Mrs. Fields CEO Promises Franchise Owners Business as Usual

As Mrs. Fields Famous Brands LLC publicly warns that it may need to file Chapter 11, its CEO has simultaneously assured franchise owners that he and the company are committed to supporting them during this time of network turmoil. Mrs. Fields Famous Brands LLC warns that it will file Chapter 11 within the next two months if it cannot persuade note holders to cut $145 million in debt by the end of June. CEO Steve Russo reassures franchise owners of both Mrs. Fields and TCBY frozen yogurt, saying, "We will take every measure to ensure that it is business as usual for them during this period."

Comforting words.

Some analysts argue that it would have been better for the franchisor to invest royalties and revenues directly into improving franchise unit operations instead of a strategy of using $200 million in debt that has the company paying twenty million or more in just interest costs. That's pretty expensive when revenues are just $98 million. 

There are many questions about the dynamics of this franchise system.

How did this large franchise network of owner-operators and corporate executives allow themselves to get into this predicament? Are there just a few senior officers in a bubble and their appointed outside advisors that can easily make strategic mistakes? Or is this a collaborative corporate culture? And would such a culture between small business operators and corporate executives of franchise systems make any difference in the current outcome?

Bob Purvin, Chair for the American Association of Franchisees and Dealers, thinks that collaborative corporate cultures do make a difference. He declares, "Franchise systems that have adopted a collaborative franchise culture will have a contract and practice to bring franchisees into the discussion of how to move a brand forward in a mutually beneficial manner. Such franchise systems are better competitors and have a better possibility of landing on their feet when problems arise."

None of Mrs. Fields brands have an independent franchisee association. But the company works closely with a group of owner-operators who are appointed to franchise advisory council positions.

Michael Ward, Chief Legal Officer and Executive Vice President of Mrs. Fields, declares that franchise operators had ample opportunity to voice their opinions on where the company needed to go. Ward states, “Our franchisees have always been informed as early as we could about each of the acquisitions.”

“Did the leaders of the franchise advisory council have a vote on whether or not new debt was acquired or which brands were going to be sold or purchased?” asks Ward. “No, they did not. I’m not sure anyone does it that way. But we certainly provided a lot of information to keep our franchisees updated on. We didn’t just tell them after the deal was done.”

With a spark in his voice, Ward reaffirms, “We are a company that understands the importance of profitable franchisees.”

At least one Mrs. Field’s single-unit franchise owner expressed to Blue MauMau that as long as he could continue to operate his store, it didn’t matter who owned the brand or what happened to corporate. 

But a number of individuals close to the company say that such apathy goes against a collaborative culture that management has tried to nurture among the franchise network.

Lawrence "Doc" Cohen until recently was a franchise owner under Mrs. Fields Famous Brands. Besides being a past-chair of the International Franchise Association, he owns Great American Cookies, Pretzel Time and Pretzelmaker. Those brands were recently sold by distressed Mrs. Fields to now financially troubled NexCen Brands.

When Great American Cookies franchise-owners were acquired by Mrs. Fields, franchisees made sure to put into the contract certain and significant rights in the event the company sold the brand. Owners had required this after being concerned that Mrs. Fields might contemplate buying and quickly turning the concept around to sell. What resulted was a stronger voice among Great American Cookie franchise owners.

According to Cohen, CEO Russo wanted such a culture of strong and involved leadership spread to the franchisor's other concepts. Cohen states, “When Great American Cookies became acquired by Mrs. Fields, I give Steve Russo tremendous credit for trying to develop his franchise owners to be involved and active with management issues.”

Whether assertive or passive, such personalities and concerns go into the mix of franchise owner-operators at Mrs. Field's. And all are heading towards a resolution, one way or another, of the chain avoiding bankruptcy.

It is to this diverse body of small business owners that Mrs. Field’s CEO sends a reassuring message. “We are committed to supporting our franchisees as they continue to serve our customers. Our franchisees are the foundation of our company, and we will take every measure to ensure that it is business as usual for them during this period. This restructuring will allow us to become a stronger company and to further improve our relationships with our franchisees and customers.”

--

Additional reading:

• Mrs. Fields Warns Of Bankruptcy, Halts New Franchise Sales
• Mrs. Fields Terms on Debt Restructuring with Senior Noteholders
• NexCen Doubtful of Surviving
• Mrs. Fields Brands 2007 10k annual financials (pdf, 116 pgs).
• 2005 annual 10k financial statement filings (pdf, 94 pgs)
• Mrs. Field’s UFOC (California's Dept of Corporations Dbase)
• Franchise Operators Deal With Kleins Jewellery Bankruptcy