DELI DELICIOUS Franchise Assessment and Discussion Part 1

Deli Delicious is a regional sub sandwich chain that started in Fresno, CA.  Popular for its fresh bread and high quality sandwiches, the company began franchising in 2008 and has grown to 52 franchise locations.  Deli Delicious’ growth has stalled, and Deli Delicious Franchise Inc. has become mired in franchisee disputes and employee lawsuits.  This is part 1 of a crowdfunded exploration, analysis and discussion of the issues that threaten this still-promising chain and steps, if any, can save it.  by Sean Kelly

(UnhappyFranchisee.Com) The Deli Delicious Franchise Assessment & Discussion Project is an experiment, a discussion, and a public intervention, of sorts.

Deli Delicious fundraiserYour contributions are appreciated:  This project is fueled by contributions both financial (the initial fundraising goal of $2500 for the Deli Delicious Franchise Assessment GoFundMe Campaign has been met, and has been raised to $5000 to fund Part 2.  Donations can be anonymous) and informational.  Interested parties are invited to share their views and insights at the bottom of each article page (see our index of Deli Delicious franchise posts), or can submit information and views via email or phone on a confidential basis.  Anonymous participation is understandable and a protected right.

About the author Sean Kelly:  I have 30 years of experience in the franchise industry.  As a consultant, I participated in the launch and early development of nearly 200 franchise programs, including many startups that are now household names.  I was part of the initial management team for a startup that now has 1800 locations in 24 countries, and founded a marketing company that provided outsourced marketing departments for growing franchisors.  And I have published UnhappyFranchisee.Com for 14 years, am widely quoted in the press and an expert witness.  While I am not shy about sharing my opinions, my ultimate goal is to prompt discussion and debate and invite those who disagree to share their opinions so that readers can see multiple viewpoints and make their own, informed decisions.

Healthy companies invite scrutiny.  They would rather hear customer complaints so that they can address both areas where they need to improve and manage perception.   No company enjoys criticism, but healthy companies respect the customer’s and public’s right to express their opinions.  They have the right to promote their chosen image and claims and the public has the right to challenge the validity of that image.

DDFI invited to participate:  With each of our postings, we have invited the franchisor Deli Delicious Franchise Inc. (DDFI), and its principles Mohammed Habob, Hesam Habob, Ali Nekumanesh, Bill Foley, Nate Gilbert and others to provide corrections, clarifications, rebuttals or to answer questions we have.  So far, DDFI has declined to participate in our discussion and has chosen to dissuade its franchisees from participating by dismissing this discussion as containing false information and sloppy writing.  Ali Nekumanish publicly attacked this writer with a false claim, which he deleted when challenged.  We hope DDFI will change its mind, join the conversation and embrace this as an opportunity for change and growth.

We hope that DDFI will recognize that while franchisors may own their trademark, they do not own the brand.  The brand resides in the minds of franchisees, vendors, employees, crew members and, most of all, customers.  The best way to keep that brand healthy is to live up to the ideals you want it to represent.

Deli Delicious Franchise Inc. Deserves Credit for Doing Some Things Right

DDFI has clearly done a lot of things right.    Deli Delicious has built a strong and loyal following in the crowded, competitive sandwich space, holding its own against much larger competitors.

DDFI’s strategy of growing concentrically from Fresno, CA and not scattering locations across neighboring states or the country has wisely given them strong name and brand recognition in the local and regional market.  Many young franchise companies spread themselves too thin and sell remote territories they can’t support.

The concept seems poised to weather the COVID-19 pandemic, which is significant.  Those who are struggling are quick to point out that their challenges were not Coronavirus related.

However, it appears that DDFI continues to take a dictatorial, my-way-or-the-courtroom approach which, unsurprisingly, is causing an expensive and painful backlash, a contentious relationship with franchisees, and bad press that not only could stall their franchise growth, but could poison their relationship with customers as well.

My First Impression:  Deli Delicious is Suffering from Self-inflicted Wounds

The Deli Delicious franchise chain, in my opinion, is at the critical hurdle that many young franchise companies never get past.

The ability to grow past the 50-unit mark, and then the 100-unit mark, takes more than money (though that helps).  Franchisors must build a strong and trusting relationship with the right group of carefully selected franchisees.  They must not only be truly be committed to their success, they must continually sell their franchisees that they have their best interests at heart.  Franchisees don’t always have to agree with or like the franchisor’s decisions, but they must be confident that their motivated by creating a win-win relationship.  Franchisees are naturally suspicious that those who have a lot of control over them have secret, self-serving motives… if franchisors validate those suspicions, they will have an uphill battle with everything from franchise sales to implementing new programs or products.

DDFI should be applying its limited resources to supporting its franchisees, not suing its critics.  Franchisees should be focused on delighting customers beating their competitors, not warring with their franchisor.  But things have to change for that to occur.

Deli Delicious franchiseHere are my impressions formed in Part 1 of this investigation.  I welcome your comments and opinions, and welcome suggestions as to what changes could help DDFI get back on a positive footing with its franchisees.

1.  Deli Delicious Franchisor Seems to Lack Transparency

We have found Deli Delicious Franchise Inc. unwilling to engage in dialogue or answer the simplest questions regarding their franchise program.  We have repeatedly invited Ali Nekumanesh, Hesam Hobab, Bill Foley, Nate Gilbert and others to answer questions, provide corrections, clarifications or even rebuttals.  They refuse to respond.  Internally, Bill Foley has reportedly disparaged our posts as containing “many erroneous claims and mistruths,” yet he has ignored our requests for corrections or clarifications.

2.  Deli Delicious Franchisor’s Questionable Honesty Breeds Distrust

When questioned about our article (Deli Delicious Franchise Founders Sue Their Own Son for Defamation) on the franchisor’s defamation lawsuit against Hadi Hobab, the founder’s son who many franchisees knew and worked with, Bill Foley reportedly dismissed the post with the false claim that “there is no lawsuit, just an inflammatory article.”  However, the lawsuit is public record and our post not only cited the case number, the attorneys and the claims, we posted the actual complaint as a PDF.  In the franchisor/franchisee relationship, trust is both critical and hard to mend once broken.  For Mr. Foley to so casually make a statement that’s obviously and easily exposed as false indicates a lack of respect for the truth and their franchisee’s intelligence.  Ali Nekumanesh made an untrue accusation about this writer, which is disproved.  DDFI should stop eroding their own credibility by committing to the truth.

3.  The Iranian Leaders do not Tolerate Criticism or Dissent

DDFI’s intolerance and over-the-top hostility toward those who dare to question or criticize them seems both cruelly excessive and foolishly self-defeating.  They are running up serious legal fees in defamation suits against former employees Hadi Hobab and Tim Campbell because they allegedly expressed negative opinions about the company’s marketing and leadership, and allegedly blamed the self-admiring Ali Nekumanesh for the company’s woes (go figure).

I saw a flash of Mr. Nekumanesh’s dark side after daring to criticize the ridiculously misguided lawsuit against Mohammad Hobab’s son, Hadi.  Ali Nekumanesh posted my picture with a false and defamatory allegation against me that I extort franchisors.  When I challenged his to produce a shred of evidence for his accusation, he quickly took it down.  But the impulse to immediately and ferociously attack any critic who dares express an opinion is a toxic quality for anyone involved in a franchise relationship where the ability to at least fake tolerance and respect for others’ opinions is critical.

4.  Heavy-Handed Dictatorial Management Creates Havoc & Dissent in a Franchise System

Franchise owners are not slaves, minions or even employees.  While they are bound by stringent franchise agreements, they are (in theory) business owners whose financial investments and labor literally built and maintain the brands they represent.  Franchisors who boss them around and demand that they unquestioningly accept major changes that affect their livelihoods do so at their own peril.  Deli Delicious Franchise Inc., Ali Nekumanesh and Mohammad Habob still do not seem to grasp this fact and it’s created a huge rift in the franchise relationship.

Those who have built and maintained successful and functional franchise systems will tell you about the importance of getting franchisee buy-in before making major changes.  DDFI appears to have done everything wrong in the way they approached transitioning from a long-time, beloved bread supplier (Basque Bakery) that made their signature deli rolls to a brand new, untested affiliate bread bakery of their own creation.  It appears that Ali Nekumanish, Mohammad Hobab and Hesam Hobab, with no commercial baking experience between them, created the $2M bread bakery in secret.  They didn’t share their plans with either the franchisees or with the long-time supplier.  In fact, one franchisee told me he first heard about it when the ribbon-cutting for the new supplier appeared on the news.

When DDFI announced that it had already built an affiliate bread bakery and would be requiring franchisees to buy its bread, it sent shock wave through their franchisee community.

In one fell swoop, DDFI demonstrated that it had no loyalty even to its most committed suppliers, and no respect for the opinions or concerns of its franchisees regarding one of its signature products.  DDFI just expected them to embrace the new bread, their new affiliate supplier at whatever cost they charged them… just because they told them to.

5.  DDFI Refuses to Acknowledge & Respect the Deli Delicious Franchisee Association (DDFA)

Franchisors can gain many advantages by acknowledging and respecting the role of a franchisee association.  Unfortunately, DDFI seems to have missed that opportunity (so far) and taken an adversarial approach with its franchisee association.  Ultimately, franchisors and franchisees want (or should want) the same thing:  productive, profitable stores with happy franchisees eager to open more locations.  DDFI’s my-way-or-the-courtroom approach has further drained franchisees of money they could put toward opening the dozens of stores NOT in development and damaged their enthusiasm for the company and the brand.

6.  DDFI Missed the Opportunity to Repair Franchise Relations During the Pandemic

Subway’s swift actions to support its franchisees cope with the pandemic gave it wide support in all the restaurant publications.  In Restaurant Business, my friend Jonathan Maze wrote:

The company said in an emailed statement that it is reducing royalty payments by 50%. It is also suspending ad funds for the next four weeks.

In addition, the sandwich giant plans to support its operators with rent abatement, reduction and deferral as operators work to get through what is expected to be a two-month period with steep sales declines.

Since sales were down anyway, a temporary 50% royalty did not cost the company what it normally might and suspension of the ad fund cost them nothing.  Deli Delicious franchisees begged DDFI for similar consideration.  Their response (which I know too well)?  Silence.

6.  20% Franchise Turnover Rate So Far & Many Deli Delicious Franchisees Want OUT.

Greg JalhayanAs we posted (See Deli Delicious Franchises For Sale, Franchise Turnover, Stores Not Opened) the 2019 Deli Delicious Franchise Disclosure Document (FDD) lists a 20% franchisee turnover rate up through 2018, and also lists dozens of franchises sold that will likely never open.  We included in that post that we found that an estimated 15% of Deli Delicious franchises are for listed for sale on the Internet.

We have heard that many franchisees wish to leave the system, debrand and operate as independent sub shops.  Whether DDFI sics their attorneys on them in an attempt to force them to stay with a franchise they’ve lost faith in, or whether they quietly let the most adamant go without an ugly and costly battle, it’s bad news for DDFI and the Deli Delicious brand.  Either way, DDFI has failed to provide these franchisees with enough value to offset the initial fees, royalties, product mark-ups and loss of control that made them want to join the system in the first place.  DDFI has apparently failed to grasp that their franchisees are their customers, and just like consumer customers they need to continue to receive enough perceived value to keep them as customers.

[Pictured Left, Franchisee Greg Jalhayan, who is begging to be released.  DDFI and Bill Foley allegedly refuse to meet with him with a Franchisee Association representative in the meeting.]

See the Deli Delicious stores that closed, and read about the franchisee Greg Jalhayan who is begging to be released:

DELI DELICIOUS Franchise at a Crossroad

7.  Bad Press

In a healthy franchise, franchisees and franchisors share a common interest in building and maintaining good press and positive public perception of the brand.  However, when franchisors refuse to listen or consider the opinions of franchisees through internal channels, including franchisee associations, franchisees feel compelled to go public with their complaints as a last resort.  I first heard about Deli Delicious last year ago when regional business publications did stories on the ugly battle between DDFI and DDFA.  (See The Business Journal In a pickle: Deli Delicious franchisees air grievances against corporate; Visalia Times Delta Deli Delicious: Franchisees band together to protest parent company’s policies).

I tried to warn Deli Delicious Franchise Inc. about the potential damage to their brand caused by their bad habit of getting into questionable lawsuits.  I have worked with franchise companies that grew many of hundreds of franchises without a single lawsuit.  DDFI has 3 or 4 lawsuits going and they’ve only reached 50 locations (!).  Having to resolve employee and franchisee conflicts in court is not a sustainable strategy for growing a company, especially a franchisor that must disclose litigation in its FDD.  Read about their lawsuits here: Deli Delicious Franchise Founders Sue Their Own Son for Defamation and DELI DELICIOUS, Ali Nekumanesh Defamation Lawsuits.

8.  Deli Delicious Franchise Inc. Prohibited From Selling Franchises in California

According to the State of California Department of Business Oversight (DBO), Deli Delicious Franchise Inc. is not currently permitted to offer or sell Deli Delicious franchises in California.

Deli Delicious Franchising, Inc. last filed in 2019, and their license to sell expired in April 20, 2020.  As they “have not submitted a 2020 application yet… Deli Delicious is not registered to be offering and selling franchises in this state,” states a DBO representative.

Why hasn’t Deli Delicious renewed its franchise registration?  Are they simply waiting for the pandemic to pass?  Do they not want to publicly disclose their audited financials?  Their lawsuits? The number of stores opened and closed?  The amount of vendor rebates they received?

Maybe it’s none of those things… but by failing to respond to our questions, as more professional franchise companies surely would, they leave the subject open to debate.

Their lawsuits call statements questioning their experience growing a franchise company defamatory, but if it’s true, it’s not defamatory.

9.  Is Ali Nekumanish Steering Mohammad Hobab & Hesam Hobab in the Wrong Direction?

Ali NekumaneshOne thing I have heard over and over from Deli Delicious insiders is that Ali Nekumanish is running the show and influencing, if not making, key decisions.

If so, this is interesting as Ali Nekumanish is actually a local competitor who has opened 3 burger restaurants and a food truck in Deli Delicious’ home market of Fresno, CA.  However, Mr. Nekumanish is apparently a trusted advisor and friend of CEO Mohammad Hobab, and even serves as an interpreter for Mr. Hobab, who only speaks and reads Farsi fluently.

Mr. Nekumanish has, for years, appeared in news stories and in publicity videos as the company’s representative, though he’s frequently been referred to as a consultant.  One 2018 social media post referred to him as “owner” of Deli Delicious, which has been allowed to stand uncorrected for over 2 years.

Ali Nekumanish is suing former employee Tim Campbell for allegedly saying he lacked franchise development experience and was the cause of most of DDFI’s problems.  That latter statement is one that I’ve heard from more than one person.

I do not know Ali Nekumanish personally, and can’t weigh in with certainty on his role in what I perceive as self-defeating decisions by DDFI.  But I will say that I was taken by surprise when rather viciously attacked by this man who portrays himself as soft-spoken and professional.  And he did take center stage at the opening of the commercial bakery.  If he has extensive restaurant and franchise experience, it seems that he should have handled the launch of the bakery more diplomatically rather than springing it on franchisees in a way that prompted suspicion and resentment.

10.  What Do You Think?  What Should DDFI Do to Get Back on Track?

We invite interested parties as well as restaurant and franchise industry professionals to weigh in on what they think DDFI did right, what they did wrong, and what they need to do to get back on track and guiding Deli Delicious to its full potential.

If you’d like to keep this investigation and discussion going, please consider a contribution to the Deli Delicious Franchise Assessment GoFundMe Campaign , or to UnhappyFranchisee.Com.

ALSO READ:

Deli Delicious Franchise Founders Sue Their Own Son for Defamation

DELI DELICIOUS Franchise at a Crossroad

Deli Delicious Franchises For Sale, Franchise Turnover, Stores Not Opened

FRANCHISE DISCUSSIONS by Company

MARK GOLOB LAWSUIT: Overview, Updates, and Discussion

ARE YOU AN DELI DELICIOUS FRANCHISE OWNER OR FORMER FRANCHISEE? 

ARE YOU FAMILIAR WITH THE DELI DELICIOUS FRANCHISE ORGANIZATION & IT’S PRACTICES? 

ARE YOU FAMILIAR WITH ALI NEKUMANESH, MOHAMMAD HABOB OR OTHERS DISCUSSED HERE?

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