Beautiful Brands International (BBI) and its CEO, David Rutkauskas, have faced criticism from UnhappyFranchisee.com for providing what we believe to be inaccurate and misleading representations to the media in recent years.
In our opinion, BBI has been able to create a public perception of robust growth and unfettered success, while hiding such challenges as widespread franchise closures, unsuccessful concept launches, and the apparently high defection rate of its franchise services clients (“brand partners”).
With each post we published, we invited Mr. Rutkauskas and BBI to provide rebuttals, clarifications, or corrections to our opinions, as it is our goal to provide both sides of the issue and let our readers decide.
We are pleased that David Rutkauskas has begun to publicly respond and engage in a dialogue over these important issues.
This post includes Mr. Rutkauskas’ justifications of BBI’s media representations as published in two posts on his blog (Facing the Lies of UNHAPPY FRANCHISEE, and My Response: Crushing the Distortions).
Criticism #1: That Beautiful Brands International (BBI) exaggerates the number of its franchise locations
UnhappyFranchisee.com believes that BBI misrepresents the size and growth of its company, in part by counting its clients’ locations as its own. So while the websites of BBI franchise brands Camille’s Sidewalk Cafe, FreshBerry, and Rex’s Chicken only list a total of only 71 locations open around the world, Rutkauskas claims “BBI has 297 locations open around the world…” (QSR, 3/12/13).
BBI’s Justification: BBI CEO David Rutkauskas states “As long as any brand is under our consulting umbrella it is counted as a Beautiful Brand… If you do business with us, then you are a Beautiful Brand.”1
Why this matters: Potential BBI franchisees and clients should be provided with undistorted information regarding the size and growth of the franchisor. If BBI signs up a 200-unit company for brokerage services, it is deceptive to claim that BBI has grown by 200 units that day. This practice is like a local sign shop claiming it has 30,000 locations worldwide because it makes banners for Subway.
Our recommendation: To avoid misleading its franchise & partner prospects, we recommend that BBI clearly differentiate between the number of locations under its own brands and the number of units its clients control… and never combine the two.
Criticism #2: That BBI promotes unsubstantiated/deceptive growth projections
UnhappyFranchisee.Com has criticized BBI for having made many unrealistic and misleading representations regarding its future growth, such as the 2007 claim that it “holds franchise agreements for another 900 Camille’s to open over the next five years.” Six years later, BBI apparently oversees only 28 Camille’s restaurants. An analysis of the company’s disclosure documents from the time the claim was made did not turn up any evidence that there were ever franchise agreements signed for 900 Camille’s locations.
BBI’s Justification: Mr. Rutkauskas states “I’ll be the first to admit that the economy has smacked us hard. Just like many companies, we anticipated a solid upward trajectory in regards to our brand growth, only to come face to face with the economic realities of the last six years.”1
Why this matters: Distracting readers with optimistic growth projections and plans can be an effective way of misdirecting attention from the much more sobering reality reflected in the company’s Franchise Disclosure Documents (FDD). The FTC requires certain disclosures be provided to franchisees; franchisors should not use the press to end-run FTC protections.
Our recommendation: As Mr. Rutkauskas acknowledges that he does not know what will happen in the coming months or years, we recommend that he stick to promoting what he has accomplished, and report only franchises that actually open, rather than promoting the number he intends to open. Further, we recommend that BBI representations to the media regarding franchises sold, franchises “sold but not open,” and projected store openings match the information disclosed by BBI in Item 20 of its Franchise Disclosure Documents (FDD).
Criticism #3: That BBI & David Rutkauskas disseminate unsupported/prohibited earnings claims
The Federal Trade Commission (FTC) prohibits franchise sellers from providing sales or profitability claims to franchise prospects unless those claims are properly documented in the company’s required disclosure documents. We have pointed out that BBI has made numerous earning representations in the press, including that Camille’s Sidewalk Café franchises average $700,000 to $800,000 in annual sales, and that a Freshberry unit is projected to have $400,00 in sales, and that the now-defunct Coney Beach franchise would average an impressive $1M in unit sales, with a $9.00 average purchase and an exceptionally low 21% food cost.
BBI’s Justification: According to Mr. Rutkauskas, the numerous published earnings claims were the fault of writers printing “off-the-record” comments. Says Rutkauskas: “It is not our policy to publish or document earnings claims. Any past off the record comment was meant to be a personal opinion based off of previous assessments and not meant to be a published fact on behalf of BBI.”1
Why this matters: The FTC prohibits unsubstantiated financial representations because, historically, many franchisees have been hoodwinked by unethical and/or unrealistically optimistic franchise sellers. It’s irresponsible to end-run FTC safeguards and provide unsupported, misleading earnings representations.
Our recommendation: Mr. Rutkauskas and BBI should refrain from providing earnings information or financial representations to the press, either on or off the record.
Criticism #4: BBI claims it makes “brand partners” successful, but former partners are prohibited from sharing their experiences or honest opinions
More than 20 brands have been touted as receiving the franchise development, marketing & sales support of the BBI “partnership” program. All but a very few seem to have severed ties with BBI before the end of their contract terms; those that remain don’t appear to have added franchise units. In fact, we haven’t been able to find a single BBI partner that credits BBI with making them “bigger and better.”
BBI’s Justification: Mr. Rutkauskas insists “BBI has a history of making brands better and securing growth for companies.” He cites a former brand partner he claims to have “generated $884,000” for and “laid the foundations” for their 10 franchise units1. When we contacted BBI brand partners (including the aforementioned partner), most said they weren’t allowed to discuss their experience with BBI because of a gag order type clause in their separation agreements. In fact, those who severed ties are either prohibited from sharing their experiences due to gag orders required by David Rutkauskas and BBI, or because they fear retaliation from BBI. BBI appears to be free to make representations about its former clients, but their former clients are prohibited from refuting those claims.
Why this matters: BBI “partner brands” are small companies who reportedly pay BBI $50,000 up-front, plus a percentage of future franchise fees and royalties. This can be a substantial loss of time and money if they do not get the promised results. Shouldn’t prospective partners be able to hear the experiences and opinions of former brand partners? Prohibiting customers from expressing their opinions is a troubling practice and a potential red flag.
Our recommendation: BBI should nullify the “gag orders” on their clients’ separation agreements and allow former “partner brands” to candidly share their experiences and opinions without fear of repercussions from BBI & David Rutkauskas.
Criticism #5: That BBI misrepresents both its track record and investment appeal
Since at least 2007, David Rutkauskas has regularly claimed that BBI is generating unprecedented growth and breaking its previous sales records.
Despite dozens of excited announcements of new partnerships and huge development deals, BBI’s actual track record does not appear, in our opinion, to be a success story for its franchisees:
- Roughly three times more Camille’s Sidewalk Café franchise owners lost their investments and shuttered their cafes than managed to stay in business.
- The Small Business Administration reports a SBA loan default rate of 58% for Camille’s Sidewalk Café franchises, one of the worst in the nation.
- The highly touted BBI Coney Beach franchise chain folded shortly after its debut, and the Rex’s Chicken concept has failed to grow past a single unit.
- Despite a nationwide frozen yogurt boom and claims of development deals for hundreds of units, FreshBerry appears to have fewer than 20 domestic locations and less than 50 total units worldwide.
- Despite 20+ “partner” brands having entrusted their marketing and sales to BBI, not a single one has credited BBI with successfully recruiting franchisees on their behalf.
BBI’s Justification: David Rutkauskas complains that UnhappyFranchisee.com doesn’t acknowledge BBI’s successes and “doesn’t find having over 28 Camille’s Sidewalk Cafes open around the globe, over 50 FreshBerry’s open and thriving and selling multiple franchises for different brands around the world as being successful.”1
Why this matters: Prospective franchisees are being asked to make significant financial investments, ranging from up to $386,000 for a FreshBerry franchise to more than $600,000 for a Camille’s Sidewalk Café franchise. We believe they deserve to have a realistic idea of the risks involved, and how the franchise brands and concepts performed in the past.
Our recommendation: Beautiful Brands should be transparent about the challenges they’ve faced, the losses they’ve suffered, and the specific programs and practices they’ve implemented to combat their franchise failure rate. Having better-informed franchisees with a realistic understanding of the risks involved will be better for BBI in the long run.
Criticism #6: That BBI bullies and threatens its former franchisees and critics to keep silent
Former Camille’s franchise owners who shared their experiences on UnhappyFranchisee.Com received threatening letters from BBI’s law firm. A female brand partner critical of BBI received a vulgar, insulting email from Mr. Rutkauskas promising to sue her after she expressed her opinions. BBI sued UnhappyFranchisee.com’s Sean Kelly (then dropped the suit), and continues to harrass him by Tweeting profanity-laced insults and invitations to fight (yes, fist-fight) for expressing his opinions.
[Image, left: one of numerous bullying tweets directed at UnhappyFranchisee.com’s Sean Kelly, who tweets as @FranchisePick. Click to enlarge. Warning: contains profanity]
BBI’s Justification: David Rutkauskas often characterizes opinions he disagrees with as “lies” intended solely to hurt him and his business. He states: “Just like you can’t go into a crowded movie theater and yell ‘fire,’ without cause, you cannot injure someone’s livelihood with baseless lies meant only to destroy his or her reputation.”
Why this matters: The First Amendment protects Americans’ right to express their opinions about BBI or any other company. It protects our right to make statements of fact as long as we can reasonably substantiate the truth of those statements. BBI and David Rutkauskas want their many critics to believe they can successfully sue them for speaking their opinions or the truth. They can’t. That’s why the suit was dismissed against UnhappyFranchisee.Com’s Sean Kelly and why Camille’s franchisee’s negative opinions still remain on UnhappyFranchisee.Com.
UnhappyFranchisee.Com’s intention is not to destroy anyone’s reputation, but to ensure that individuals and their families have solid, factual information on which to base the most important investment decisions of their lives. We are not yelling “fire” inside a crowded theater; we are alerting prospective moviegoers about the smoke coming out of the back door. If they still want to enter the theater, at least they’ve made an informed choice.
Our recommendation: Beautiful Brands and David Rutkauskas should cease all bullying tactics, if only because their bullying and harrassment does much more damage to their reputations than the original criticism. We recommend that Mr. Rutkauskas put that same energy into supporting current franchisees and partners and making them successful. Nothing will offset criticism more effectively than testimonials from successful franchisees and clients. So far, not a single one has spoken out in support of BBI.
1 David Rutkauskas’ rebuttal comments are from his blog post “My Response: Crushing the Distortions,” April 28, 2013 at http://davidrutkauskas.com/index.cfm?id=1&blogId=140. #
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tags: David Rutkauskas, Beautiful Brands International, BBI, Camille’s Sidewalk Cafe, Unhappy Franchisee, Sean Kelly, franchise opportunities, franchise bullying