Interview with Cuppy’s Coffee Franchisee Rick Noem, Ft. Collins, CO
Franchisees Krista and Rick Noem paid $125,000 to for the Fort Collins, Colorado Cuppy’s Coffee franchise and as a downpayment for construction of their Cafe from (essentially) Cuppy’s construction arm, Elite Manufacturing. Their American dream quickly turned into a nightmare. To date, they have lost more than $200,000 and are in a financial crisis.
UF: What’s your background? What were you doing prior to owning your franchise?
Rick: Krista has been in the fast casual restaurant management field for 21 years. I have managed Pizza Hut, Einstein Bros Bagels, Long John Silvers, Jack in the Box and Wendy’s. I was looking for an opportunity that would allow me to work for myself to benefit our family rather than give it to another company. Rick is an analyst for IBM with an MBA in Technology Management.
UF: When did you decide you wanted to own your own business? Describe the process you went through to determine which franchise to buy.
Rick: We decided two years ago to start looking into the world of franchising. We actually signed with a company called Saint Cinnamon out of Toronto in September of 2007. In January of 2008, we severed our relationship with that franchise due to Saint Cinnamon making significant changes to our contract that would have crippled us right out of the gate (so we have a really bad track record on picking franchises). We had to find another concept that would work in our 2000 square foot space. (Lease was signed in October of 2007). In February of 2008, I was contacted by Ken Massie (no longer with Cuppy’s) about their concept. I flew to Florida on February 10, 2008, to see the operation. I was impressed with the product and knew it could surpass Starbucks and some of the other major coffee brands out there. It took us about a month to do our homework. There were two locations in Colorado open or soon to be open. We spoke to both franchisees (who both had a few minor construction delays) but who were overall thrilled with the concept and the product they were serving. We did see all the negative blogs, but really thought this was due to Java Joz’, and that Cuppy’s was/is going to be a great up-and-coming company.
UF: Describe the company’s sales process and your interaction prior to becoming a franchisee.
Rick: We ended up signing our franchise agreement on March 24, 2008. Ken Massie and other key players were calling me several times a day to check on my progress, answer any questions we had and really made it seem like there was going to be a strong communication network between franchisor and franchisee. While the phone calls were getting old, it comforted us knowing that they would always be there for us.
UF: How was the company’s training and pre-opening support. Was it a positive experience?
Rick: We returned from Cuppy’s Coffee College on August 8, 2008. It was a great experience. Everyone seemed knowledgeable about the product and were very enthusiastic about getting us up and open for business. We felt the training program was sufficient but after training everything ended abruptly (support/communication).
UF: When did things start to go wrong? What was it that made you an unhappy franchisee?
Rick: In May of 2008, I advised Cara (our FSM) and Theresa (Elite) that I was running out of capital to get me through the build-out process. I was advised that if I was approved as a franchisee, I would put 50% down, Elite would in house finance the other 50% as well as obtain an equipment leasing package to come up with working capital. After I put the 50% down, none of the other promises materialized. I made it clear to everyone when I signed that they were getting everything we had and there was no more where it came from. I was assured by Steve Wesolowski (finance department) that it was a done deal. We have gone through many different banks and capital companies trying to obtain additional working capital to no avail. I went to Florida on June 27th and confronted Theresa St Clair, Dale Nabors and the Greg Rynearson (new president of Elite) and told them once again that we were out of funds and rent was to commence on June 28th and that we were not happy with how long it was taking the architect and engineer to complete our plans. Rick and I scraped up enough money to pay our rent and loan payments (totaling $9200 a month) for June, July and part of August. I was assured that we would work something out with Dale. He made many statements to me about talking to my landlord to have rent postponed for three months and tacked on to the back end of the lease. My landlord was not willing to go for that because the delays were not due to him but to Elite and the architect and engineers of the project. In April of 2008, we provided Elite with a full set of plans (we had them completed when we were doing the other concept) and all that needed to be done was the Cuppy’s dress and engineering. It took us until July 11th to receive the first set of plans. They were a joke. The architect added doors and walls where there were no plans for them. It took an additional three weeks to get a set of plans that were good enough for my landlord to get to the city. He still had to redline some changes but they were pretty minor. The final plans arrived to my landlord two days before we left for training.
UF: Have you tried to resolve your issues with the franchisor? What was the outcome?
Rick: All we get from the franchisor are empty promises of phone calls and follow-up. They are great about talking the talk when you are face to face but it is not long before you realize they are just blowing more smoke.
UF: What is your current situation? What would you like to see happen at this point?
Rick: We are broke, can’t pay rent ($6000 a month) or loan payment ($3000 a month). We want our money back so we can stop the bleeding and try to get closer to being able to pay off all the debt occurred at Cuppy’s expense.
UF: Do you think that the franchise concept is a viable? Under what conditions?
Rick: I think Cuppy’s has a great product and could make a name for itself once it has a sound infrastructure in place. I feel Dale started with good intentions but really didn’t know what he was getting himself into when he purchased the company. If Dale can rectify the situation with all the unhappy franchisees, and build up the infrastructure to support new stores, we think he can turn this around. Whether this happens or not is yet to be seen. I would not invest money with this company as it stands now, until its intentions can be ascertained.
UF: What mistakes did you make? Looking back, what would you have done differently?
Rick: We jumped into Cuppy’s after our landlord made it very clear that even after our Saint Cinnamon effort failed he was going to hold us to our lease. We were pressured by our landlord to get something in our space quick. Cuppy’s came along, gave us a great song and dance and we jumped. They were so upbeat, and the interview process with them made it feel like we had to say the right things for them to consider us, like we were interviewing for the right to be a part of this company. This gave them more credibility. Again, I feel strongly that while we are guilty of jumping in too fast, Cuppy’s is guilty of misleading current and potential franchisees. They were making promises to close the deal. The money we gave them is gone. Dale told us on two separate occasions that he is personally responsible to us for that money, and that he will do what it takes to make good on it if he was unable to secure financing for our store. We need him to make good on that so we can attempt to repair the damage done.
UF: How has your franchise investment decision affected your life?
Rick: We had hopes of opening several locations. We wanted to make enough money to help put our five children through college and pay off our debt so we could enjoy our retirement years. Now we will be working to replace money taken from our 401K and stock sale so we can set a time for retirement (probably ten years later than previously planned). Once we settle with Cuppy’s, we still have to come up with a plan to help us sever from our lease without having to file bankruptcy or lose our house altogether. We do not know how this is going to turn out. We have contacted people to keep theirs eyes open for anyone looking to rent in this area. Hopefully we can find someone to take over this lease, which is going to be a huge money-maker. I am just sorry that money will not be coming our way. This will haunt us for many years to come.
UF: What advice would you give to prospective franchise owners? What questions should they ask? What warning signs should they look for?
Rick: If someone offers you a “free-franchise”, remember the old saying. “You get what you pay for”. They are great at wining and dining you until you sign and then the honeymoon is over. We paid nothing for the franchise, and that is exactly what we got back from them. Investigate prior lawsuits and blogs. Take these blogs seriously, and contact the writers to get more information, I wish we had. Had we known all of this six months ago we wouldn’t be where we are today. We did our homework. Even though I called the references provided to me by Cuppy’s, I also talked to franchisees who were already open in our area. They were happy with the company.
UF: Have you heard the allegations that Cuppy’s Coffee franchisees may have been paid to give positive references?
Rick: I just recently learned that.
UF: Thanks, Rick
Rick: Thanks for listening.
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