According to CNNMoney.com, the “loan data is from the Small Business Administration, covering loans made from October 2000 through September 2009. The failure rate represents the number of loans in liquidation or charged off, divided by the number of loans disbursed.”

The Matco Tools was deemed the riskiest franchise with a 36% franchise loan default rate.

Cold Stone Creamery franchise was listed as 2nd worst with a 31% failure rate.

The much maligned (& litigated) Quiznos franchise was 3rd worst with a 25% default rate.

The Curves franchise was the 4th worst, with a 16% SBA loan default rate (no surprise to readers of this site or to those who left 600+ comments on our Curves franchise discussion)

Also posting a double-digit default rate is heavily promoted The UPS Store franchise with a 12% SBA franchise loan default rate.

The winners include Super 8 and Days Inn motel franchises with 4% and 6% respectively, Subway with a 7% default rate and Dairy Queen & Dunkin’ Donuts franchises with 8% default rates.

Franchises with the Highest Failure Rates:

Here are comments from the CNN writer, from worst to best:

Matco Tools franchise – 36%: “Tool manufacturer and distributor Matco is the riskiest investment on the top-10 “most popular” list, with more than one third of its SBA-backed loans going bad.”

Cold Stone Creamery franchise – 31%: “The product is sweet, but the financials can be bitter. In the last 10 years almost one in three SBA-backed franchisees defaulted on their loan.”

Quiznos franchise – 25%: “One in four franchise owners was unable to make good on their SBA-backed loan. Quiznos recently settled four class-action suits brought by its franchisees, agreeing to pay as much as $100 million to end years of wrangling over its pricing, royalties and fees.”

Curves franchise – 16%: “The overhead costs are pretty low, but the investment can be risky. Curves’ fast expansion goes hand in hand with a relatively high churn rate, and almost 16% of its SBA-backed franchise loans this decade failed.”

The UPS Store franchise – 12%: “Seven years ago, they [MBE franchisees who converted] filed suit against UPS, and will finally take their case to trial later this month in Los Angeles. Meanwhile, UPS rolls on, adding new franchisees to its network for an initial fee just shy of $30,000.”

Franchises with the Lowest Failure Rates:

Super 8 franchise – 4%: “Getting into the motel industry is pricey… but it’s also a pretty safe bet. Among the handful of franchise brands… a notable number are hotels and motels. Super 8 has the lowest default rate on this top-10 list, hovering just under 4%.”

Days Inn franchise – 6%: “Days Inn is another member of the Wyndham Hotel Group’s franchise family. Launched in 1970, the chain currently boasts 1,900 hotels throughout 15 countries.”

Subway franchise – 7%: “With fewer than 8% of SBA-backed borrowers defaulting on their loans, Subway has a better track record than similar brands — rival sub shop Blimpie has a 46% loan failure rate, and Quiznos is also well into the double digits.”

Dairy Queen franchise – 8%: “Today, it boasts 5,700 locations around the globe and a single-digit failure rate for its SBA-backed franchise loans, making it one of the safer investments in the food franchise market.”

Dunkin’ Donuts franchise – 8%: “Dunkin’ Donuts’ modest default rate is matched by its corporate sibling, Baskin-Robbins, which had a 10% failure rate for its SBA-backed loans.”

ARE YOU FAMILIAR WITH THESE FRANCHISE OPPORTUNITIES?  WHAT DO YOU THINK?  SHARE A COMMENT BELOW.

Source: CNNMoney.com

Equipment for the defunct Ricky’s Candy, Cones & Chaos franchise in Summit, NJ will be auctioned by A.J. Willner’s Auctions on Monday, December 14, 2009 at 11:00 AM. 

Here is the information from A.J. Willner’s auction page:

ABSOLUTE AUCTION
Like New Gelato, Ice Cream & Candy Equipment 
re: Ricky’s Candy, Cones & Chaos of Summit
By Retention of Landlord. Everything Must Be Sold Regardless of Price!

Auction Date(s):     Monday, December 14, 2009  Time: 11:00 AM

Address:
333 Springfield Ave.    
Rt. 24 to Exit 9A    
Summit, NJ  07901

Inspection Date(s):
Monday, December 14, 2009
Time: 9:30 AM to 11:00 AM
Pickup Date(s): 
Monday, December 14, 2009  Time: 1:00 PM to 4:00 PM
Tuesday, December 15, 2009  Time: 9:00 AM to 1:00 PM

LIKE NEW ICE CREAM, GELATO, CANDY & RESTAURANT EQUIPMENT:
# "New" Prima 18 PLUSA 5 Ft. Glass Front Gelato Showcase (s/n L40002; Recently purchased for $25,000!)
# Master-Bilt Glass Ice Cream Showcase
# Scotsman Undercounter Ice Machine
# True Undercounter Rolling Refrigerator
# 47 Compartment Candy Dispening Unit
# 3 well S.S. Sink w/ Sprayer
# Single Head SaniServe Ice Cream Dispenser & (3) 5 Ft. S.S. Tables
# Bunn CWTF35 Coffeemaker & 6 Head Coke Soda Dispenser
# Beautiful Free Standing & Custom Built Store Fixtures Including Wonka Mobile, Cabinets, Menu Board w/ TV, Outside Lighted Sign, Wall Signage, Decorations, etc.
# 8 Sections of Metro Racks, Small Sentry Safe & Samsung SF 560 Fax
# Large Qty. of Paper Goods, Supplies, Accessories, Tables, Chairs, Hot Fudge Disp., Hand Sinks, etc.

Featured Items:

Prima 18 Self Contained Gelato Showcase
Master Bilt Self Contained Display Freezer Case
Scotsman Under Counter Ice Machine
SaniServ Frozen Beverage Machine
True Under Counter Single Door Refrigerator
Stainless Steel Prep Tables
Stainless Steel Triple Well Sink
Hot Topping Dispensers
6 Flavor Soda Fountain
Dial Face Safe & Fax Machine
Interior Signage
Exterior Signage
Bulk Candy Merchandising Unit
"Wonka" Store Fixture
Animated Store Fixtures
Tables & Chairs

For Complete Catalog please click on "download catalog" at the A.J. Willner’s auction page.

WHAT DO YOU THINK?  SHARE A COMMENT BELOW.

photos:  A.J. Willner

It’s one of the hottest topics in franchising.  Here’s why:  Franchisors make money off the gross sales of their franchisees, regardless of franchisee profitability.  Some franchisors make additional money marking up ingredients and food products to their franchisees.  Public franchisors benefit from higher sales – and stock prices – that are not tied to franchisee profitability.

SmartMoney.com surveyed franchisees from different franchise chains regarding the cost to them of some current and recent promotions. The Smart Money article points out that franchisees generally bear the brunt of a promotions’s cost, including the food, labor, rent and utilities, among other things.

Here’s the Smart Money finding for Baskin Robbins 31 Cent Scoop Night, which report a $1.45 loss per sandwich:

Baskin Robbins

Promotion: 31 Cent Scoop Night – This annual promotion occurred between the hours of 5pm and 10pm on April 29.

What they normally charge: $2.29 (one single scoop)

Promotion Price: 31 cents

Bottom line for restaurant: Loss of roughly $1.45 a scoop

Baskin-Robbins’ 31 Cent Scoop Night is done in the name of charity. Not only does the company donate $100,000 to NVFC National Junior Firefighter Program, but it’s also quite generous to ice cream lovers as well. One scoop (of any flavor you choose) for just 31 cents compared to the regular price of $2.29 at one location in Wisconsin is a pretty sweet deal. Franchisees don’t feel much of that goodwill, however: Beyond the approximate 60-cent cost of the ice cream, a spoon and a cup, store operators also pay another $1.15 per scoop for rent, utilities and labor, estimates one store owner in Wisconsin. Baskin-Robbins spokeswoman, Danielle Sullivan, says the company’s own calculation on per-item profitability differs from those provided to us by franchisees, but she declined to give specific figures. She also declined to comment further on costs and profits.

RELATED POSTS:

SUBWAY: What Do Franchisees Make on $5 Footlongs?

LITTLE CAESARS: What Franchisees Make on a $5 Pizza

McDONALD’S: What Franchisees Make on a $1 Burger

BASKIN ROBBINS: Franchisees Lose $1.45 per Scoop on Promo

QUIZNOS: Franchisees Lost $2.25 per Sub on Giveaway

BURGER KING Franchisees Sue Over $1 Cheeseburgers

WHAT DO YOU THINK OF BASKIN ROBBINS PROMOTIONS?  SHARE A COMMENT BELOW.

This post was originally published in July, 2009 on Franchise Pick, and was updated November 11, 2009.

Franchisee reports that one of the more colorful franchise concepts of recent years, Ricky’s Candy, Cones & Chaos, may have been more aptly named Ricky’s Chaos, Lawsuits & Bankruptcy.

We’ve been following and documenting the unfortunate decline of this once-promising concept in a series of posts, supplemented with commentary from Ricky’s franchise owners, ex-franchise owners, employees and corporate executives.  Read them here:

RICKY’S CANDY: Message from Donald William Cheng

RICKY’S CANDY, CONES & CHAOS: Summit, NJ Store to Close

RICKY’S: Princeton, NJ Store Eviction Notice

RICKY’S CANDY: Why’d the Princeton Store Close?

The website of the Willy Wonka-esque concept, started by former FAO Schwartz exec Rick Barber, articulates the dream:

Ricky’s Candy, Cones and Chaos® is the ultimate ice cream and candy experience for customers—and a franchise opportunity for you!

It includes thousands of bulk candy choices; a delicious super-premium ice cream you make in the store; candy novelties and other great gifts; and a color-filled party room terrific for kids’ birthdays.

These three business centers—candy, cones and ‘chaos’—provide an all-season business opportunity for the dedicated franchisee.

A July 9, 2009 post we made stated that of the 18 locations that had been listed on the company website in recent years, only 5 remain in operation as Ricky’s stores.  In fact, 2 of the locations currently listed as open on the corporate site were, in fact, closed.

As of November, 2009, only two of the 18 stores remain open:  Red Bank, NJ & Staten Island, N.Y.

Additional woes for the sweet concept gone sour include a group action lawsuit filed by franchisees last year, and a franchisor bankruptcy filing that was allegedly rejected.

Comments to the original post:

July 19, 2009 at 7:16 am Donald William Cheng wrote:

Rickys Candy Cones and Chaos is now run by Mr. Donald William Cheng as of May, 2009. The Princeton store is undergoing a restructuring and is out of bankruptcy. New changes are being effected to combat the changes in the business environment. The current economy has impacted the retail sector much more heavily than others.

The Ricky’s candy, cones and chaos model was heavily dependent on a robust economy where parents splurge on their children and friends. However, as the economy worsened, more people became budget conscious and retailers have to react by providing better value and Rickys did not adjust fast enough.

New management and marketing have been brought in to ensure that future partners and franchisees will be able to sustain a dip in the economy by providing long term financing and stronger financial management and brand management

October 29, 2009 at 11:54 am  Former Store Owner says:

http://summit.patch.com/articles/downtown-candy-store-to-close

Ricky’s Candy, Cones & Chaos will be closing its doors in November due to a raise in rent after seven years on Springfield Avenue.

“We just can’t afford to stay here,” said Donna Dill, the manager of the store.

Dill said that business has been slow for a while, and at the time of the interview no other patrons were shopping in the store.

Dill mentioned that the economy could be a reason why many stores in the Summit area are closing up shop or moving to different locations.

“The economy’s not that great,” she said. “I see so many vacancy signs, it makes me sad.”

Ricky’s will be closing by the end of next month, although there is not a specific date at this time.

At the last count by Summit Downtown Inc. in August, there were about 20 vacant storefronts, Tony Melchionna said. At that time it was the most he said he’d ever seen in downtown Summit.

ARE YOU FAMILIAR WITH THE RICKY’S CANDY, CONES & CHAOS FRANCHISE?  SHARE A COMMENT BELOW.

Photo: Taken May 12, 2006 by roboppy , license: Creative Commons location: Ricky’s Candy, Cones & Chaos store, Ridgewood, NJ (closed)

Knapp’s article quotes comments left here and on the retired Franchise Pick  website in which Ricky’s new president Donald Cheng blamed the economy for the struggles of the Princeton store and the chain as a whole.  “The current economy has impacted the retail sector much more heavily than others. The Ricky’s model was heavily dependent on a robust economy where parents splurge on their children and friends,” wrote Cheng.  “However, as the economy worsened, more people became budget conscious and retailers have to react by providing better value and Ricky’s did not adjust fast enough."

Cheng had promised a repositioning of the Ricky’s concept to adapt to current economic climate, starting with the Princeton store.  After his short burst of comments here were questioned by current and former franchisees, Cheng was never seen nor heard here again.

The Times article includes some telling details of the financial woes of the failing chain, and its unsuccessful attempt at gaining bankruptcy protection:

In December 2008, the company filed for Chapter 11 bankruptcy. Among other creditors, court records show Ricky’s owed thousands of dollars in back rent to Nassau Tower Realty and $100,000 to the state in sales tax.

Ricky’s struggled to pay rent of $14,590 a month that increased to $15,673 a month in April, court records show. Ricky’s made a partial payment of $2,000 for September 2008, and the realtor tapped into a $75,000 deposit to pay for rent in the coming months. That money was exhausted and Ricky’s owed Nassau Tower $42,301 for March, April and most of February.

The bankruptcy was rejected by a judge and dismissed in May.

According to Knapp, “The Willy Wonka-esque franchise that sold candy, ice cream and other sweets went sour along with the economy, records show.”

Ricky’s demise may have occured “along with” the decline of the economy, but some argue not because of the tough economic times.  According to Guest, commenting on a related Ricky’s Candy post:

…The one flaw of the article is the idea that the economic conditions were a factor in the fall of Ricky’s. NO, IT WAS NOT…… Court documents from the Ch 11 attempt clearly showed that even when the economy was roaring and Toll Brothers couldn’t build a McMansion fast enough Ricky’s was not making any money and the only income supporting the shell was the franchise fees and royalties paid by people who thought they were buying into a successful business model. The house of cards began to crumble once the store owners began to communicate directly and the fact checking began.

Was the Princeton store simply a franchise sales tool from the start?

Ricky’s Candy, Cones & Chaos franchisees have alleged that the Ricky’s concept was not viable from the start and the company’s – and founder’s – main goal was to sell franchises.  Nearly all franchise stores have failed and closed, and angry franchisees are suing. 

The shockingly high rent of the Princeton store suggests that it perhaps was designed to be a brand showcase and franchise sales vehicle rather than a profitable candy store.  Could a candy store in Princeton, NJ, even in good economic times, realistically sell enough candy and cones to justify rent of more than $175,000 per year? 

Or did Ricky’s corporate assume the high rent and high overhead would be recouped not by selling candy, but by selling the dream of owning a successful Ricky’s franchise?

Related Posts on Ricky’s Candy, Cones, & Chaos:

RICKY’S CANDY: Message from Donald William Cheng

RICKY’S CANDY, CONES & CHAOS: Summit, NJ Store to Close

RICKY’S: Princeton, NJ Store Eviction Notice

WHAT DO YOU THINK?  SHARE A COMMENT BELOW.

The sweet dream that was Ricky’s continues to sour.

Back in July of this year, Donald William Cheng expressed confidence that better times were to come for Ricky’s Candy, Cones & Chaos, commenting:

Rickys Candy Cones and Chaos is now run by Mr. Donald William Cheng as of May, 2009. The Princeton store is undergoing a restructuring and is out of bankruptcy. New changes are being effected to combat the changes in the business environment… New management and marketing have been brought in to ensure that future partners and franchisees will be able to sustain a dip in the economy by providing long term financing and stronger financial management and brand management

The same month, an article commemorated the 5th anniversary of the Princeton, NJ corporate store:

Opened by owner Rick Barber in 2004, Ricky’s has continued to grow and evolve, notes Mr. Cheng. “The original idea was to have ice cream and candy for a party. Then, plush toys were added. Now, we want to expand our focus and include more events and parties at the store. Not only birthday parties, but baby showers, graduation parties, bar/bat mitzvahs, even having favors and candies for wedding receptions. We really want to emphasize the service category….

“In addition,” he continues, “we are going forward with an international expansion of our candy line. We’ll have Godiva chocolate as well as candy from Japan and Korea. We will still have all our bulk candy, chocolate bars, and other candy, but we will become a specialty candy store. We plan to reconfigure the store and make it more international.

After his initial comments, Mr. Cheng ceased communicating.  This week, Former owner wrote that “Ricky’s Candy, Cones & Chaos Princeton Flagship Store (Corporate Office) has an eviction notice on their front door.” 

We received these photos from an anonymous Unhappy Franchisee reader.  This may be the end of the line for Ricky’s.

WHAT DO YOU THINK?  SHARE A COMMENT BELOW.

We received the following sad message via email from Liliana Carvalho, the owner of the Ricky’s Candy, Cones & Chaos franchise location in Summit, NJ:

Ricky’s Candy,Cones and Chaos of Summit will be closing its doors forever after Nov 15th.

I am the current owner Liliana Carvalho and within the last 20 months have lost over $400k in this Franchise.

It is sadly coming to an end, since I cannot any longer afford to continue to pour money into a failed business concept, which was sold to me as a Sweet profitable Candy and Ice Cream Franchise, early 2008 by Rick Barber ( Franchise owner) and by Mike Kapp (former owner of the Ricky’s Summit location).

I would like to thank all my clients for their patronage during the last 20 months. Wishing them and their families the best and hopefully our  paths will cross again in the near future.

Thank you,

Liliana Carvalho

According to a May, 2004 press release posted on the Ricky’s website,

As a retail chain, Ricky’s Candy, Cones & Chaos is a new version of the “Old Time Candy and Ice Cream Store” with scheduled openings starting in May 2004. With three concurrent store openings starting with Summit NJ ; Princeton NJ ; and Rockefeller Center , NYC, Ricky’s Candy, Cones & Chaos is focusing its future growth on upscale suburban downtowns where retail activity is on the rise.

WHAT DO YOU THINK?  SHARE A COMMENT BELOW.

According to the Brown Daily Herald, a Cold Stone Creamery franchisee blames the recent failure of her Providence, RI franchise on encroachment from another Cold Stone Creamery location.

Kristina Gedutis, who co-owned the Thayer Street franchise with her husband, Craig, for five years, said the store’s sales were down 30 percent from 2008.

Though the location’s rent remained the same, dwindling revenues made it difficult for the owners to make payments, she said…

“When we first opened, business was great — we definitely had our following,” she said.

“There wasn’t another Cold Stone in Providence, so we got most of the area’s business.” Gedutis said when the downtown Cold Stone opened, she saw revenue drop.

“I am bitter toward that,” she said. “It wasn’t really fair.”

The new competing location Gedutis blames for her store’s failure was the result of a new co-branding partnership between Cold Stone & Tim Horton’s, a Canadian-based restaurant chain. 

Gedutis claims that “the opening of a joint Tim Hortons-Cold Stone location on Dorrance Street downtown negatively affected her Thayer Street parlor’s business.”

WHAT DO YOU THINK?  SHARE A COMMENT BELOW.

Photo:  A closed Cold Stone Creamery franchise location, Lancaster, PA (FranBest Photo library)

The most recent of these commenters, posting as Alison, made this point about Kahala owned Cold Stone Creamery, making some points I agree with and others I don’t. Valid points can be made on both sides. What do you think? Share your opinion below.

Here are some of the points and my responses.

Alison said: For all those franchisees still hanging in there, this message board can do no good.
It allowed you to anonymously express your opinion to a number of other owners, prospective owners and even management. Isn’t that good?

Alison said:…the upsurge of negative talk and the lawsuits… it’s hurting those people who are hanging in there, trying to make it work.
In other words, shut up and die quietly? Don’t let the word out that you are really in business FOR yourself and BY yourself?

Alison said:To vent about blame is futile, it’s prohibiting franchisees who have profitable stores from selling.
Why would it prevent someone with solid financials to share from selling their store? Aren’t you really saying “It’s keeping us from passing these money pits on to some other unsuspecting sucker”?

Alison said:What we should be doing is telling customers that even though we are franchises and a % of the money goes to Kahala, it’s still a mom and pop ice cream shop…
I agree that locally that’s a good idea… raise the profile of the owner… get involved with community groups… stay in front of the media… use that local owner advantage over corporate-owned competitors… That’s a good idea to be doing all the time, not just troubled times.

However, Alison, your argument that everyone should just keep quiet and put on a happy face is troubling. I don’t think these complaints would be the same if franchisees perceived that Kahala and the Zees were “all in this together.” I’m sure that’s the message in their franchise marketing. If a franchisor knows that they are going to be discussed openly – including where future prospective franchisees are reading – they are going to be incentivised to respond to the franchisee’s need for assistance. If they are not committed to creating a win-win situation, people are going to know it. Franchisees should also be vocal about sharing things franchisors are doing right.

Alison, no one blames Kahala for the challenges of a tough economy, especially when lots of competitors are struggling as well. But this should be the time when franchisees are thinking “Man, I’m glad I paid a premium for this franchise, because I’ve got the brand, the buying power, the marketing expertise and the dedicated support behind me, just like they promised.”

If that’s not what franchisees are saying, I think it would be constructive for them to share what it is that Kahala could do to help them compete? What do you guys want?

WHAT DO YOU THINK? SHARE A COMMENT BELOW.

If you are thinking about buying a CS franchise – DON’T DO IT!!!