The Franchise News

Is the Southern Franchise Expo a scam?

We generally follow the standard biz op scams, identifying the persuasion techniques used by the operators.

It is no surprise that start-up franchisors can suffer the same fate.  Here is what the franchise broker magazine is reporting about the Southern Franchise Expo.

"Recently a few franchise industry folks were posting on Linkedin about a company called Southern Franchise Expo.

This company was allegedly taking money from franchise companies to exhibit at franchise expos and then not holding the expo.

So we dug into it a bit and here is what we found so far.

When we emailed shawn@southernfranchiseexpo.com there was no response.

Same with info@southernfranchiseexpo.com no response.

When we tried to call the phone number on their website: 770.828.8932 it was disconnected, actually it was a Magic Jack phone number that costs $39/yr... And the message says that the number is no longer in service.

We called the Sheraton Atlanta and were told that we should contact the Douglasville, Ga Police Department right away if we had paid any money."

We are going to provide some more background research, which although from public sources may not be immediately accessible to those franchisors who lost money.

What we are looking for are clues to innocent bystanders who may have more information - especially good would be someone who might rented or leased housing to Keith or anyone connected to him.

1.  The whois from Tucows for the franchise site Southern Franchise Expo does list Keith Knowles as the domain owner.

Next we want to go the Georgia Secretary of State page to look up "Southern Franchise Expo" and get some details about the incorporation.

2.  We the corporate vehicle is an LLC, and that David Keith Knowles and Wesley Chad Hudson are the organizers.

This is good, we now have another name to look up: "Wesley Chad Hudson".

3.  A google search reveals that Wesley Chad Hudson has another company, Orion Corporate Consulting.

4.  Back to the Georgia Secretary of State page to get the incorporation details on Orion Corporate Consulting.

Now from the latter incorporation, we see that Wesley Chad Hudson has listed "6297 Pine Forest, Douglasville, Georgia" as his residence.

5.  A bit of magic later, and we find the assessor information on 6297 Pine Forest, County of Douglas, Georgia.

Viola, we now have the names of the people possibly renting or leasing housing to one of Keith Knowles circle.

Don't know if this will turn out to be a useful lead, but many of the steps outlined may prove valuable to uncover other leads.

Happy Hunting!

About five years ago, a number of us gathered on franchise-chat to discuss the merits of 1-800 Radiator.  That forum has been removed, but over at the franchise-pundit forum, people are asking for more information.

As result, I am going to publish a short summary of the previous discussion and post the originals.

In the first discussion, the following points were made.

1.  The fee structure was: "8% franchise fees and 2% for advertising. If they take the call and sell the part you get the sell but they charge 5% for that"  The seasoned commentators thought this was too high.

2.  Who was the competition? "AAA Radiator, Radiator Express and Auto Radiator Outlet are all the same company as 1-800 Radiator. I haven't found any other radiator franchises to compare costs. The main competitors look to be the local Mom and Pop stores and the big auto part chains."

3.  What was the business model? "The chains buy from them when they don't have the part in stock. They are opening these local warehouses to get the part to the customer in a couple of hours instead of the next day." Fuwa noted that NAPA might be able to provide this service also.

4. There were some interesting earnings claims by "prospect" franchisees, always a sign of trouble, in my opinion. "The new start ups are around 30-50K per month. They send a blitz crew out during your first two weeks of business to visit every shop in your territory (which is a very generous by size), have a great computerized ordering system and awesome buying power. Instead of just calling their franchisees, get out and visit one of them. It was worth it for me and I was sold on this franchise." I am never sure that these posters aren't shills.

5.  An amusing example of confirmation bias, in part suggested by moi, Samir wrote: "My partner has actually talked to every franchisee in the system that we could get in touch with and asked a detailed set of questions. Almost every response to every question was positive. One of the big questions, "If you knew then, what you know now, would you do this again?" had a unanimous positive response. We have visited one of the company stores to see an operation in person. (There isn't a franchise close enough to us to visit and return in one day.) Even there, the same overwhelming positive response.

Here is the first page from the franchise-chat forum. 1-800 Page 1.pdf

What are your reactions?  What has changed and what has remained the same?

One of the great myths in franchising is that a bigger distribution center is always better for each operator on the node.

The operator of the Amazing Soda Shop is great story, and provides a compelling counter example to franchising.

"Welcome to Galco's Soda Pop Stop, where you will find over 450 different sodas in glass bottles and half forgotten candies.

(Yes, we do also carry over 500 different beers from around the world, but these are not yet available online.).

You may have seen us in such magazines as AARP, Westways, and Sunset, and on such television programs as "Visiting With Huell Howser" on PBS,  The Food Channel's "Unwrapped", CBS "Sunday Morning" or "Modern Marvels" on the History Channel. "

The passion for soda began when John F. Nese was a child. His father's best friend owned a soda pop bottling plant where John loved to visit in the 1950's.

At that time, he also spent his summers at Happy Camp. It was here that he would dream of how he could hook the natural, bubbling spring water, add syrup and siphon it to his elementary school's drinking fountains.

In 1995 John began increasing his assortment of sodas not only out of love, but also as a protest to some of the larger soda companies that were not offering him the same prices as his larger competitors. He figured why not support other small businesses such as his own?

What the John Nese says on the video is also very interesting.

1.  He wouldn't become a Pepsi distributor because he could recommend that his customers get a better deal from Pepsi down the street at a competitor.

2.  "I own my self space and I can do anything I want." When Nese put 25 hard to find soda pops on his shelves, the customer reaction was: "Why are you trying to sell those old things?"  When he got to 250, the customer reaction was: "Where are you getting this things?"

3.  Heavy glass bottles which are recycled is better for the environment than using cheap bottles and refundable deposits.

4.  "When the American public has a choice, they will buy it." A glass bottle keeps carbonation, whereas carbon dioxide leaks from the plastic.  Modern bottles explode if drop.

5.  Most diet sodas are pretty bad, and modern soda pops use corn syrup instead of cane sugar.  Try the Coke made at the Jewish High Holidays, yellow cap bottles. to see the difference.  People have allergies to corn and there is a spore that cannot be removed from the corn sugar process.  This spore is what people are allergic to.

6.  Energy drinks are terrible.

7.  Big business leaves big government.  "My thought was always to do business with other businesses my size."

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Over at QSR, there is an interesting story about Jamba Juice.

"Jamba Juice announced the debut of its new franchise website.

The new franchise site, also accessible from the company's Web site, was developed to make it easier for prospective franchisees to learn about franchise opportunities with Jamba.

"We announced our franchise development strategy as part of our Company BLEND plan in January 2009," says Thibault de Chatellus, senior vice president of global franchise and development for Jamba Juice Company.

"Since that time we have had an influx of calls from parties interested in opening Jamba Juice stores.

We are launching our site to provide potential franchisees with round-the-clock access to detailed information about Jamba and to provide an easy way to apply for a franchise."

This makes a lot of sense, if in the long term the website ranks high in either organic or paid search for "jamba juice franchise".  As might be expected, there is little or no traffic on the jamba juice franchise website.

Interestingly, it ranks in the top ten google search for this misspelling: "jabma juice franchise", as of September 24th, 2009, using google.ca - the Canadian search.  It doesn't rank for the US search for the same misspelling.  And right now it is not ranking for "jamba juice franchise", although the franchisor's main website is.

What you see when you type "jamba juice franchise" is that the franchisor is competing with a number of franchise portals, salesmen selling their product.

If I am the franchisor, I am more than annoyed that I am competing with third party salesmen, many who might be only using their ranking for "jamba juice franchise" to obtain a lead, because they ranked highly for the term.

Google says that it tries to protect bidding on trademarks, but as the CBC recently reported, "a European Union court adviser said Tuesday that Google Inc. does not violate luxury goods makers' trademarks when it sells brand names as advertising keywords triggered by internet searches.

The adviser's legal opinion will now be studied by judges at the European Court of Justice, which has been asked to tell a French Appeal Court how to apply EU trademark law in a dispute between Google and several French luxury goods companies over the internet search engine's ad system."

The bidding on a company's trademarks in order to compete with a company is a big practical problem for a franchisor.

How can their websites rank higher and provide better content?

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In a franchising world that loves the fluffy stories, Janet Sparks shines like a beacon.

With hard hitting, factual, and important stories Janet Sparks leads the way over at at the first rate franchise news site, Bluemaumau.

Look at her latest story about a very dubious franchise system, Peaberry Coffee.

"On August 31, Bill Tointon, owner and CEO of Peaberry Coffee, sent out notices of termination to the remaining five franchisees out of the original ten, advising them that the company was closing its doors. The franchisees were immediately cut off from needed supplies to run their stores and disconnected from the POS computer system, leaving them greatly handicapped in ringing up customer sales. Two franchisees, who were subleasing from Peaberry, were told their property leases were terminated.

One said he had no choice but to put up signs advising loyal customers that his coffee shop was out of business. Five company-owned stores were also closed.

Peaberry attorney Hugh Gottschalk explained it this way, "When you close your business you simply decide it is no longer worth continuing the effort to try to make money." When asked if the franchisor was going into bankruptcy, he said, "No, they do not have to file bankruptcy. Bankruptcy says I don't want to pay my creditors."

So what does it mean to simpy shut down a franchise system by sending notices of termination?

Again, Janet writes:

"Richard B. Podoll, the attorney representing the franchise owners, thinks the franchisor left its franchisees high and dry with little communication and warning of its precarious predicament.

He said closing down the coffee chain is typical of Tointon. "He knows the remaining franchisees are totally dependent on the Peaberry product and he has signed 10-year agreements with them to go five years down the road. So now he sends them notices of termination, knowing it was contrary to terms of the franchise agreement."

Podoll said Tointon portrays himself as a kind guy, but in reality he couldn't care less about the ten people that he induced to invest more than $400,000 into a cloned business that had been losing a million dollars a year since 1990.

Closing down Peaberry Coffee without notice to the franchisees evidences the same lack of character for the franchise owners."

You simply don't find this investigative writing outside of Bluemaumau.

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Donald Cranford writing at the franchise direct blog claims:

It's official: the shift is underway. In the wake of the global economic downturn, the massive lay-offs on Wall Street and the chaos of the financial markets, hundreds and hundreds of America's best businessmen and women have been sent looking for a new field to apply their business skills. And that place is the franchising industry.

In this week's issue of Business Week, there is a compelling article discussing the migration of financing to franchising for 11 professionals. Be it with Roni Deutsch Tax Centers or Hungry Howie's, the broadness of franchising has allowed many intelligent, unemployed people to reignite their business careers.

Unfortunately, 11 stories don't equal data.

Are people flooding into franchising?  Are leads, completetion rates - the sending in of the confidential questionnaire, and conversions up?

No.

In fact, the Franchise Bench Report for July 2009, states:

"What are you seeing on lead flow? The answer?

For the May-July 2009 period compared to the same period in 2008, lead flow is down approximately 34% for the brands included in the FranchiseBenchmark report. 

There are franchisors that have cut back on advertising in an effort to reduce costs sectors that have shown slightly higher or slightly lower changes but the bigger shift is in the focus on lower priced concepts. 

Donald Cranford writes for one of the portals in this report, and should have researched the trend on lead flow before simply parroting the fluff piece in Business Week about financial professionals now in franchising.

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Sean Kelly writing at his Franchise Pick blog has an excellent article about the deceptive advertising by Liberty Tax.  Sean writes:

"A search for Liberty Tax Service on CareerBuilder.com revealed no less than 433  Liberty Tax Service franchise opportunity promotional listings mixed in with the employment ads.

While one of the fields was tagged "Franchise" and the title for most was "Liberty Tax Service - Franchise Ownership," the franchise ads were steeped in employment lingo including  "Job type:  Full Time," "View Full Job Description" & "View Similar Jobs."

Is Liberty Tax Service crossing the line set by the FTC by trolling for franchise prospects among desperate job seekers?"

Here is the ad that Sean spotted.

What Sean was quick to spot was two things: first the franchise is being pitched as a job, and second, to make it more realistic, a "salary" was quoted.

Sean also pointed out that this was probably a violation of the FTC Staff Advisory Opinion, 06-1.

"The only substantive regulation of the content of advertising in the Franchise Rule are provisions regarding the making of earnings claims in the general media. Pursuant to section 436.1(e), a franchisor making earnings claims in advertisements, such as in newspapers or trade journals, must have a reasonable basis for the representation at the time it is made and disclose in immediate conjunction with the earnings claim the number and percentage of purchasers known by the franchisor to have achieved the same or better results in the same time period."

So why does Liberty Tax make such outrageous claims?  Because for the most part they cannot be held accountable.  Any violation of the FTC Rule has to be pursued by the FTC, and the usual integration clause in the franchise agreement will preclude an individual from suing Liberty Tax.

Thanks again to Sean for uncovering this neat bit of deceptive advertising.

Image by Getty Images via Daylife

A ABC news story, by Joel Stonington,  reports on a "franchisor's" use of fake reviews.

Lifestyle Lift agreed to stop posting false reviews online, in a settlement with state Attorney General Andrew Cuomo on Tuesday.

This is reportedly the first prosecution nationally of "astroturfing," the practice of creating a fake grassroots movement or illegitimate buzz around a commercial item, something that Cuomo's office called "a growing problem on the Internet," in a statement issued Tuesday.

Cuomo's investigation revealed internal emails in which employees were encouraged by company executives to take spare time during the day to write the reviews and post to message boards. "Put your wig and skirt on and tell them about the great experience you had," read one.

According to the AG's website, regarding the use of fake reviews by Lifestyle Lift:

Lifestyle Lift has more than 40 locations across the U.S., including Manhattan, Long Island and Syracuse.

The company engaged in a concerted effort to bombard Internet message boards with positive stories about themselves.

Lifestyle Lift's president believed that negative Internet postings had significantly hurt the company's reputation and thought the success of the company hinged on controlling messages posted online.

Company employees were directed to create accounts with various Internet message boards and pose as satisfied customers of Lifestyle Lift.

Employees also attacked legitimate message board posters who criticized Lifestyle Lift and tried to get those posts removed from message boards.

Some of the employees, or shills, stories can be read by clicking here.

Here is one of the more interesting shill post:

"What was with all the negative posts online? Those negative stories did not add up atall. They did not make any sense.

Lifestyle Lift had done thousands of procedures,their doctors are board certified, and they have doctors from Harvard, Stanford, and all the topuniversities in the country ...

Why was that happening? Was Lifestyle Lift really a scam?

The juxtaposition of the authority of "doctors from Harvard and Stanford" with Lifestyle Lift is cute.

Lifestyle Lift is not a franchisor, but operates about 40 centers in the US.

This action by AG Cuomo is consistent with what the FTC now demands in their guidelines on testimonials.

Endorsements must always reflect the honest opinions, findings, beliefs, or experience of the endorser.

Furthermore, they may not contain any representations which would be deceptive, or could not be substantiated if made directly by the advertiser.

Slash dot picked up the fake review story and there about 200 comments on the story, but none of the commentators make the obvious point: the employees could have been quite straightforward that they were employees defending their companies reputation.

The desire to meet negative posts online with fake reviews tells you a great deal about the underlying ethics of the company and ultimately product: they are willing to lie about the product to counter act negative reviews.

Hmm, does this apply to your franchise?