The Soup Kitchen, a three-unit quickservice concept based in Tennessee, is the latest “partner brand” to be hyped by Beautiful Brands International (BBI) as the next potential international franchise phenomenon.
Three red flags indicate that this franchise might not be as souper a deal as the hype suggests.
by Sean Kelly
The Soup Kitchen, a TN mom & pop soup restaurant chain that has opened 3 units in 30 years, is the latest “partner brand” to be hyped by Beautiful Brands International (BBI) as the next potential international franchise phenomenon.
BBI CEO David Rutkauskas is quoted on QSRmagazine.com expressing his customary excitement: “There’s really nothing like it in the industry today. I believe The Soup Kitchen concept is ready to explode in the U.S., and we’re fully poised and prepared to make sure it does.”
According to Fast Casual, The Soup Kitchen is “fast tracking development of its restaurant with a worldwide franchise deal with Beautiful Brands International to market and franchise the concept on a global scale… As part of the agreement, BBI will take the lead in marketing The Soup Kitchen brand and selling its franchises.”
As I read the news items, online reviews and the The Soup Kitchen website, three red flags flapped furiously.
Red Flag #1: Beautiful Brands
The first is The Soup Kitchen’s reliance on Beautiful Brands. I have read numerous dramatic announcements of Beautiful Brands adding a new “partner brand” to its portfolio in recent years.
The stories usually include the pronouncement that a small pizza, salad, BBQ or bakery concept is going international through a BBI partnership.
The announcements are accompanied by bold quotes from BBI CEO David Rutkauskas about how wonderful the concept and the founders are, and how unlimited the potential is for this soon-to-be global brand.
The partner brands I’ve followed were included in the BBI list of brands in subsequent partnership announcements, then seem to quietly disappear from the BBI portfolio without explanation or any apparent franchise growth. (See BEAUTIFUL BRANDS Partner Program: Behind the Hype).
I hope The Soup Kitchen and other recent addition The Big Salad are exceptions to this pattern.
Red Flag #2: Global Focus
The second red flag is the apparent rush to become a global brand when The Soup Kitchen hasn’t even established a track record as a statewide or regional, much less a national, franchise brand.
Online reviews give The Soup Kitchen high marks for the quality of its soups, but so-so ratings for décor and service. There’s a big difference between being able to make good soup and being able to train, support and supervise franchise owners in remote markets. Failed franchisees of Beautiful Brands’ Camille’s Sidewalk Café have cited lack of infrastructure, product distribution, support and quality control in remote markets as important factors in the failure of nearly three-quarters of that chains franchise locations.
Should The Soup Kitchen even be considering international expansion when they haven’t even expanded more than a couple hundred miles from home?
Shouldn’t The Soup Kitchen be focused on expanding to, say, Nashville before considering Saudi Arabia or Bahrain?
Red Flag #3: Earnings Representations
The third, and most serious, red flag (in my humble, non-lawyer opinion) is what I believe is the improper earnings claim (also known as a Financial Performance Representation) being used in the marketing of The Soup Kitchen franchise opportunity.
The Federal Trade Commission (FTC) prohibits franchisors from making any financial performance representation unless it is done so in a specifically designated and substantiated format, and is included in Item 19 of the company’s Franchise Disclosure Document (FDD).
The FTC website states:
It is an unfair or deceptive act or practice in violation of Section 5 of the Federal Trade Commission Act for any franchise seller [to]… Disseminate any financial performance representations to prospective franchisees unless the franchisor has a reasonable basis and written substantiation for the representation at the time the representation is made, and the representation is included in Item 19 (§ 436.5(s)) of the franchisor’s disclosure document. In conjunction with any such financial performance representation, the franchise seller shall also…Include a clear and conspicuous admonition that a new franchisee’s individual financial results may differ from the result stated in the financial performance representation.
At the time of this writing, The Soup Kitchen franchise page refers to some vague, undated and unnamed Entrepreneur magazine article about the famous guy who was the inspiration for the Soup Nazi character on the Seinfeld TV show, and the sales his franchisees supposedly believe they will achieve at some unnamed point in time (no, I’m not kidding).
The implication seems to be that prospective The Soup Kitchen franchisees can expect sales of $500,000 to $1.4 million because an article about a famous competitor mentions those sales amounts. The Soup Kitchen franchise page states:
That’s why our franchise agreement can make it very attractive for you to join our family. And, according to the magazine, one owner’s five eateries are expected to hit the $7 million mark, and another owner projects its four restaurants should gross between $500,000 and $1 million each.
Yes, quickly. Because The Soup Kitchen, established in 1980, is now one of a growing number of soup kitchen chains. What Bob and Jean Bardorf began, we want to see grow into a national dining tradition.
I have not seen the FDD from The Soup Kitchen, but would be surprised if its Item 19 Financial Performance Representations section discloses the actual sales of its “Three very prosperous owners of The Soup Kitchen locations.”
It is more likely that The Soup Kitchen uses the generic disclaimer that BBI employs in its FDDs: “We do not make any representations about a franchisee’s future financial performance or the past financial performance of company-owned or franchised outlets. We also do not authorize our employees or representatives to make any such representations either orally or in writing.”
Beware of Illegal Franchise Earnings Claims
When prospective franchisees encounter improper “earnings claims” in the franchise marketing or sales process, whether they appear on a cocktail napkin or on the pages of a website, they should ask themselves:
Is this franchisor ignorant of FTC franchise regulations (in which case they are clueless)?
Do they know the franchise laws, and choose to break them anyway (in which case they are dishonest)?
In any case, any time prospective franchisees are told they should gamble their financial futures based on what sales some unnamed franchisees of a competitor projected they might achieve at some undetermined point in time, those prospective franchisees would be well advised to place their hands on their checkbooks and back slowly toward the exit.
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Tags: The Soup Kitchen, The Soup Kitchen franchise, soup franchise, Bob Bardorf, Jean Bardorf, Rick Ford, David Rutkauskas, Beautiful Brands International, BBI, franchise earnings claims, franchise financial performance representations, franchise item 19, FDD item 19