Is the soon-to-be rebooted Freshii franchise a good investment?
After its disastrous stock performance and widespread franchise closures, Toronto-based Freshii appears to be readying a major recruitment drive for new franchisees. CEO Matthew Corrin recently stated the company plans to double the number of Freshii franchises in Canada alone. Our question: Should Corrin’s “Grow Fast Fail Fast” philosophy make new prospective franchisees flee in terror? Or has the company been working proactively with its surviving franchise “partners” to fix the issues that cost countless franchisees their investments? If the response is silence… It usually means Buyer Beware. by Sean Kelly, Founder, Franchise Truth
(UnhappyFranchisee.Com) I feel a little nauseous when I encounter franchisors who refer to their franchisees as “Franchise Partners” and their franchise system as their “Franchise Family.”
Franchisees are not “partners.” They have no voting rights, no ownership and are usually not be consulted on important policies or major decisions that affect them, such as the sale of the company (and their agreements).
And franchisees aren’t family members… unless families now require 300-page legal documents, have the right to terminate kin or refuse to renew relationships at the end of a term.
The franchise partner/family thing just another example of the intentional mischaracterization of the franchise relationship, one I call the “Kumbayah” or “We’re-All-in-This-Together” Myth.
The FTC Franchise Rule Encourages Current & Recent Franchisees to Share Their Experiences & Opinions
But franchisees do have immense power –both individually & collectively.
That power is their VOICE.
The Federal Trade Commission (FTC) requires all franchisors include contact information for current and recent franchisees in their Franchise Disclosure Document (FDD).
The FTC also requires franchisors to disclose information about any franchisee associations or franchise councils that exist.
The FTC requires these disclosures so that franchisees can share their experiences and opinions with prospective franchisees.
With Freshii, hearing the honest opinions and experience of current and former franchisees is especially critical for a number of reasons.
First, the franchisor is a public company headed by a master propagandist under continuous pressure to show growth (or save face) to stockholders.
Second, the pandemic has made it a challenge to separate temporary (perhaps) challenges from the Freshii-demic of fundamental problems that were killing off franchises long before COVID took its shot.
So we invite Freshii franchisees to share their input on the questions below by contacting us, either openly or in confidence, so we can help prospective franchisees make informed decisions.
About 200 Freshii Franchises Have Opened in the U.S. About 175 Closed or were Transferred.
Why So Many Failures?
Each Freshii (OTCMKTS: FRHHF) franchise that opens represents an initial investment of $175,500 to $581,000 by franchisees, according to the company.
According to company disclosure documents, approximately 200 Freshii franchise locations have opened in the U.S. since 2010.
According to the same documents, approximately 175 Freshii U.S. franchises ceased operation, were terminated or had ownership transfers.
Of those 175 premature “Exits,” most (97) occurred before the pandemic.
An estimated 74 closures occurred during the pandemic, from 2020 to present.
Is Freshii’s Scattershot Expansion Partly to Blame?
Rather than developing specific, strategic markets and gaining the advertising, brand recognition and distribution advantages that result from a regional concentration of stores, Freshii’s growth appears to have been haphazard.
Some locations that closed were the only locations in their entire state: Arkansas, Colorado, Nebraska, South Carolina, Nevada, Virginia, Washington D.C.
There appear to be several states with only 1 or two locations currently, such as Arizona, Iowa, Kentucky, Mississippi, Ohio, Oregon, & North Carolina.
Franchisees: as Freshii learned from its failures and developed a better strategy for market development?
Freshii franchise locations have opened and closed from coast to coast, from New York City to San Diego, from Miami to Portland, Oregon.
Freshii franchises have failed in areas with high household incomes like Greenwich, CT ($200K+) to more modest incomes like Flowood, MS ($35K) or Seminole FL ($35K).
State Where FRESHii Franchises Have Closed Arkansas
Freshii Franchisees: Are You Profitable? Is Franchisee Profitability a Corporate Priority?
How does the Freshii franchisor rate on providing negotiated rates on ingredients and food items?
Are your COGs in line with other foodservice franchises?
With such very little geographic concentration and a diminishing number of locations, is distribution a challenge?
Are Freshii Inc.’s Fees an Undue Burden?
The 2021 FDD indicates that in addition to paying a franchise fee, ongoing marketing fund fee and local advertising, franchisees must pay a number of other fees, including
- OLO Activation Fee,
- App Ordering Fee (Pickup),
- APP fixed Fee,
- HQ Pinnacle Subsidy, and
- LevelUp Loyalty Program.
Have they added other fees?
Are the fees levied by Freshii and its suppliers an undue burden?
Is Freshii Inc. Justified in Keeping Rebates on Franchisee Purchases?
The 2021 FDD also states that the Parent company “earns” rebates and markups on the franchisees purchases of required and approved items.
In 2020, these rebates amounted to “$638,259, or 16% of their total revenues of $3,861,448.”
Since the parent reportedly has $30M in cash and franchisees are struggling to survive, has the franchisor offered to pass all rebates to the franchisees whose purchases “earned” them, or to ask vendors to cease rebates and lower franchisees costs accordingly?
Do Freshii Franchisees Receive a Detailed Accounting of Marketing Fund Expenditures? Do Franchisees Feel the Benefit of Freshii’s Marketing Campaigns?
With an Average Unit Volume (AUV) reportedly less than $500K (pre-covid) and $250K currently, it seems critical that every marketing dollar is maximized to raise sales – and that discounting and couponing be avoided at all costs..
It also appears to be critical that franchisees be an integral part of the planning, execution and assessment process of marketing campaigns.
Does Freshii involve franchisees in marketing and provide a detailed accounting of marketing fund expenditures?
The FDD states:
“Currently the specified Marketing Fund Contribution is 1.5% of Gross Sales… We will account for the Marketing Fund separately from our other funds and not use the Marketing
Fund for any of our general operating expense”
“We will direct all programs that the Marketing Fund finances, with sole control over the creative concepts, materials and endorsements used and their geographic, market and media placement and allocation.
“During the fiscal year ended December 27, 2020, the Marketing Fund had expenditures as follows: 74% was spent on creative, mobile and sponsorship and 26% was spent on marketing strategy and administration.”
Three Critical Questions for Freshii Franchise Owners, Past & Present.
In addition to getting input on the topics above, we would love to receive franchisee responses to these questions:
#1 Is the Freshii franchise opportunity as portrayed in the company marketing brochures, videos and live presentations significantly different than the reality you experienced? If so, how?
#2 Aside from the admittedly unforeseeable adversity caused by the pandemic, do you still think your decision to become a Freshii franchisee was a sound decision? Do you still believe the current business model and cost structure is sustainable for franchisees? If not, are there changes Freshii Inc. could make to make it sustainable for franchisees?
#3 What advice would you give to a prospective franchisee considering the Freshii franchise? What do you know now that you wish you’d have known when you were in their situation?
Some Franchisors & VetFran Exploit Veterans Even After They’ve Failed (Mentions Freshii)
ARE YOU A FRESHII FRANCHISE OWNER, STOCKHOLDER OR EMPLOYEE? PLEASE SHARE A COMMENT BELOW.
TAGS: Freshii, Freshii franchise, Freshii failure rate, Freshii profitable, Freshii Inc, Freshii stock, OTCMKTS: FRHHF, Franchise Truth, SBA franchise loans, Matthew Corrin, Adam Corrin, Daniel Haroun, Paul Hughes, Sean Kelly