hit the numbers Cold Stone assured me I would achieve. I borrowed money from friends and family to keep the stores going, until there was nothing left. I filed for bankruptcy, lost my house, my cars, and still owe money to the Department of Revenue, and the IRS. I too, contemplated suicide. My health deteriorated, I had a heat attack in June of 2010, and no one wants to hire a 59 year old man. Everything Cecil Rolle said on the program was not only true, but in most cases, understated. Cold Stone Creamery lied to me about sales projections, took money from me at every opportunity, not just in royalties, but in illegal “kickbacks ” from our vendors! We were overcharged for product that we could get elsewhere for 50% of the cost we paid to our food supplier, which the suppliers “rebated” to Cold Stone Creamery! I know this because of conversations I had with the vice president of purchasing at the time, Bruce Burnham. I was told, in no uncertain terms, that if I did not purchase these products from the vendor, that I would be considered as “out-of-compliance”, and in danger of losing my franchise! I have documented my allegations in a blog entitled “Behind the Stone
Please, CNBC, do not cave in to pressure from Cold Stone! This is the very same thing they have done to us! Pulling any further airings of the program will do a disservice to hundreds of thousands of potential franchisees who may be considering a franchise opportunity, and are underequipped to evaluate it. This program helps to put light on a problem that has existed for way too long. The franchise laws need to be changed. There must be some kind of protections available to the consumer. Billions of dollars are lost each year by consumers (the franchisees) because the laws 100% favor the franchisors. It was our hope that CNBC would have the strength and courage to help us expose this travesty.

michael webster's picture

Collective Action

"Too dumb ..." writes: " When things are bad enough for franchisees to unite under such a banner, then the motivation of those same franchisees is to sell and get out with what they have left, and such a move would destroy their hope of escape."

I entirely agree with this observation - it is classical game of musical chairs.  The franchisees each think that they can flee silently, finding a bigger sucker than they were.  It doesn't happen, mainly because they wait too long, and try to sell for too high, and generally have awful books.

This is why it is important that franchisees see, when the times are good, why it will be important in their future to prevent either a sale, unjustified encroachment, or new distribution channels.

Yes, it is likely far too late for some franchisees to organize.  They should leave the system with best divorce terms that they can get.

Due diligence

Come now. One can do due diligence and still not uncover the dirty secrets. Even the worst franchise has someone who does well.

And even (as in my case) you buy into a franchise that is well regarded and does well for the average franchisee, there are changes in ownership, changes in management. I've seen multiple CEOs and ownership changes in my contractual term as a franchisee. These changes can have a dramatic impact on the value of the franchise... and you are locked in.

"All a franchisee association has to do, to gain considerable power, is to take a measured stand and from time to time withhold recommending that people buy into the franchise system, at this time, this place and with this contract."

A nice sentiment, and I believe you are correct, but then our collective weakness is getting enough support for such a move... in just about any brand. When things are bad enough for franchisees to unite under such a banner, then the motivation of those same franchisees is to sell and get out with what they have left, and such a move would destroy their hope of escape.

Ray Borradale's picture

Who is interested?

It seems that most people from any country have trouble explaining their complaints when so very few are interested.

More than a better grasp of English I would recommend a degree in Law specializing in franchising. Marry an accredited accountant with a degree in business management and you'll be bloody awriight mate.

But I like this premise from Guest;

If you are going to buy a franchise without effective due diligence then make sure you know how to complain well.

Poifect ....

I thought ‘lost everything/nothing work’ spoke his truth as clear as a bell.

colour, behaviour, tyre, merde

Does anyone remember the push for Vets, redundant GFC victims, kiddies, Wall Street etc to buy a whole Whack of franchises? Franchise marketing for a whole lot of desperate brands is about targeting niche markets.

Hell .... come to think of it .... we are all in at least one niche market.

Ahh merde!!.

People who are transplants

People who are transplants from another country need to do double their due diligence. Otherwise you will have problems explaining your complaints!

You have more to contribute than being rude.

‘Nothing Work’ gives us additional insights into the performance of Kahala. Readers took that information on board and in the spirit it was intended.

Granville_Bean's picture

Speak Engrish?

"At the age of let 50 I decide to have this cold storm business, my plan was just to have a business and haired supervisor "

What's a "haired supervisor"?  Does the hair protect from the "cold storm"?

michael webster's picture

Having a Say

"Too dumb" writes: "I thought if we're having a conversation, I'd better have a unique name!

Franchisees or association having a say in the sale? Please! LOL!

But then you say "We all know that the franchisor reserves the legal right to approve all assignments of the franchise grant; but why shouldn't this be equally so for the franchisee community? "

Why shouldn't we? Good question!"

In my view, this is one of the most important rights that the franchisee community should bargain for.

If the franchisor is not willing bargain on this issue, then the franchisee community, through their franchisee trade association, must consider whether any new purchaser meets their standards for a franchisor.  And take a public stand against purchasers who don't meet their standards.

All a franchisee association has to do, to gain considerable power, is to take a measured stand and from time to time withhold recommending that people buy into the franchise system, at this time, this place and with this contract.

I thought if we're having a

I thought if we're having a conversation, I'd better have a unique name!

Franchisees or association having a say in the sale? Please! LOL!

But then you say "We all know that the franchisor reserves the legal right to approve all assignments of the franchise grant; but why shouldn't this be equally so for the franchisee community? "

Why shouldn't we? Good question!

I see a fundamental flaw in our system. I've heard speech after speech from executives talking about how they 'bring value to stakeholders'. The problem is, they define 'stakeholders' as people who work in the corporate office, vendors, stockholders, sometimes even customers, but not once, not ever, have they conceded the fact that franchisees are the biggest 'stakeholder' of all.

It is amazing to me that granny with her $10 share of stock has more rights and gets more consideration than a franchisee who spent hundreds of thousands of dollars to build a store and sends in thousands of dollars every week in royalties.

michael webster's picture

Franchisee Association

Guest writes: "Our franchisee association is listed on your IAFD website.

I want to avoid identifying my brand or myself in such a public forum. I only sought to comment that these cases are not always so cut and dried. There are a number of factors that influence the choices we all have to make in these businesses."

Yes, and in Mr. Rolle's case a brief look at the summary judgment proceeding confirms your view.

But, what I was more interested in was the purchase of the franchisor by private equity and the role the franchisee association did or did not play in approving the purchaser.

We all know that the franchisor reserves the legal right to approve all assignments of the franchise grant; but why shouldn't this be equally so for the franchisee community? 

Michael, Our franchisee

Michael,

Our franchisee association is listed on your IAFD website.

I want to avoid identifying my brand or myself in such a public forum. I only sought to comment that these cases are not always so cut and dried. There are a number of factors that influence the choices we all have to make in these businesses.

In my career I have met many whining franchisees who blame the brand for their own inadequacy, but I have seen many more who are solid, hard working, honest and intelligent people who have fallen victim to a system that favors the corporate raider at the expense of the real stakeholders: the franchisees.

While Mr Rolle lost in the courts, I know from my own experience that that does not mean he was wrong or that his case lacked merit. I have seen cases rise and fall solely based on the resources of the plaintiff and the defendant. I have seen cases ruled on by judges who either lack a command of the English language, have a vendetta against a party in the case, or are taking kickbacks; their decisions so obviously outside what any reasonable and sober person would conclude looking at the most basic of facts.

As long as franchising exists, there will always arise disputes between the franchisor and franchisee. However, when there are signs of larger problems, people need to sit up and take notice. In this case, it appears that there is something going on. It may not play out in the courts. It may not even be caused by any wrongdoing on the part of the franchisor, but it is obvious to this observer that a problem exists and the franchisor and franchisees would be better served if Cold stone invested it's resources in identifying and fixing where the model is broken rather than hiring some slick lawyer to head a losing PR campaign against CNBC... unless of course there is some wrongdoing going on.

There will be others who have

There will be others who have not lost everything and are continuing on merrily to lose everything. They need a lawyer and their combined funds may be the start --- but they also need supporting numbers and evidence.

To do nothing is to leave the rot for someone else to suffer. Not good enough.

The relation between the

The relation between the owner and the franchise is the base to grow and to make benefit, Order can flow down to the owners from the office and the owner will implement the order to benefit the system back. The office need to assign representative as the era developer, to those business minded and have the education to be able to communicate as a bridge between the owner and the office, cold stone era developer don’t have the power to represent the office, just they are a tools for the office, some have their own store and some have other full time job, How can they be devoted to the core value. They don’t evaluate the business, and hard to get them when you need, what kind of baseness is it. Some representative really feel the owner pain, then can’t help it. The reputation of store shut down in a year that should let them to think and study the case, why is this happen, they just blame the owners. Beside the area developer that don’t know how this business can survive, no one from upper management get to the earea.Then can have only one side of the information from the developer not from the owner, to save the fish you need a lake, the owner are the fish and the office is the water, then if the office is giving its back to the owner, how can the owner he will survive. The office administrator has short of knowledge in running a business.
If any product is not able to sale why do they force you to have it, while you don’t have a sale, you have a flood of coupon, while you can get with les money, they force you to buy in a double cost, then the product sale to the retailer in half cost less than the store, how can the store able to sale in high. The store is like a laboratory for testing the new product, and the owner is conceder as a mouse or animal.
When you want to give a comment as this business is not going to work, you will be given warning as you are a trouble maker, you just see them as a president of the country, it is all to keep your house, to protect your family, more over to our kids, then we have to take the stress and the flame from cold stone .That is why I lost my two store, they took it and sold it to some one. Cold stone or corner stone, what ever you name it, made home less in a thousand innocent American. I don’t know how they sleep; do they have a kids and family? Our country is going to be like third world, if this law is not going to protect this kind of mischief business. Mr.Cecil thousands are in your side keep the good work God bless you. Happy New Year to all .Thanks all those posted your comment.

michael webster's picture

Investment Group

Guest writes: " I signed up with a good company that cared about the success of franchisees as well as the latest earning statement of the franchisor... Until they sold out to an investment group that raped the franchisees profits, jacked our prices for supplies, found new and unneeded equipment to force us to buy and then embarked on marketing designed to bring in royalty revenue with NO regard for franchisee profitability."

I consider this issue to be the most important issue for many mature franchisee systems, and indeed the prime reason to form a real independent franchisee trade association to influence the sale beforehand.

Could guest give us more general details?  Or contact me privately?

"Typical of franchising

"Typical of franchising though they will sit on their fat butts and leave it all up to the next guy..."

So true, but then as a franchisee in trouble (not CS) all I can wonder is what lawyer would take the case? When as a struggling franchisee, you realize that the franchisor has taken you for a ride, it is already too late. The money you need for a lawyer has already gone into the pockets of the franchisor. With savings gone, all you have left is the meager HOPE that something somehow will turn and the franchise you own MIGHT somehow make money someday... if you can just hold on long enough.

Sit down, shut up, and grab your ankles because the franchisor OWNS you, and lawyers don't work for free.

It's the old "Golden Rule". He who has the gold makes the rules.

In my case, like many others, I signed up with a good company that cared about the success of franchisees as well as the latest earning statement of the franchisor... Until they sold out to an investment group that raped the franchisees profits, jacked our prices for supplies, found new and unneeded equipment to force us to buy and then embarked on marketing designed to bring in royalty revenue with NO regard for franchisee profitability.

Ray Borradale's picture

Predictable Coldstone

About a year ago I advised one group of network franchisees that it was time for them to accept that while the majority of their franchisee network was onside and suffering what they were suffering they were a bunch of wimps destined to be slaughtered. I suggested that without the numbers the battle would be tougher but looking after their group interests ahead of the rest was the only way forward and they needed to dig deep.

There was a time when I believed there was some secret common formulae to how franchisors of systems like this operated. But I believe I was wrong; they simply go through stages of reacting and utilizing the power at hand and as they find necessary to maintain what they believe they can save. I accept there are many franchisor examples of what to do with power when franchisees revolt. Typically it only prolongs the inevitable when the franchise model sucks.

Franchisees likewise react and utilize their voice in an expectation that all franchisees will come on board.  Most franchisees won’t and because they have no confidence that the big dog can be bitten. They are wrong. When the big dog has declining network numbers all sorts of financial pressures are applied and as the legal needs increase so do those costs. The franchisors typically put on a show of strength using cash flow while cash flow exists. It becomes a pathetic sight when the cash flow dries up and the rats jump ship claiming they ‘were only taking orders’.    

There is a book that should be written on how these franchisors come about and behave through to the end and another book on how franchisees cause themselves so much grief by being mostly pathetic.

My hat goes off to Cecile Rolle and you Oldsword because while I know that while one day your efforts and principles are to be appreciated that does not balance the cost of believing in your fellow franchisees.  The only way to protect franchisee interests are as a united, organized and financial voice but instead they hide out believing that a miracle will save their individual interests - if they don’t make waves.

They don’t stop to consider the biggest obstacle is the cost to the franchisor if it were to mend its ways. After many years Coldstone rely on revenue streams (A) that can only be undone by a new management team that does not have dirty hands. Franchisees have to operate from a position that a new management team won’t happen because (A) is set in concrete.

I’ve been reading for a long time on what happens here, there and everywhere in franchising while I work in franchising every day and get contact from literally thousands of franchisees annually. It has confirmed what I learnt the hard way and why my early mistakes as the nut-job spokesman for a network allowed me to reach the ultimate heights of broke-ness. 

Coldstone franchisees will be too busy fighting to survive and won’t have the luxury of time to research the varieties of constant and predictable behaviours and practices they will confront in their circumstances. Most won’t understand what has happened and few will have an inkling of what is to come next if they sit on their butts.  They cannot make a stand without leverage and to get that they need an assessment of their situation followed by dedication to a plan. If they are confident of their course - good; if they are not then I suggest they hire an experienced a-hole that won’t sell them out.

Cecile; if you register at BMM you can send private messages and I’m sure you would find a number of reliable advisers. You would not have to comment publicly.

Old Sword's picture

Re: Ray and Cold Stone Franchisees

Ray, I have the pleasure of being in the same shoes as Mr. Rolle for my franchise.  Most don't even want to get involved - they want this put behind them.  Those willing to help are mostly interested in listening and then jump on board after the work is done and there is a possibility of scoring points against the franchisor.

As for "talking of investment values" I want to build on a point I made in a previous post that Mr. Steinberg highlighted and commented on:  The more successful franchisees usually control the franchisee association.  Those are the only franchisees Mr. Zarco is representing.  They have more to lose because they are profitable.  Right now they don't care if the system is failing - THEY are making money.   In my franchise the handful of very profitable sites systematically shouted down any negative comments and refused to deal with franchise wide problems - some, in fact, were moles for the franchisor.  The one who most often tried to silence me - I found out a few months later - was trying to sell their site for $1 million.  (Someone in the franchisor's head office inadvertently placed me on an internal mailing list of sites up for sale.)  What was best was when the system started to have serious financial problems this individual's gross revenues dropped in half creating monthly losses - THEY then became the vocal one about the franchisor.

I stated earlier CS will most likely regret bullying CNBC.  CS franchisees are getting piss-d off after getting piss-d on for so many years.  Hopefully they will take their heads out of their proverbial as-es and become vocal.  As for the franchisor, they should remember something:  No matter how hard they try it is almost impossible to win a shouting war when your opposition has a microphone AND unfettered access to public airwaves. 

Oh yes please

Let’s fix the Marketing Dept so I can buy more Kahala product and with any luck I might make it to minimum wage. Kahala needs the money.

First things first. Cold Stone needs to fix franchisee profitability and then customers and effort become worthwhile.

Howard R. Morrill's picture

Yes!

"CS franchisees cannot come from the position of saving their investments. They have to treat their money as if it’s gone [because it has]"

This is often the hardest thing to get drowning fsees to come to grips with.  Well said Ray!

CSC Community is abuzz

Most of the executive team at Cold Stone DO NOT even have college degrees, that needs to be brought to light! The marketing department is a joke riddled with complete incompetance, failure after failure. Kevin Blackwell if you are reading any of this REPLACE the Executive TEAM hold them accountable for failure, especially the Marketing Dept!

Ray Borradale's picture

Coldstone franchisees

Any day now this will all go away and it will be back to business as usual for Kahala. Of course the day that happens will be the day that Kahala pulls its head in and backs off CNBC and sends Mr Zarco packing.

Someone mentioned the cost of this public spat to the investments of existing franchisees. I’m not sure why more franchisees in systems that are imploding cannot come to terms with what Mr Rolle obviously was forced to face.

You fight or you die on the Coldstone vine. Its not new to franchising but it gets boring when franchisees continually choose the vine and then have the audacity to complain that no one came to the rescue. No one is coming to the rescue of Coldstone franchisees.  It is up to Coldstone franchisees to save themselves and Mr Rolle gets that.

Talk of investment values is really quite ridiculous for even existing successful franchisees as the majority of the network around them head toward short or long(er) term collapse. In these systems everyone has a number and as time goes on franchisee turnover becomes faster and faster for a whole lot of reasons.

While it seems Mr Rolle is getting plenty of back slapping from Coldstone franchisees I would bet Richard’s home that the reality is that Mr Rolle has not gained the real support, including financial, he should get from the vast majority of Coldstone franchisees stupidly waiting for change while ducking down in case by ducking down they can preserve something they once dreamt about. And franchisees can do that without drugs?

CS franchisees cannot come from the position of saving their investments. They have to treat their money as if it’s gone [because it has] and while the tendency is to fight to get it back the reality becomes minimizing loss. And the only guarantee is that if they do nothing they get didly squat plus stress and waste a few extra years [at best] while possibly waving goodbye to their departing families.

The CNBC program will fade away [even if it comes back on air] and Coldstone will go back to business and in a few years the franchior goes belly up once franchisee failure numbers reach critical mass.  The only asset that franchisees potentially have to counter their inevitable awaking to loss is in the ‘numbers’ of franchisees. They have nothing to lose by getting on board with Mr Rolle.  Not behind – on board. 

Typical of franchising though they will sit on their fat butts and leave it all up to the next guy and everyone will leave it up to the next guy and the whining will become a crescendo but the rest of us will remember that Now was their only chance and not enough got off their collective butts.  Franchisors rely on franchisees to leaving it up to the next guy and sitting on their collective butts.

This state of disaster at Kahala is unique to its Coldstone franchisees but it is well and truly overdone across much of franchising.  Its all been done before and so much is predictable.  The only left field here is Mr Zarco.

I am not the one that made

I am not the one that made this comment
But somewhere in your reading of this article you may have missed the point
He is a franchisee lawyer that was setting up an association apparently for the franchisees
to fight the franchisor who has now accepted money from the franchisor to fight
CNBC
So franchisee are back in the Potter house because their lawyer is now in the pockets of the franchisor

I am glade to see this kind

I am glade to see this kind of opportunity to stand for our self. I never had a hope to see this kind of chance to talk about cold Stone. After I lost my two stores and all whatever I had my health get in to a serious problem because of stress.
In my present situation I am not going to stay long, how ever to get to this point it is a success and a big progress. This is all because of one bereave and angel person Mr. Cecil Rolle, I am here not to get my money back just to protect and support Mr. Cecil as a good person he was willing to help every one, on his time. This is the kind of person we need to respect. What a wonderful person, I really don’t care about the money I might not be alive till we win, and then I want to appreciate his dedication for the people. Any personal attack against this respected person I will not tolerate all the anger about Cold Stone might turn over their dirty mouth. Nothing to loss, my life is short, and then the story will continue till they win.

Millionaire Richard Quick Esq's picture

Blaspheming Franchisees Should be Ashamed

Guest writes:  "Robert Zarco is officially a snake. I have lost all respect for him."

It's sad indeed to see the franchisee rabble so viciously attack one who has given of himself so freely and selflessly on their behalf.

While technically competitors of  Zarco, Einhorne, we at Quick, Duhk & Hyde find it personally and professionally offensive to hear our friend and colleague Bobby Zarco accused of being in this for the money.  If walking the streets of Calcutta in rags and bare feet would best relieve the suffering of downtrodden franchisees, that's what Bobby would do.  It just so happens that to best defend zees from their own bad decisions, Bobby needs a powerful image... the most ostentatious mansion, fastest boats, and most expensive luxury automobiles and jewelry.   What Bobby does, he does for you. 

Great wealth is a burden most of you will never understand.  You should be thankful for that.  The other night, as we dined on roast 'zor in a franchisee whine sauce, Bobby explained that each hand-cut crystal in his massive chandelier represented a tear he shed for fallen franchisees who could no longer afford even a minimal retainer.

Guest, if it weren't for Bobby you'd still be living in one of those Potter houses, paying the rent Potter decides.  Well, I, for one, toast Bobby Zarco:  The richest man in town!

Millionaire Richard Quick, Esq.

Partner, Quick, Duhk & Hyde

Founder, Franworst Franchise Opportunities

At the age of let 50 I decide

At the age of let 50 I decide to have this cold storm business, my plan was just to have a business and haired supervisor and get more time with my family, then at the binging of the start I seen that I am not getting money, I did spent some extra money for advertisement, nothing work out then I put my self as a cahier 7 days a week, for my surprise I got the first warning, because I did not sing their song, at my age I have to line my self with the kids and start singing. Beside that they have some thing called mom, mow and other occasion that we have to give free ice cram .Then I have to keep the store till I can support the business from 401k, because I got old to get the same job that I had, and hard to find a job, any way the Arizona lion cold Storm took my business and let me go down for life. Those who are saying that making money out this business, you must be the lucky one I wish you more wealth, and good luck.
This business is attack and run, they know the system, money talks In America, when the owner is going to lose money they know that he can’t go against them because , he don’t have the money to come after them. We don’t want any franchise to be destroyed, because they are crating a job, but this cold stone is the same as a terrorist, that attack to innocent people and destroy the entire family life.

We come up with all the money

We come up with all the money we had just to be slave to cold stone, we pray to get that business, and then with in 3 month again we pray how to get out. With our own money we begged cold stone to be their slave.
When we applied to the location we like, we had told better to have a second one, and promised to help us, we did take the second based on their offer. The second store owner was walked out that we don’t know. Because he was not able to run the dead store.
Then with in 3 month we told them that we want to back out from the second store, at the end they took both store and let us to go down. We lost 401k and our home, everything we had gone. Then cold stone sold the store again to some one, that is how they make money, sold out and make money two times from one store. The system is helping to this kind of franchisees they can do what ever they want. The cashier makes money than the owner.
The franchise makes money by terrorizing the owner; we turn as a slave in this free open modern country. No were to complain since they have strong defender. It was the falling time for us that we can’t take them to court, because we don’t have money to do that. There is a lots story to be told about cold stone, some times if some one starts to stand up and talk, they give him some benefit and put him as area developer, that way he can make money then he will keep his mouth. It was very hard to organize and stand for our self, every one scared that he might loose the store. Never in the history of a franchisees been seen out of business one after another, this can tell you how it is bad business. I think if all owners participate and post their comment based on reality truly, we can achieved and get progress on this point. Is not only to get the money we invest, just let the America people fight back to this kind of bogus business, to keep safe the next generation.

Wow!

Hey, please anonymously post your audited P/L's and B/S's for the last few years. I am sure they'll help support your points.

Re:Question

Plaintiff could be awarded $1.00, but they still would have to pay for courthouse parking.

100 stores?

I can see the spin job headed our way. 100 stores out of 1400? 1100? how many of those are Franchise [ready to love]stores [owned by Kahala], how many are multi unit owners? I applaud them for actually, in a timely manner for once stepping up with a voice on thier behalf, but from the owners I have spoken to, they were not consulted, nor approved this move, again, done on their behalf without thier approval or voice... but where is the money coming from? Cold Stone is the most successful of all the Kahala brands. No one has seen or heard from Blackwell in years, accountability is not a strong point. Rolle has always had the open door and picked up calls or called back immediately. More than I can say for the corporate numbers. If you can find the right person, if they have been "let go" you might get a call back after calling the ombudsman, Most of the time they get back to you, not the person you were trying to contact.

Will remain to be seen, everything I have heard and experienced in the last 9 years with members in the system is out in the open, more I am sure will come out. It's unfortunately going to hurt the hard working people with the stores, loans tp pay and in the slow season none the less.

Howard R. Morrill's picture

Question

When a  franchise offering is viewed as radioactive, bankruptcy inducing crap, what are its reputational damages in a defamation action?

Ray Borradale's picture

18.5% is cruel

It was estimated that Midas Australia took the total incoming franchisee revenue to 18.2% - but that was the total and at that rate the system took out more than 5 times the number of franchisees as it has left today. There is not much franchisees can argue when a franchisor wants to make a buck from preferred suppliers but once again we get back to those who abuse the opportunity.

Just to refresh for those franchisors who were away for that tutorial; the idea is that quality, supply, support and price are negotiated on the basis of the size of the network where the overall benefit is calculated and the franchisor takes his bit of the overall benefit while leaving franchisees with benefit.

If you were informed that you inflate the price the supplier will charge franchisees to maximize the size of the kickback then you were misinformed.  

One of the apparent problems for some franchisors who abuse opportunities such as blowing out franchisee operating costs is where the franchisor financial model has become dependent on that profit.

Our franchisor guest makes this point;

Kahala gives the entire industry a black eye.

A part of the process of collapse is that the network standards and morale begin to fall and then nose dive. They can sit there for a long while giving all franchising a black eye as they become grubby little outfits and then inevitably with ‘closed’ signs like nails in a coffin.  The bigger the network the bigger the ship to turn around once network numbers hit a serious downward trend.

Kahala may be able to turn it around – I don’t know – but if they can they would want to get cracking and cut the crap. If they stay this line you know collapse is inevitable.

'Interested Longtime Franchisor' I salute you and ask why so  few franchisors come out and stand up for the business model recognizing and stating that bad franchising is bad for business.

cnbc

Hoping that cnbc will do a full hour followup on their coldstone report. cnbc only scratched the surface on their story of franchising. As a former franchisee of a competitor I believe that everything Mr Rolle stated on the segment is truthful. I admire his courage and wish him the best. To Zarco and Kahala the backlash is coming. There is nothing worse than a greedy franchisor and its lawyers.

Paul Steinberg's picture

No, Zarco is not the norm

Richard writes:

Why is it that the attorney who represents opposition to a dearly held position has to be called names. Zarco isn't doing anything that the rest of us have not done time and time again.

Neither of Richard's premises are correct.

  1. Nobody is calling Mr. Zarco names because he opposes any position, "dearly held" or otherwise. Indeed, if you read Mr. Zarco's tirade which he emailed to CNBC, it is Mr. Zarco who went into an ad hominem attack against the interviewee.
  2. No, it is not common for an attorney to be funded by a party whose interests are in open conflict to those of the represented party. Where this does occur (such as "monied spouse" divorce cases) the court keeps a sharp eye to ensure that the attorney is actually zealously representing the represented party.

In this instance, Mr. Zarco set up an "independent" franchisee association just 2 weeks before he got money wire from the franchisor. Now Zarco is being paid by the franchisor and is engaged in dual representation of the Zarco-sponsored "independent" association as well as the Franchisor-sponsored "Advisory Board."

Zarco admits that his focus is not on representing his clients (the franchisee association and the "Advisory Board") but rather on "aligning" the interests of the zee and zor. That may get him a Nobel Peace Prize, but it is not going to get him any legal ethics awards.

There is nothing wrong with Zarco Einhorn et al representing a franchisor, even one as disreputable as Cold Stone Creamery. And if Mr. Zarco had taken a check from Kahala (ok, a bank wire since he doesn't trust them) then this would not be an issue. He could have sued CNBC and viciously attacked ex-franchisee Rolle to his heart's content.

Solomon makes this out as though Zarco is representing an unpopular franchisor. That is precisely the problem: a lot of us suspect that Zarco is indeed representing the franchisor who gave him the retainer.

Zarco has now defended (on his letterhead, no less) the kickbacks and "administration" fees that are the bone of contention between the franchisees and their franchisor. That would not be a problem if his client were the franchisor. But his client is the franchisee.

Zarco took his 30 pieces of silver, and was so blinded by hubris that he made a beeline to Janet Sparks to brag about selling his clients down the river. Apart from making him a bad human being, it makes him an attorney of dubious ethical standards.

And a word of advice for Kahala...

It took Zarco a mere 2 weeks and a few bucks to throw his clients under the bus. How much money would it take for him to turn on you?

Cold Stone cracks me up

‘’Costs, meanwhile, "will depend on how well a store is operated," Mr. Prasifka says. Cold Stone says it uses a one-stop distributor to ensure efficiency, quality and economies of scale. It adds that franchisees can buy ingredients elsewhere at lower prices if the product is identical.’’ WSJ

hahahahahha

If Kahala is not careful, they'll be out of business in 3 years.

Why is there always such acrimony with Kahala and Cold Stone? Couldn't this whole situation have been better managed? All franchisors have disgruntled franchisees, but this is just downright sloppy management and it’s inexcusable. First the Wall Street Journal, now CNBC. What's next? 60 Minutes.

Kahala gives the entire industry a black eye. And why on God's earth if they have nothing to hide would they not show up and respond to questions? Kahala’s management’s explanation for not doing so boarders on retarded. It was just woefully inept. I can’t believe any of their franchisees bought it. Instead of responding to a few difficult questions and promoting their brand, they chose to work with the producers and attorneys to keep material out, despite that they had no defensive and promotional comments on tape? Does that make sense to any right-thinking individual?

Let’s face it, Kahala’s practices are roguish and well out of line on several fronts. Cold Stone’s SBA default rate is exorbitantly high and no franchise system can withstand an 18.5% rebate rate. You can’t explain that away other than to say we’re accountable and we’re going to fix it. And while I understand that Robert is advocating zealously on behalf his clients, his decision to attack Mr. Rolle is poor strategy. A brief examination of the message boards and you realize this is Cold Stone’s franchisees’ Ruby Ridge and Mr. Rolle is their Randy Weaver. He has obviously been with them through thick and thin. Robert's retainer fee is not going to change that. Attacking Mr. Rolle, and viciously so, only complicates matters particularly for an attorney who considers himself an advocate for franchisees. That aside, if he is not attacking Cold Stone behind the scenes with equal ferocity for their many transgressions and mismanagement of the franchisor/franchisee relationship, he is a mere puppet and Kahala apologist. He will fail miserably.

Kahala’s BOD needs to act immediately to terminate Kahala’s CEO, Kevin Blackwell and Cold Stone’s president, Dan Beem. They have poorly managed this once promising brand and positioned it for complete and utter collapse. Once there is new leadership in place, they should contact the franchisees and say, we’re going to work with you and Mr. Rolle and fix this. If you’ll be reasonable, we’ll be reasonable. If they feel they cannot work with Mr. Rolle, they should pay him off with some stipulation for the two parties to agree upon a monitor. Anything short of fresh management advocating a reconciliation approach to this issue and I assure you, Kahala will be out of business or at best, a shell of a company with two fledgling brands within three years tops.

Tough Sale

This is a hard sale. Cold Stone has the worse SBA failure rate in the industry. If the No. 2 store in your system can’t make it, there is certainly something going on there. And if no one watched the program, why do you care?

Mr. Rolle is not responsible for the kickbacks, lease administration fees, store closures, etc., etc., etc. Kahala has issues my friend and clearly you have ulterior motives, but you need to own up to that.

Perhaps you are attempting to sell your failing store and you are upset because the CNBC program puts an enormous chink in that opportunity, but your argument is implausible. You are making the Aristocratic mistake of blaming the messenger. With $13 million in kickbacks on a single year’s revenue, Mr. Rolle may be your best friend and Kahala is certainly your enemy. Smarten up my friend.

michael webster's picture

WSJ Story in 2008

I recently re-read Richard Gibson's story about Cold Stone, July 2008.  The WSJ story on Cold Stone seems far more damning of the business model than the CNBC story.  The very same Ceil Rolle appears - perhaps he is getting under their skin?

I have been a very successful

I have been a very successful Cold Stone Creamery franchisee for almost 11 years now. I have owned 10 different stores over the years and currently own 5. Things were better when Doug Ducey ran the company. Kahala leaves much to be desired. However, Cecil Rolle is nuts! He only represents the losers. Misery loves company, I guess. Mr. Rolle and his ilk should go find something else to do. Perhaps something they can succeed at... Only NBC news would give a lunatic like Cecil Rolle an open mic. Nice job NBC! No wonder no one watches your network.

The CSC community is abuzz

The CSC community is abuzz over this Zarco retainer. The franchisees are NOT happy. What a joke that Kahala is hiding behind the phony "we want to protect our franchisees and the brand". Ironic that our royalty money is being used to protect the very bully that is shaking us down every week.

Get real. If you wanted to protect the franchisees you would be skimming us to death through kickbacks, forced shipments of crap we don't need, and mandatory use of Kahala-owned companies like Vires Media. How about that great "partnership" we entered with Pepsi where we are forced to buy case after case of soda that we can't possibly sell? THOUSANDS of dollars in expired soda every year alone.

They say they want to protect the brand while at the same time signing off on 3rd party low quality treats that are sold in Wal-Mart and other discount stores. I have seen everything from gross candy made in Mexico to crappy toys and video games with the Cold Stone name plastered on them. Franchisees have never seen a dime of revenue from any of these products that they put our name on. They are also flooding the market with coupons, after REPEATEDLY telling us before we bought in "we're a premium brand. We don't coupon".

We have an "executive team" that in grossly inept and incompetent. One marketing team leader told our market that she was qualified to run the marketing program because she had run a successful donut shop. I'm not kidding.

I hope CNBC digs deeper and makes a whole show devoted to Kahala. They should air it on their American Greed show.

RichardSolomon's picture

Why is it that the attorney who represents opposition to a

dearly held position has to be called names. Zarco isn't doing anything that the rest of us have not done time and time again.

If you are lucky enough always to insist upon represeting only the "righteous", good for you. The rest of us represent those who hire us, and we accept the hire because of the money and because we believe we can help them.

A real trial attorney can represent effectively an unpopular position because the so called "good guys" so often assume they are right/on the right side, and don't do as god a job as they might have done had they anticipated strong opposition. It doesn't help that CNBC is represented by a coward. If CNBC's position is as good as Paul says it is, the proper response to Zarco would have been to tell him to go straight to hell. Either CNBC's position is not as good as Paul says it is or CNBC's counsel lacked sufficient knowledge of lawyering to appreciate the strength of his client's position. Either way, one for Zarco and Zero for CNBC.

Whatever the reason, CNBC's counsel has now so screwed the pooch on this one that the real story has become one of machismo rather than any real inquiry into the vagueries of franchising.

Ray Borradale's picture

Cold Stone's example for franchisee investors

I don’t know that much about Cold Stone but I will make some general observations of franchise systems with problems such as the example of Cold Stone’s SBA failure rates.

How do we rate successful franchisees in a troubled system? Are they driving toward some level of wealth or are they surviving with some level of comfort or just surviving?

Mandatory profit streaming to the detriment of franchisees produces an array of outcomes depending on the franchisee and the franchisee’s situation and they are typically less damaging to ‘successful’ franchisees that simply have better locations.

Detrimental franchisor abuse of contractual right is to my knowledge not a scientific calculation to determine what is tolerable to the ‘weakest link’ franchisee. Franchisors pursue network growth anywhere with anyone and then wash their hands of any responsibility to the selection of the franchisee.

It is a beautiful thing when growing a franchisee network feeds what is the sweetest of all revenue streams. Kickbacks, unlike royalty and advertising, tend to never come with an operating cost.  It all goes straight to the bottom line. It is absurd to believe that kickbacks benefit franchisees no matter what is cleverly written in a contract.

From what I have read I doubt CNBC will have any trouble coming up with examples of the consequences to the Cold Stone franchisee network.  Just the other day and from a well known Australian brand I received 2 invoices for the same piece of equipment where the franchisee paid $2,400 more than the $6,300 his independent mate paid.

Cold Stone might have serious trouble countering with meaningful examples of its generosity in using the kickbacks to enhance the lot of screwed franchisees.

One thing I will give Zarco; he has now made this all about Cold Stone rather than the intention of CNBC to use Cold Stone’s performance as an example as to why all franchisee investors need to be very sure of any brand before they potentially destroy their families.

Ray Borradale's picture

The publicity Cold Stone didn't want

It seems to me that Zarco by thumping his chest is performing a disservice to all stakeholders.

Damaging exposure comes and goes and smarter franchise brands recover by digging into the advertising fund and not dragging the brand through Court for a couple of years and especially when the opponent will be a media organization representing its reputation and the First Amendment.

Even smarter franchisors massage contentious practices.

Win, lose or draw, Zarco will walk away with a monster check if this goes the distance.

The lawyers for CNBC are not franchising lawyers but they will be specialists in reviewing content to make sure they can get away with what they then publish.

Now that Zarco has raised the stakes with his lucrative entry I cannot see it as unreasonable that CNBC review the stand they originally made. Any reputable media organization is not going to backtrack on free speech unless it has to and at this time there has been no decision either way.

Given the points in the segment that are objected to by Zarco I cannot imagine CNBC doing much more than expanding on the consequences of Cold Stone practices e.g. CNBC did not suggest that Kahala did not have a contractual right to kickbacks.

It sounds like at least one expert franchising lawyer is prepared to walk across the river and assist CNBC.

It seems Cold Stone is bringing on the media it didn’t want by taking some self-serving and bad advice.

Paul Steinberg's picture

Who pays the Zarco piper, calls the tune

Old Sword writes:

Mr. Zarco is most likely not representing the franchisees as a whole as much as the few successful ones

I disagree. If the successful franchisees (assuming Cold Stone has any) wanted to sue, they could pay Mr. Zarco to litigate on their behalf.

In this case, Mr. Zarco admitted that he took on this case after the franchisor wired him a retainer (presumably he doesn't trust his paymaster enough to accept checks).

Furthermore, Mr. Zarco admitted that he will be pursuing a litigation strategy that "aligns" the interests of zor and zee.

Now, I am all for singing Joy to The World or Kumbaya and hoping for world peace, but...

The central factual debate is whether Cold Stone screws their franchisees. That in essence is what the CNBC report was about--the franchisees who have seen their lives destroyed by a sleazy franchisor.

How in the world can Mr. Zarco "align" the interests of the franchisor and the franchisees on this issue? The answer can be seen in his threatening letter to CNBC: by taking the position of the franchisor and saying that all is hunky-dory in franchiseland.

Yeah, right... and the slaves were happy when Massa sold 'em down South.

Paul Steinberg's picture

Solomon wrong about Zarco and Coldstone

Richard writes:

CNBC is not a substitute for trial in any fact finding project. CNBC controls its content just as unilaterally as any other source of public programming. That Bobby Zarco's letter generated the response it did shows more that CNBC was not concerned for accuracy until confronted by a competent adversary. Only then did CNBC start looking to the potential consequences of its lapses

Competent inquiry would obviously have revealed that Mr. Rolle had his day in court and failed to prove wrongdoing. Competent inquiry should have been made

Richard should know better. Richard was already a member of AARP when Times v. Sullivan inaugurated a new chapter in First Amendment jurisprudence.

CNBC is under no obligation to report on the misdeeds of any source. That is what Cold Stone/ Kahala could have discussed on-air had it chosen to be interviewed. Mr. Zarco and his paymaster (Kahala) are trying to have it both ways: refusing to be interviewed and then suing when they don't like the reportage.

Rather like prosecutors, journalists take their sources where they can find them and oftentimes it is the most disreputable source who has the best information. That an attorney of Mr. Zarco's intelligence and experience would choose to spend time on an ad hominem attack on the messenger rather than rebutting the message speaks volumes--CNBC's lack of backbone notwithstanding.

In court, the points made by Mr. Solomon are beside the point. Instead, the issue is: what (if anything) in the CNBC report is actionable at law?

Mr. Zarco is being paid by Kahala Brands to achieve in a court of law what Kahala could not achieve in the court of public opinion: a respectable reputation.

In attempting this feat, Mr. Zarco is damaging his reputation and further damaging the reputation of his sugar daddy.

That the franchisees are being dragged along as props to show how franchisees really love to be screwed by Kahala Brands should be a matter of shame for Mr. Zarco, not the point of pride as he is trumpeting to the media.

michael webster's picture

Legal Forums v Public Forums

Richard writes: "If ColdStone is what its disgruntled franchisees claim it to be, they can engage ColdStone in court and prove alleged wrongdoings with competent evidence. If there is such proof, and if the matter is of sufficient consequence for the claimants to invest in remediation, they will have the remedies to which they are entitled."

I entirely disagree with Richard's point.  This would mean that nobody ought to have an opinion outside of a legal process about the validity of the Cold Stone business model.  This is an absurd idea - we have active, constant, and engaging analysts of public companies who are are constantly reviewing a firm's business model.  We should have the same type of community in franchising, especially for Cold Stones in the franchising world.

As A current franchisee I did

As A current franchisee
I did not know of any association that was set up
THis company just does not get it
THe franchisees are not mad at CNBC they are fed up with the
franchisor
So this lawyer is a puppet (the Front) set up by the franchisor to sent out email to CNBC
in disguise for the franchisees who they claim is now upset with CNBC

Old Sword's picture

Re: Richard and Valid Points

Richard, if I recall correctly CNBC did mention that Mr. Rolle lost in the courts - somewhere in the vicinity of $800,000.  Second, and correct me if I am wrong (you always do), this was spearheaded by the franchisor NOT the franchisees and Mr. Z is representing the franchisee association not just the "franchisees".  In addition, these franchise organizations are usually headed by the "successful" franchisees who try to silence dissent from the many disgruntled.  In other words, Mr. Zarco is most likely not representing the franchisees as a whole as much as the few successful ones.

As I stated in my first post, with this large a group of failed franchisees I can guarantee you there is an even greater number right on the cusp.  Maybe Ray is correct:  let CNBC now really look into this.  With all the failures, Cold Stone may regret their decision to bully.

RichardSolomon's picture

Paul has a valid point, but it is only one of many valid points.

If ColdStone is what its disgruntled franchisees claim it to be, they can engage ColdStone in court and prove alleged wrongdoings with competent evidence. If there is such proof, and if the matter is of sufficient consequence for the claimants to invest in remediation, they will have the remedies to which they are entitled.

CNBC is not a substitute for trial in any fact finding project. CNBC controls its content just as unilaterally as any other source of public programming. That Bobby Zarco's letter generated the response it did shows more that CNBC was not concerned for accuracy until confronted by a competent adversary. Only then did CNBC start looking to the potential consequences of its lapses.

Whether a franchise oppportunity is a good or bad investment prospect can be vetted professionally if the potential investor wishes to devote resources to the job of due diligence. Seat of the pants questions asking by amateurs is not a substitute for competent due diligence. Consequently, many investors buy franchises and later complain they did not understand what had been provided to them before they bought the deal. Those misfortunes were avoidable. The market place is not regulated in any sense that people think. They do minimalist work and believe what they want to believe. All franchises are frought with risk - some more than others. If you cannot sort them out and won't invest in competent pre investment due diligence assistance, you can expect failure to identify many risks you might otherwise have chosen to avoid.

None of that is Bobby Zarco's fault. Bobby has credibility or CNBC would not now be backtracking, looking for the apparent truths they didn't bother to fact check before they published the story. If they had done their homework, this situation could have gone in another direction. They were careless and they are now paying for it. Glitzy impact is not evidence of truthfullness.

No responsible network can with confidence take the statements of a disgruntled former affiliate at face value. Competent inquiry would obviously have revealed that Mr. Rolle had his day in court and failed to prove wrongdoing. Competent inquiry should have been made.

I certainly have no love for high risk franchisors. But I also have no love for low quality reporting. BMM would not be at risk for publishing a competently vetted story about ColdStone or any other franchise company. This is about the quality of reporting, not about freedom of the press or of expression.

Paul Steinberg's picture

Support free speech, fight Zarco Einhorn

Email David Sternlicht, the attorney for CNBC, at david.sternlicht@nbcuni.com

Urge him to put the story back on the air, and not to cave in to Bob Zarco's threats.

If you have information about Cold Stone Creamery or any of the other Kahala brands, contact Gail Ablow, the producer of the CNBC story, at gail.ablow@nbcuni.com

If we permit Zarco Einhorn Salkowski to silence free speech at CNBC, then what is to stop them from doing the same to Blue MauMau?

Or on UnhappyFranchisee, which also posted stories about how purchase of a Cold Stone Creamery ruined their lives?

I used to operated 2 Cold

I used to operated 2 Cold Stone stores Like so many other former franchisees of Cold Stone Creamery, then suffered and devastating financial losses. Even though all my family work out to minimize cost, , I was not able to make it. the Cold Stone assured me that I would make it. I borrowed money from friends and family to keep the stores going, until there was nothing left. , lost my house, cost me divorce, . My health deteriorated, I had a heart and blood pressure problem because of the stress, but in most cases, understated. Cold Stone Creamery lied to me about sales projections, when i bought the 2nd store. We were overcharged for product that we could get elsewere for less of the cost we paid to our food supplier, It was sad to know that Cold Stone didn’t care that we were losing out on sales we had generated in the past and needed to help our struggling stores. FBI need to involve and clear this mafiya Cold Stone franchise.

Ray Borradale's picture

CNBC investigates

… the CNBC media lawyer told him they would pull the piece temporarily, to further investigate the facts ..

This may get even more interesting.

In my experience with journalists, especially television, the lawyers are very careful before they publish.

Nice work Janet.  I suspect everyone will be looking forward to the follow up.

One very strong vote in favor of Mr. Rolle.

So Cold Stone “immediately wired him a (big) retainer check” and he represents me because Kahala says so? No!!! Not on my life!!!!!! He has never called my store and he never will. I doubt he or his big shot partners would pick up the telephone if I ever called him. I trust Mr. Rolle. I will never again trust Kahala, their jacked up legal department or their chosen “face of Cold Stone”: Mr. Zarco. I don’t control Kahala, I don’t control Cold Stone but I do control myself and who I choose to align with and that is Mr. Rolle.

Robert Zarco vs Mr. Rolle

Cold Stone could not make a good decision if their lives depended on it, which is apparently the case because this very well may be the end to Kahala and Cold Stone. I am a current franchisee holding on by my fingertips. Robert Zarco doesn’t represent me. Mr. Rolle represents me and all the imperiled franchisees. When we call him, he answers the telephone or calls us back. He has advised us without compensation for three years. It’s insulting to me that Kahala has hired this midget to attack Mr. Rolle when we franchisees are barely hanging on. Kahala doesn’t care a thing about us and they continue to attack the one person that does. That’s bad judgment!!! That’s Kahala!!!!!!!!

Old Sword's picture

Cold Stone and Cold Hard Facts

Mr. Zarco is 100% correct.  We should NOT play semantics and  focus on "kickbacks" and "hidden expenses".  We need to focus solely on facts.  How about the 30%+ SBA failure rate for this franchise system?  But I guess Mr. Zarco would suggest that this information has been provided by a biased, very one-sided source:  the U.S. government.

This is not a new phenomenon.  Franchisees are trying to protect what little value they have left in the system.  According to the BMM report, the CNBC story has hurt the franchise - which for franchisees means "resale" and "overall interest in buying in" (trying to save the value of their investment by quashing the truth - much like franchisors) .  So now, rather than helping expose the system for what it is - one of the worst failure rates in all of SBA franchise lending - and trying to get the franchisor to correct those now "public" problems, the franchisees are hunkering down and doing the franchisor's bidding. 

What a short-sighted, ill-advised disgrace.  A system with that many outright failures must have a significant # more of unprofitable sites.  These franchisees are shooting themselves in the foot.  

Addendum:  I just reread my comments and want to clarify.  It doesn't sound like the franchisees as much as the franchisor leading this charge - with Mr. Zarco as a paid employee.  Has Mr. Zarco truly reached out to the franchisees to determine their true interests?  Is it possible the franchisor's desire to help the franchisee organization is just a ruse and Mr. Zarco is being used to squelch any true dissent?

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