Cold Stone Creamery Franchises Cooling Off

Blame it on an increasingly volatile economy, unrealistic expectations or high operating costs, but the bottom line is Cold Stone Creamery franchises aren’t delivering returns for franchisees. One …

Blame it on an increasingly volatile economy, unrealistic expectations or high operating costs, but the bottom line is Cold Stone Creamery franchises aren’t delivering returns for franchisees.

One of the main complaints lies with the high cost of operating, which, according to food and beverage industry publication The Ice Cream Reporter, is attributed to location, corporate pressures and expansive coupon and rebate programs distributed by the corporation.

According to former Cold Stone Creamery franchisee Bruce Hodgkins, Cold Stone allowed the Tejon franchisee to open too close to his store, and they forced him to remodel shortly after opening. He also said that corporate Cold Stone didn’t let him to do his own advertising and forced him to honor $40,000 worth of corporate coupons in his last year of business.

After just three years of operation, Hodgkins relinquished control of his franchise back to corporate.

Many Cold Stone franchises are hitting rock bottom with no corporate aid| alt=|A chilling number of Cold Stone Creamery franchises are failing|]Unfortunately Bruce Hodgkins’ story is not an isolated case; some 100 Cold Stone Creameries closed in the last year, up from just 60 in 2006, according to the Wall Street Journal. 303 stores in all are now for sale around the country. That’s more than 20 percent of the company’s 1,384 total franchises as of December 2007.

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Cold Stone began franchising its stores in 1995, but according to Eric Karp, a Boston-area franchise attorney, 12 years is an unusually short time for first-generation franchise owners to be retiring and selling stores, the Wall Street Journal reported.

Ken Gornall was another Cold Stone Franchisee. He found a costly lease, promotional couponing and mandated purchases of excessive and expensive ingredients wreaked havoc on his stores profits, according to the Wall Street Journal. He also found little support from Cold Stone’s area-corporate representatives, who provided him with few ideas to boost his sales.

Part of the problem, according to the Wall Street Journal, was Cold Stone’s rapid expansion in its earlier years, placing new stores too close to old ones, which hurt sales. Many times, this led to inexperienced franchisees buying into bad situations.

The recent economic downturn hasn’t exactly helped struggling franchises, either. Americans are exercising more discretion when spending, making a $4 scoop of ice cream a much less frequent expenditure.

Another victim of poor performance was former Cold Stone franchisee Deborah Lickteig, who even with previous franchise experience could not overcome competition from other Cold Stones in the area, high food costs and corporate coupons, which forced her to sell her store in 2006, according to the Wall Street Journal.

Cold Stone was acquired last year by fast food franchisor Kahala Corporation, which plans to slow expansion, lower new-store construction costs and raise annual store sales from the present $360,000 to about $500,000, according to the Wall Street Journal. While this news may spell some relief for current and future franchise owners, such actions will do nothing to help those now trying to recoup losses from failed Cold Stone experiences.

“The stores seemed busy all the time. You assume that ‘busy’ equates to profitability,” Ken Gornall said, according to the Wall Street Journal.

In Gornall’s case, like many others, taking over a Cold Stone franchise with high expectations of profitability led to nothing more than heavy losses and a sense that time had run out.

Such experiences highlight the importance of doing thorough due diligence before purchasing a franchise. “A number of franchisees also contend the company misled them, giving them promises of profit potential that proved unrealistic or inaccurate revenue numbers from existing stores,” according to the Wall Street Journal. Potential franchisees must be cautious about any promises of earnings made by a franchisor. Such numbers should not be taken at face value. As part of the process of investing in a franchise, potential franchisees are given the contact information of current franchisees. Current franchisees can be a key resource for potential franchisees in determining what to expect from owning a franchise.

Above all else, potential franchisees—and all investors—should keep in mind that if something sounds too good to be true, then it probably is.

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