Cold Stone Creamery Gets Served by Franchisees

The Cold Stone Creamery franchise is getting served.  Richard Gibson’s stinging WSJ article The Inside Scoop has prompted some scathing comments from former Cold Stone Creamery franchise owners.  Here are a few:

“You will lose everything if you get involved with this company”

“…while Cold Stone is sending out emails to franchisees today telling them not to panic… I say panic! You will lose everything if you get involved with this company, and they will shrug their shoulders and say “That’s Business”!.”  Comment by Former Franchisee – June 16, 2008

“A large number of Cold Stone’s stores are unprofitable and failing. Yet they continue to sell …”

“I owned three stores–two did $500,000 in sales and the other did $400,000. Therefore each of my stores were operating well above the average, yet we were unable to turn a profit… due to a faulty business model and I think Kahala-Cold Stone knows that.

A large number of Cold Stone’s stores are unprofitable and failing. Yet they continue to sell to prospective franchisees on their own website based on statements such as “profit by making people happy” (see: http://www.coldstonecreamery.com/franchises/steps_to_becoming_a_franchisee.html ) and “Cold Stone’s franchise opportunities are about as solid as they come” (see: http://www.coldstonecreamery.com/franchises/franchise_overview.html ). That strikes me as fraudulent… I think Kahala-Cold Stone is a poorly, poorly run company and it’s really starting to show to the public.”  Comment by Cecil Rolle from Tallahassee, FL – June 16, 2008 at 8:27 pm

“I’ve lost more than 1 million dollars… I still have thoughts of SUICIDE…”

“I too, a former franchisee was financially ruined by Cold Stone Creamery. I’ve lost more than 1 million dollars and will be paying off debts for the next 10 years. I still have thoughts of SUICIDE and hope to God there is a class action suit that I may one day be a part of. Cold Stone Corporate likes to pass the blame along to the Franchisees when a store is not successful!! It is NOT the franchisee. The reality is that Cold Stone Corporate put too many stores close together….

“I feel sorry for the franchisees left with stores. I know many of them, and not ONE of them is making money in our state. But Cold Stone Corporate continues to make a percentage on every cent of gross revenue.

The company will blame the individual franchisees failure citing that they had “no experience,” or “didn’t work hard enough.” …the majority of those forced to close are decent hard working individuals that took a chance on “The American Dream,” A dream for me and my family that turned into a nightmare!

…I now get to retire in a trailer on a fixed social security income…I live with the stress everyday knowing I let down my family and myself by ever investing in a Cold Stone Creamery franchise and for believing their lies!…”  Comment by Former Franchisee – June 16, 2008 at 8:28 pm

“These guys are the Enron of franchising…”

“…Cold Stone turned out to be the ultimate scam. These guys are the Enron of franchising & some of these guys should be in jail for the lives that have been ruined because of their greed and arrogance!”  Comment by Former Franchisee – June 16, 2008 at 11:43 pm

ARE YOU FAMILIAR WITH KAHALA & THE COLD STONE CREAMERY FRANCHISE? WHAT DO YOU THINK? SHARE A COMMENT BELOW.

Tags: Cold Stone Creamery, Cold Stone Creamery franchise, Kahala

18 thoughts on “Cold Stone Creamery Gets Served by Franchisees

  • June 20, 2008 at 5:34 pm
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    If you substitute “Baskin-Robbins Australia” for “Cold Stone” in this story, it would be almost exactly the same story.

    While Baskin-Robbins may be a good franchise and respected brand in the USA, Korea, and Japan they have a completely broken business model in Australia. Only about 20 franchisees can survive (those with old, low cost leases) and the new stores open and close with frightening regularity – doing everyone’s dough in the process.

    Steer clear of Allied Brands and Baskin-Robbins Australia!

  • June 20, 2008 at 5:43 pm
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    Cold Stone Creamery joins many other well -known branded franchisors who sell unviable/unprofitable franchises to the public with immunity under federal regulatory policy and the State UFOC’s and FDD;s. Quiznos, The UPS Store, Coffee Beanery, SonaMedSpa, and others too numerous to mention face or have faced lawsuits from failed and failing franchisees.

    While ALL franchisors would prefer that all of their franchisees would be successful and not fail, they knew, of course, that a certain “small” percentage would fail, for one reason or the other, even when they were operating under a proven franchise concept, like Cold Stone Creamery.

    Franchisors KNOW that franchise regulation, the FTC Rule, which was promulgated in the late 1970’s with this small percentage of failures in mind, gives franchisors the immunity under the law from recourse from that “small” percentage who would fail and want to address the courts for recourse because the risks of the purchase were not revealed or the rewards of the franchise purchase were overstated in the sales process.

    The FTC, in the late 1970’s, apparently contemplated that the small percentage of failures would want recourse and protected the franchisors from this recourse with the FTC Rule. The regulators no doubt rationalized that lawsuits that could prove fraudulent inducement to contract through misrepresentation of the success or concealment of the risk could bring down entire franchise networks and this would not be in the best inteests of the economy and would not serve the “greater good.” .

    The PROBLEM is that when brand franchisors run into trouble with the viability of their franchises and their startup franchisees start to fail in greater and alarming numbers, instead of stopping the sale of franchises and trying to fix the problems, they continue to sell the unviable franchise to the public to continue to maintain and grow their SYSTEM gross sales and to retain THEIR viability and profits. Franchisors sell unviable and unprofitable franchises to the innocent public and adopt “churning” and “encroachment” as a management tool to maintain their market share and their profits with immunity and impunity under federal regulatory policy.

    Churning and turning and encroachment destroys innocent franchisees who invest in good faith with franchisors and who believe that their franchisor cannot survive unless they survive.

    The appearance of government oversight and the package of the UFOC/FDD together with the binding, boilerplate, non-negotiable franchise agreement lulls prospective franchisees into a false sense of security. They wouldn’t dream that the SBA will guarantee loans on franchises with very high failure rates. They wouldn’t dream that the effect of the FTC Rule is that the State Regulators will allow franchisors to sell franchises at any degree of risk of failure or lack of profitability to the public as long as the franchisor is compliant with the FTC Rule and the State FDD.

    Those who are destroyed because of the greed of the franchisors and their desire to survive and mazimize profits for themselves and their investors, as the case may be, are almost always silenced in failure. Those few who survive to try to fight in the courts or in arbitration face a body of case law that protects the franchisor because franchisees HAVE SIGNED the binding and adhesory franchise agreement with the integration and acknowledgement and reliance clauses that protect the franchisors in the courts. (See Richard Solomon’s tutorials on his website Franchise Remedies to understand that the franchise agreement and the FDD can be a license to lie, cheat, and steal in the hands of those franchisors who will lie, cheat, and steal to survive and maximize their profits)

    The regulators and the arbitrators and the courts, however, face the problem of destroying the franchisees who are surviving within the Franchisor’s system if the franchisor is punished by failed franchisees through a private right of action for fraudulent inducement to contract/fraudulent concealment . in the courts or in arbitration, as the case may be.

    The franchisors understand the problem that the regulators face and understand that their exploitive and abusive and fraudulent practices will probably not be contained by the courts as long as the franchisor is compliant with the FTC Rule and the UFOC/FDD and has the signature of the franchisee on the franchise agreement. And, even if the franchisor isn’t compliant with the FTC Rule or the UFOC/FDD, there appears to be no private right of action for franchisees under the curent status quo of the law.

    Catch 22, huh! The only solution for future franchisees is for the FTC to require the franchisors to DISCLOSE the past and present unit performance statistrics in their possession to NEW buyers of franchises, who will then understand the risk and the rewards before the purchase of the franchise, and before they sign the adhesory franchise agreement with the terms that protect the franchisor in the courts and in arbitration. This would result in competition among the franchisors of the same or a similar concept to capture the cheap labor and capital of franchisees and eventually would put those franchisors who are selling unviable and unprofitable franchises out of business.

    In the meantime, it appears that the “stealing by deceit” will continue.

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  • July 31, 2008 at 12:28 am
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    I am a recovering Cold Stone Creamery Franchisee. It will be year next month that we closed the doors and regained our freedom.

    In the past 12 months we were under contract to sell our Cold Stone Creamery to a second generation buyer. During that time I saw Cold Stone Creamery Corporate stoop to an all-time low – and have seen first hand the cruelty of “corporate churning” at the expense of those who were “supposed” business partners.

    Our first buyer (yes, the first of three in a span of 6 months) put cash on the table in April and was ready to jet off to Chattanooga and Phoenix for 3 weeks of training. This buyer had small business experience in the Hotel franchise sector and had comparable communication skills as other local CS franchisees, one of which is 15 miles to the north and became an owner 12 months ago. This buyer was required to pass a “attitude profile” (FranchiZe Profile, by Dynamic Performance Systems) test before he could continue in the Cold Stone approval process. He failed the 132 question test filled with subjective, rambling and random questions. At first I was shocked! Until I realized that this was the typical Cold Stone MO – that is, what’s the latest new fangled gadget to spend money on. In reality this profile test is a slick way of discriminating against potential buyers from a cultural and racial point of view….and against franchisees eager to leave the system. And, in my opinion, a violation of Section 17, unreasonable denial clause.

    Our second buyer, had cash on the table and was also ready to jet off to Cold Stone University for training. He had family Marble Slab ownership experience and had developed a close relationship with the regional Cold Stone training store in Chattanooga, who encouraged him to pursue our store. Again, he had better experience and better communication skills than existing CS franchisees … he also failed the “Attitude Profile”. We talked the area CS reps into giving him a second chance at the test. This time, with the help of my wife and our business broker, he passed by a single point. The CS Area Reps approved it and gave him the go ahead. He passed the in-store evaluation, language test, the food safety course. He was now ready for the 23-day training….we were THRILLED and thought that we would be out by the end of July. BUT…before he could registered for training he needed to have an over-the-phone interview with corporate and then receive corporate approval. In late June we were shocked to learn that he had been turned down by corporate. We appealed to the corporate Ombudsman for assistance on this situation. Her only comment was “that’s business…”. I was shocked.

    Our third buyer was a local Cold Stone franchisee who owns a store 15 miles to the east of us. He did not have cash to put down and would need assistance from Corporate to get financing from one of the preferred lenders – and perhaps direct assistance from Corporate. Corporate told us that they were working with this franchisee and they should have things worked out by the end of August, which just happened to coincide with the last bit of credit to our name. In early August, a shot across the bow came from the Cold Stone director of transfers who said, “you are aware that just because he is an existing franchisee does not guarantee that he will be approved”. I knew right then and there that they would not approve him. In late August we received word that corporate would not assist the local franchisee and they would not approve him for purchasing our store. I did not understand the “about face” from their willingness to assist earlier in the month….until later.

    ****

    We closed the doors on Monday, August 27th.

    By Friday August 31st, the Cold Stone area reps had the locks changed, inventory completed and the floors clean.

    The week of Sept 14th, they had a buyer of their own up and running. They netted a cool $42,000 off a “new” franchisee rather than “allowing” us to sell to one of the qualified buyers.

    ****

    I have been keenly interested in the past year in the Quiznos and UPS law suits. One could easily substituted “Cold Stone Creamery” in either of those law suits in revealing the product costs, labor percentages, kickbacks, franchisor horrors and the non-viable business models. Yet, this “golden child” of the ice cream industry continues to go undetected in their ruthless business practices, their flawed business model and their total disregard for the profitability of the franchisee.

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

  • August 4, 2008 at 2:16 am
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  • August 5, 2008 at 6:41 pm
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    Were any of you former franchise owners encouraged to not pay your employees? My son worked at a franchise in Boise, Idaho, for about two weeks. He was having some trouble getting the hang of the amounts of add-ins that he was supposed to use, but seemed to be doing OK otherwise, and the customers liked him. A bunch of people had quit, and when he was supposed to be training, he was actually the only employee there, except for the manager. He would get overwhelmed, but he still completed his orders, and customers didn’t seem to mind. Instead of working harder with him to help him, his manager pressured him to quit. Just then another company offered him a job, so he took it and quit. Now, the franchise keeps stalling on his paycheck. They have told him that they need his I-9 information, and he has brought it to them more than once. They have taken it more than once, although sometimes they have told him a manager needs to be there to take it . Never the less, managers have made copies of his passport more than once, and he has filled out the I-9s more than once. It seems to me that they are just yanking his chain and trying to rip him off. I think I am just going to have to complain to the appropriate state and federal agencies. I can’t stand the site of Cold Stone or its ice cream anymore.

  • August 6, 2008 at 12:05 am
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    Madmom:
    Talk to the department of labor or labor board right away. My understanding is they don’t mess around.

  • August 12, 2008 at 3:10 pm
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    For all those franchisees still hanging in there, this message board can do no good. For what it’s worth we bought into the Cold Stone pre Kahala, the one with the Sutherlands and the “great day for ice cream” It’s still my dream, even though I haven’t claimed a paycheck since I opened this place. It’s the love of owning a ice cream shop that keeps me here. Many aren’t as luck as I am with previous ownership of a franchise I knew going into this that if you lasted 5 years, you would be established. With the upsurge of negative talk and the lawsuits, which I am behind if I thought they would do any good, it’s hurting those people who are hanging in there, trying to make it work. There are still some great locations out there that are open, and with the newly put on the market Time Square, they are holding on to nothing, they are moving thier concept overseas and claiming success there.
    I only wish that Kahala had the love that the original team that sold us our franchise in 2002, the passion was there.
    for Kahala to claim that it’s the franchisee that’s causing the failure is pure manure and for the failed franchisees to claim it’s Cold Stone’s fault is just as much bunk.
    I think rather than a attitude profile, they should have a “business accumin” profile. Can the people they are selecting survive, or would they have been just as big of a failure with a Roly Poly, Subway or would they have even made thier profile, or do these places even have a profile?
    To vent about blame is futile, it’s prohibiting franchisees who have profitable stores from selling. It’s creating more doubt and driving the customer base away.

    What we should be doing is telling customers that even though we are franchises and a % of the money goes to Kahala, it’s stilla mom and pop ice cream shop and not a corporate entity like Chipotle. Frequenting Cold Stone store will keep our dream alive.

  • August 13, 2008 at 10:04 am
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    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?

    …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?

    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”?

    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?

  • August 14, 2008 at 4:19 pm
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    Good for Montgomery who told it as it was and who is trying to warn others and save them from the ugly experience of failure and great loss of money in his investment in a Cold Stone Creamery. How selfish —to want him to remain silent because of fear that it will hurt your business. But, of couse selfishness and self-interests are what drives the marketplace.

    He describes perfectly how the premediated contract terms in franchise agreements allow franchisors to acquire the assets of failures for pennies and then sell the assets to a new franchisee of THEIR choice when the failed franchisee finally terminates. This is kind of a PERK for franchisees who are standing at break-even who want to spread their risk and become multiple unit owners in CSC.

    If Montgomery has the resources to get to court and to sue CSC, I think this performs a public service because it makes the courts look at the ugly status quo of franchising that is perpetuated by the package of a government disclosure document and an adhesory contract, neither one of which discloses the “KNOWN” risk of the investment as represented by the UNIT performance statistics in the possession of the franchisors.

    I believe JBMontgomery is a good man who looked into himself and who looked into franchising and who knows that he was DEFRAUDED by experts.

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  • September 29, 2010 at 10:52 pm
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    I was a Cold Stone Creamery franchise for 7 years and I witnessed 3 Cold Stone Creamery stores close within 2 years around me. I would like to offer my honest and sincere advise to the public, to stay clear away from Cold Stone Creamery franchise. Cold Stone Creamery is a scam and you will be destined to loose your health and wealth, if you decide to get involved with this company. You will simply become a prisoner to the lease and your franchise agreement and you would be drawing from your kids college funds and retirement in order to support Cold Stone Creamery and put them on the map.Your life will become a living hell with this company. If failure is your goal, than by all means become a Cold Stone Creamery franchise and kiss your life savings good bye.
    I share this because, I was badly burnt by this franchise and their representatives and I hate to see these vultures, feed off on hard working people and fool them into becoming a part of their scam. These people should be in prison and I hope they all rot in hell.

  • January 4, 2011 at 1:33 pm
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    Kevin Blackwell runs Kahala like his own personal piggy bank. He is a fraud and he is a bully. He brags about winning lawsuits, he even bragged about the lawsuit he won against the previous owners of Cold Stone. Well I hope our class action lands him in prison where he belongs. We need to demand that the lawsuit audits Cold Stone and Kahala because the book keeper down there is crooked as well. Does anyone know anything about the Robert Petersen trust being an owner in Kahala? I was told Mr. Blackwell owned the majority share…I dont think thats true…I think he lies and makes himself out to be something bigger and better than he is….much like they did with Cold Stone. Must be a part of their business model.

  • February 15, 2011 at 8:00 am
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    Formalwear express suit hire has been selling scam areas for many years in Australia using all of the same bad principles ,shimmy gold coast business

  • July 6, 2011 at 2:24 pm
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    I am a previous Cold Stone franchisee and can tell you what Cold Stone is selling is a load. We were told we would be visited monthly to review our P&Ls. Never happened – twice in two years I think and it was more of a cheerleading session than anything concrete. The fingers were always pointed back to us. We reported again and again to both the corporate office and our area managers that we were struggling and not a single thing was ever done. “You need to make it past the two year mark.” they’d say or “This is the slow season…” after two years, a bankruptcy, and a foreclosure it was over…

  • November 5, 2011 at 2:54 pm
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    RITA’S ITALIAN ICE = COLD STONE, TURN FOR THE HILLS AND RUN

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