"The essence of due diligence is to provide the information that is needed for the franchisee to make an informed decision about the business investment. If that information is not available for any reason - or is not sought out - then the 'angels who fear to tread' start getting nervous.
By Visitor 2013-08-21 12:22
Canadians tend to think of American consumer prices as somewhat pricey. It will be interesting to see if Serruya's instinct tells him to lower menu prices in order to attract more traffic back to the brands. Quiznos' former CEO from Canada did just that when he came south to run the Quiznos business.
I take it that Serruya bought Kahala and its brands in an auctioned bid on the cheap. Nonetheless, Serruya will want to raise fees in order to put Kahala on a healthier financial path. The new franchisor owner pretty much has carte-blanche in increasing franchise fees in various ways, even if the franchise owners don't like it.
Posted Fri, 2013-08-02 20:34 by Howard Bundy
People get married believing they will remain married and happy the rest of their lives. Over 50% of marriages end in divorce; a higher percentage “fail”. People start businesses believing they will succeed and achieve financial independence. Approximately 85% of those businesses fail within five years. People buy franchises believing that the name, the system and economies of scale will help assure their business success. Approximately 85% of those franchised businesses fail within five years. So, what is your strategy, your “Plan B” if your franchised business does not thrive—and you need a way out?
Let’s look at what you probably will have signed. First, you will have signed a franchise agreement. Under that agreement you will be personally liable (even if you transferred it to a corporation or LLC) for operating the business and paying the franchisor all of the fees for the full term. In many cases, that agreement also has you personally guaranty all obligations to all of the vendors and suppliers of your business. Increasingly, that agreement probably contains an obligation to pay minimum royalties—that may exceed what you would pay in the percentage royalties you tend to focus on. It is not unusual for those minimums to be $200,000 to $1,000,000 over a ten year franchise term for a small investment franchise. In many cases, the franchise agreement obligates you to sign a lease for the full term of the franchise.
Read it all - here.
By Guest2012-09-01 16:09
When discussing large franchise systems in trouble, the problems are normally widely known including at franchisor headquarters.
We all know what the problems are with Cold Stone unit profitability. Since fixing those problems would result in the franchisor running in the red, those problems are unlikely to be fixed.
As with many franchise concepts, the zor does not care about unit profitability so long as they are selling franchises. We may admire the optimism of Ms. White and Mr. Gordon, but the fact is that some business models are not fixable.
Nobody has shown how CS can be a profitable model for both zor and zee. The comparisons which some have made to Haagen Dazs and Ben & Jerrys are flawed in that although the retail product is similar, the business model of CS is much more labor and capital intensive, both in terms of initial capital requirement and the ongoing operating expense.
CS is much more like Coffee Beanery: a business model which must be revamped to obtain a much smaller footprint and labor cost. CB has tried to institute a downsized model with mixed results, as Harry Rifkin can tell you. In addition, the seasonality of CS suggests that it is best co-branded, but given Kahala's poor stable of brands it is not going to help much to pair CS with a "Cereality" type of franchise either.
[CSF]- Cold Stone business model fails where another frozen yogurt shop takes over. Notice the CS logos are still on the doors while the other shop moves in.
New frozen yogurt shop takes over former ice cream location
The former Cold Stone Creamery store at 14224 Pearl Rd. will be occupied soon by Menchie's Frozen Yogurt.
A sign on the window says the store will celebrate its grand opening Aug. 18 and 19.
Cold Stone left its Strongsville location without notice in mid-June.
Menchie's offers frozen yogurt made with milk from the company's California dairy, where cows are not treated with growth hormones.
The company's website says the husband-wife owners opened their first Menchie's in California in 2007, and now have more than 200 franchises, with another 250 in development around the world.
Menchie's will be located in the plaza with LaKabob Lebanese Grill and Antonio's Pizza.
By Jim Coen
The success of all franchise systems is based on a mutually advantageous relationship among all brand stakeholders. Typically: Franchisor, Franchisee, Vendors, Employees, Customers and Communities all benefit from a successful franchise brand.
Kahala's action against Coldstone Creamery franchisee association leaders is a catastrophe for all of franchising.
Clearly you cannot have franchising without franchisees and franchisors.
One of the foundations of any relationship, especially a franchise relationship, is mutual respect. The IFA’s Code of Ethics states “IFA members believe that a franchise system should be committed to help its franchisees succeed, and that such efforts are likely to create value for the system and attract new investment in the system. IFA’s members are committed to showing respect and consideration for each other and to those with whom they do business.”
Kahala Corp. and its franchise brands don’t appear to be IFA Members, therefore they probably don’t even consider the IFA’s Code of Ethics. That is one of the reasons Fair Franchising Laws are needed nationwide. To ensure that basic American Rights are available to all franchisees.
Clearly the right to associate is an American Right, and it is Number 1 of the Universal Franchisee Bill of Rights. Kahala’s action against Coldstone Creamery Franchisee Association leaders is not only against the IFA Code of Ethics, it’s Un-American!
Endorse the Universal Franchisee Bill of rights today at www.franchiseebillofrights.org
By Guest2012-08-01 04:43
If the franchisee cannot make money, the franchise will sputter out and die. You can only churn a unit so many times. Look at Quiznos or Coldstone Creamery. Those franchise models are broken because they treat franchisees like marks.
There ae those who say that small operators are meant to be conned, and franchising is only that: a con intended to part people from their life savings.
That means that the franchise model is broken for most people.
Either it gets repaired, or it disappears as a way to grow a business. That may the creative destruction that erases franchising from the face of the global economy. However, it won't be because of the usually positive things that wreak havoc, like new technologies that disrupt business models (for example, Blockbuster Video franchise stores disappearing).
It will because the industry allowed itself to be poisoned.
It would be a shame. Leaving money on the table is just stupid.
By FuwaFuwaUsagi2011-09-07 00:26
Some unsolicited advice.
You really should get all your numbers together and then go away for a night to a hotel, buy yourself a good meal and go over them very carefully. And then review the business model. By the way, it is really helpful to get away and do this analysis. You get a different perspective and when you are in the trenches it is often hard to see the reality of the situation.
My opinion, you need to come to grips with the fact ColdStone has a dysfunctional business model. Do you have reason to think that will change? They have a unfair cost structure, and a buildout/design that is energy inefficient and horribly expensive that contributes next to nothing to the bottom line. Next consider the product, they have a very pedestrian to lame product at premium price.
Sometimes you cut your losses and move on. Only you can determine that.
A few years ago I had a chance to acquire ten of these on decent terms, after partial analysis of the locations and a review of the FA, even if they were free I would not have touched them. IMO, the business model, is simply broken. I would have been interested in acquiring these if I could have easily broken the FA and taken over the equipment etc and rebranded with some concepts that were less asinine. As is, IMO, this is a site specific model and your location will determine your success.
By Current Franchisee2011-09-06 18:16
I was surprised to read that Cold Stone is back to issuing BOGOs. I receive a ton of them in my stores over the weekend.
Didn't Cold Stone come out a year ago and say they would no longer issue BOGOs? Now they want us to join in distributing these coupons with My LSM. I will not participate in my own demise.
I am struggling financially just to keep my stores open. I have to put several thousand dollars into them every month just to keep them open in the hopes of selling them. We get no help from Cold Stone and now this. They are trying to run us all out of business so they can take over our stores.
By Granville_Bean2011-10-01 22:16
A Current Franchisee wrote:
"I am struggling financially just to keep my stores open. I have to put several thousand dollars into them every month just to keep them open in the hopes of selling them."
Who do you think would pay to buy stores that not only don't make any money, but lose "several thousand dollars ... every month"? Unless the reason you are losing money is that you are a Bad Operator and the next guy can fix what you are doing wrong and make money instead of losing it, then your stores (not you) are losers.
The longer you stay open the more you will lose. What you have lost is increasing by "several thousand dollars ... every month". You are NOT going to get more for you stores by losing even more. No fairy godmother is going to come along and tap the wand 'bing' and make you whole for all that you have put into your stores. The longer you stay open the more you will lose. Please think about that and act accordingly.