Cold Stone Case Study
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I am in San Diego for the meeting of the AAFD Standards Committee, saw a Cold Stone franchisee.
Gwendolyn Bounds, writing at the WSJ has an article on Cold Stone, with three warnings for franchise buyers.
"1. Is there too much expansion? Cold Stone's rapid pace of store openings was enticing. Everyone wants to be on board with a winner.
But you may not want to be invested in a brand if locations are too close together, or brand saturation among consumers sets in. Cold Stone says it closed more than 100 stores last year.
One list on its Web site showed 303 stores for sale, more than 20% of the company's total as of last December.
2. What's the company's policy with national coupons? While franchisees often love national advertising, they don't always love national coupons or discounts because not every market's economics are the same.
In the case of Cold Stone, franchisees contend that a two-for-one coupon cut into profits. Cold Stone has agreed to stop distributing them.
3. Will the product survive a downturn? A $4 scoop of ice cream is fabulous business when most folks are feeling flush.
It isn't such an easy sell when people are cutting back discretionary spending. Ask yourself how you'd market any franchise during tough times as well as good times.
And prod the company about how much leeway you'll have to shop around for better deals on supplies."
Are these good tips? Well, yes and no. The first observation should have supplemented with information from Cold Stone's item 20 which shows how much churning is going on. Item 20 in the FDD, when read conservatively, can produce a failure rate - the chances that you will lose your entire investment.
Focussing on store sales is not conservative enough because you should assume that the item 20 sales are forced transfers involving a complete loss of investment. (If the franchisor doesn't want explain the item 20 in greater detail, then assume the worst about transfers.)
The second tip about coupons is simply hindsight. And the third tip is pure speculation. But one out of three is pretty good.
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Read More From BizOp News
August 6, 2008
Does Cold Stone Churn Locations?
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Over at Sean Kelly's Unhappy Franchisee, an ex franchisee of Cold Stone Creamery complains that the franchisor turned down 3 legitimate buyers of his franchise, that he was forced to close, and that the franchisor immediately resold the location - pocketing the fees that they would not have got had there been a transfer.
1. The first buyer flunked the personality test.
2. The second buyer flunked the interview with the corporation.
3. The third buyer, a local CS franchisee, needed money from the franchisor to complete the transaction, when none was forthcoming he withdrew.
In six months, the franchisee had only 3 potential buyers and none of them were approved.
Finally, because of failing sales the franchise closed and the franchisor re-opened it for around $45k to a new prospect.
Here is what I want to know: was the franchisee selling it for $45k? I doubt it - I read this story as a typical unhappy franchisee desperately looking for the next sucker to off load his piece of poo to.
Sean, am I wrong?
