Franchisees Sue Doc Green's Over False Misrepresentation
Say Raving Brands Sold "Established" Concept Without a Prototype Restaurant, Ad Money Missing
Six people who purchased Doc Green’s franchises, a restaurant concept that serves salad and greens, are suing Atlanta-based Raving Brands for misrepresenting that the franchise system had a proven business.
Raving Brands began marketing and selling the restaurant franchise in 2004 to Trent, Richard Schofeld, and others. They bought. But Doc Green's first restaurant, a company-owned unit, didn't open until April 1, 2005. The franchise owners now are scratching their heads asking what was "established" or proven about Doc Green's when it was represented to them as such.
Raving Brands said they “had established a system of developing, opening, operating and promoting fast-casual restaurants offering gourmet salads and soups,” the suit says.
Marc Bibbey, a Director of Operations for Schofield Restaurant Group, associated with Raving Brands, gives the following insights into why the franchise owners had problems with Doc Green's restaurant concept.
“We had very good lunches in all three of the locations,” Bibbey said. “Unfortunately there wasn’t a dinner business ... and economic conditions on top of that, the cost of real estate and doing business, eventually it became too much to try to operate.”
Ad Money Missing. These franchisees are now asking where their ad funds have gone. An ad fund is an amount, usually a percentage of revenue, that franchise owners typically pay into a pool that franchisors use to market the brand. The owners allege that Raving Brands failed to promote the brand or establish national advertising with ad funds received from their franchisees.
Read the full story at Naplesnews.com
The Moment of After-Thought
Now that these franchises have gone under for lack of enough customers to cover their bills, the franchisees are scratching their heads and asking tough questions. The big question they are asking is: How was it when they were first approached and Doc Green's had no restaurant that they bought into the "proven" concept?
Secondly, needing every bit of money to cover restaurant expenses, the franchisees now wonder where their ad money went that was supposed to build a brand, driving customers through their doors to help pay expenses.
Made to franchise
This is where franchising gets a bad name. Why on earth did they not have an operating unit? Because the business model was made to franchise.
Now this does happen and it can work well, an experienced franchisor already knows the working model and can expand his operations into a new market but he will in most cases set up several pilot franchises and ensure thay all run succesfully for at least one year. This is where the made to franchise business can suceed. When done well.
When done badly, i.e not opening pilot franchises first and ensuring their success, the franchise industry as a whole gets frowned upon and the franchisee gets ripped off.
I am currently working with a new franchisor. They have an established business model (15 years) and are opening 3 pilots to be ran over 2 years. (Torque Fast)
This is the way franchising should be, not cut n shut business models that go to market before they are ready and with no operating units. Thats just greedy conmen franchisors out to make a quick buck or just not using their noggin..
Matthew
UK Franchise Opportunities Directory
Company owned locations needed to franchise?
When I created the Franchise Gold 100 survey for Success Magazine one of the requirements was that a company, in order to be listed and considered, had to have at least one company owned and operated location.
The reason for this is simple.
There are two distinct marketplaces. The first is the consumer level where a company delivers or provides a product or service. The one thing I know about any business, before knowing anything about that business, is that business will change over time. Consumer tastes, demands and needs change as well as external influences from competition, the economny, etc. all contribute to a fluid marketplace and not a static one.
The second marketplace is the franchise level. This, as we all know, is where a distributed work force is created to provide more products or services to the end users - the consumer.
If the concept never validates or exists in the consumer marketplace it certainly cannot and should not be franchised.
Further, I believe that if a company does not operate in the consumer space they will never understand the changing environment and hence, will test, experiment at the franchisee's expense and that is not a good thing to do.
Did anyone read the recent post about how the franchisor they married has changed? Well, that franchisor has to change. They have to bend in the wind or they will snap.
There were a few companies that were considerably upset that they never made it into the Franchise Gold 100 in Success Magazine. My response was to develop company owned and operated locations to better understand the business and how it is and will change in the future so they can create and sustain a viable franchise offering.
Validate and then franchise.
Craig Slavin
Franchise Architects
Franchise Navigator
847-465-0111
After Thought
Bob writes: "How was it when they were first approached and Doc Green's had no restaurant that they bought into the 'proven' concept?"
Uh, how is it that they didn't read the UFOC? No proven model there.
Michael Webster PhD LLB
Franchise News
Dunkin' Donuts has zero company owned stores...
Dunkin' Donuts has zero company owned stores of the thousands of worldwide (franchised) units.
Does that make them a bad franchisor?
Who Utilizes Concept Stores the Best?
Craig,
Having at least one corporate store as a filter for predicting top franchise investments in your Gold 100 Franchise List seems like a wise move to me.
Can only big franchise chains have corporate concept stores that can be used to stretch the retail box? As I understand it, these (expensive) concept stores are meant to experiment, to not only help the chain better understand consumer change but to push the brand envelope for change to position itself where it wants to go through new:
In your view, who are some of the best small-to-mid size franchises who use corporate concept stores well?
Poor old Nick Bibby has been...
preaching this message for many years.
The demonstrable financial sucess track record based upon actual multi unit operations as the sine qua non of franchisability has been a mantra of his for so long that I can't even remember when he started preaching that sermon.
Too bad that he didn't realize that he could have garnered a Harvard PhD just for what his intellect always told him was a simple and obvious litmus test.--
Richard Solomon, FranchiseRemedies.com, has over 45 years experience with franchise litigation and crisis management. He is a graduate of The Citadel and The University of Michigan Law School
Subway has no corp. owned stores and they bend
Subway is changing constantly they just rolled out with breakfast... so they souldnt be in the top 100 because they dont own any stores even though they are highly successful.
Franchising is a process not an event!
The dyanmics of franchising require evolution at all times. Successful franchise systems constantly, evolve, grow and expand. They are always "tweaking" and improving.
Successful franchising is a process not an event.
In my experience, I have found that franchise systems that operate company owned stores (either directly or by an affiliated company) evolve more effectively than systems that do have company operated units.
Franchise systems that operate comany units have a much better persepctive on the marketplace and for profitability at the unit level. Profitable unit operations are an important part of the process.
Franchise companies that focus on unit level profitability tend to make better decisions for the entire sytem. They have better results managing the process.
Franchise companies that do not operate units, are more likely to make bad decisions that consequently have negative effects on unit profitability.
Jim Coen
877-469-3002
Blog: Lets Talk Franchising
Jim Coen is the Executive Director of the New England Franchise Association
It's still unlawful to fleece the stupid
in many jurisdictions. Is there a point at which any of us would just throw up his hands at the level of stupidity sitting before us and simply decline to represent such people? -even for money?--
Richard Solomon, FranchiseRemedies.com, has over 45 years experience with franchise litigation and crisis management. He is a graduate of The Citadel and The University of Michigan Law School
No. But there are other reasons why one may conclude that...
No. But there are other reasons why one may conclude that: Creating channeling deals that compete directly with their franchisees, and an overly aggressive franchisee termination policy are a couple of reasons, for starters.
Not completely true about Dunkin!
You are correct that they presently have no comapany stores, but when the company began franchising it had stores owned by the founders and their family members.
These folks also worked hand in glove with their first franchisees. Of course, this was over 50 years ago, but the multiplicity of shops and franchisees to ask about the business make DD a poor comparator.
Prototype vs Concept
Good morning Bob,
I am posting from the IFA Convention in Orlando and must get ready for a presentation I am making on using a predictive model, such as the Franchise Navigator.
I did want to respond to your question before shutting down the computer.
You ask a great but somewhat complicated question.
My initial response is that it is not just the big franchise chains who use the corporate stores as models or prototypes. Many others do but the playing field is not level nor can one size fits all be used here, as well.
The whole purpose of the corporate store concept is to understand the consumer marketplace and the overall direction of the industry and the industry segment a company is in. Without that information how can you provide the guidance and insight to franchisees? I certainly don't know how nor would I ever try.
The smaller the company, though, the less resources they have to develop and or refine their concept. Further, if the company is still operated by the founder/entrepreneur the impact tends to be restricted based on the knowledge and skills of the entreprenuer, which generally is very limited compared to a business manager who has the skills to multi task, delegate and advance the concept forward based on expertise and competency instead of the emotion and drive of the entrepreneur.
Incidentally, the entire basis of the Franchise Gold 100 was not who sold the most franchises but rather the Stage of Evolutionary Growth a company had evolved to. This is based on an Organizational Development model originally published in the Harvard Business Review in 1972 and then tweaked, by us, with the assistance of the publisher. We tweaked the model to franchising to indentify when a company should franchise and what the organization looks like and behaves.
If a company is still in the entrepreneurial stages (1 and 2) they should not franchise. By the way, that is where most of Francorp's clients are as well as some other consulting firms. These organizations really cannot operate in both marketplaces at the same time.
Yesterday, at the convention, I sat next to a new franchisor who just sold off his company stores to pay for the franchising efforts. Wow. I won't tell you who their consulting firm was.
Craig Slavin
Franchise Architects
Franchise Navigator
847-465-0111
In The Long Run No Store Ownership Is A Real Negative
Because if the franchisor owns no stores than the primary focus for the franchisor and franchisees can be diametrically opposite. The cost of running the store and franchisee PROFIT will take a back seat to sales revenue at all cost, because that's how the franchisor makes his money - the franchise percentage payed every month. Add in the vendor kickbacks taken by many franchisors and the predatory coupons that will eventually come to increase SALES even more and you have a recipe for franchisee disaster. And with no stores to run you're much more likely to get the hoity toity in your top management positions - people who can crunch numbers but have no understanding of the business they're running, can't manage or don't provide leadership.
In Dunkin Donuts' case you also have the company selling its coffee in venues other than its stores. A good company move but probably a negative for the average franchisee because it makes its coffee just another product you can get anywhere, not at your local Dunkin Donut. Again, the interest of the company isn't the same as the franchisees.
Subway The Exception
Not the rule. In case you don't believe that take a look at the #2 sub chain in the US, Quiznos. The differences are striking:
1. q's costs, from food to equipment, are much higher than Subway's.
2. multi-ownership franchisees are virtually non-existant at Q - at Subway it's the norm.
3. Q refuses to recognize the TSFA - toasted sub franchisee associaton - while Subway actively partners with its franchisee association for the betterment of the brand.
4. The ad and food money is spent by co-ops - ensuring money paid in by franchisees is well-spent. That's why Subway's costs are lower and why Subway ads are on major events year round while Q's ads are a staple of cheap, second tier cable networks.
- a perfect example of how Q flaunts its grip on franchisees is the price it charges for the pablano peppers required for the new sandwich out in the next few weeks. Nearly $50 for 12 pounds of FROZEN peppers. Twice what a franchisee would pay for delivered peppers from the local produce supplier. And that's the norm, not the exception.
5. On average Subways make money, Q's break-even or worse.
Don't belive me? Ask your local Q franchisee what he/she thinks about this franchisor. Or ask me. They stink. You'll be bent over every day you're in the system, and when it's over, you'll have nothing and Q will be looking to take your store to sell as a "deal" to the next poor soul. I only wish I had bought a Subway.
Total Agreement Here
Every historically superior franchise concept/system has had a form of proprietary facility in which to teach/innovate/market test the things/ideas/products/services that are candidates for addition to the mix they currently offer. Without "feet on the ground" testing, it is just a process by which imbecile managers "think their way through" what they call ideas and then try to impose them upon the franchisees without any road testing whatsoever.
Whether it's the Dairy Queen new concept building that is not franchisor tested or the Dunkin Donuts expensive remodels that are also not franchisor tested, the "new think" B School theorists who eschew real experimentation before making/requiring others to make big investments are completely off the mark and need to be slapped hard.
If you want your franchisees to invest in your new "proven system" concepts, prove them yourself first.--
Richard Solomon, FranchiseRemedies.com, has over 45 years experience with franchise litigation and crisis management. He is a graduate of The Citadel and The University of Michigan Law School
Beg to be Fleeced
Some people make it so hard for the rest of us to be honest men.
"Caveat Emptor".
1. So much for the concept of "Caveat Emptor".
2. “There's a sucker born every minute”.
P.T. Barnum, 1810-1891
Right--Dunkin is free from the expenive shops
Only Dunkin franchisees need to spend seven figures to buld a shop that the franchisor is busily trying to make irrelevant to the consumer who can buy the product anywhere else.
If Dunkin had company stores that it had to spend big dollars on to build, maintain, staff and renovate it might think differently about letting just anyone else sell Dunkin products.
Sell All Stores to Pay for Franchising
I know the type. There is this one franchise builder who owes big money to the government. He either persuades as many small businessmen as he can to pay to franchise or else there is a strong possibility that he ends up spending time in an orange suit.
I don't think he's fond of orange suits.
And, Guest, you're comments are accurate re Dunkin Donuts
Mr. William Rosenberg, founder of Dunkin Donuts, began with a canteen truck in Boston and later moved into the donut business. My mother’s side of the family owned several units around Boston and partial interests in others. In the early days it was still run like a Navy fighting ship and the franchisor had its fingers on the pulse.
The issue in quality franchising is NOT whether the franchisor 'stays' in the core business, but rather KNOWING the core business. That's a big difference. The sophisticated franchisor knows that they are in the 'franchising' business while still nurturing the essence of the 'core' business.
Nick Bibby is a franchise consultant and principal of the Bibby Group.
Goin Postal Trains in a Corporate Store --UPS has NO Corp. Store
But MBE-UPS just used the famous name as a shill to induce the unsuspecting and trusting public to invest in The UPS Stores who had NO proven model and which stores were created only for the purpose of maximizing the profits of UPS-MBE on the backs of "marks" who were impressed with the famous name and reputation of UPS.
MBE-UPS trained new franchisees in their most successful stores and these store owners were sworn to silence about the actual ROI of their stores and these store owners themselves had no idea of how the UPS takeover of MBE would soon negatively affect their profits.
Franchisors who have no corporate model and who make no earnings claims and who have lots of transfers in Item 20 of the UFOC should be marked off of the list and AVOIDED. Hind Sight!
George should call Fred
George Bush should call Fred DeLuca.
Just a few years ago, Subway was the poster child for everything that was wrong with franchising. But Subway was run by someone who decided to change course and learn from missteps. Subway also benefited from the Jared phenomenon-- you can't discount luck as a factor in business success.
In the case of Quiznos, the jury is still out on whether the Schadens have decided to change course. Signs to date seem mixed.
As for our esteemed Prez, well... some people never learn.
Re: Prototype vs Concept
I'll take a wild guess that the consulting firm involved is HQ'd in Olympia Fields, IL and has an ex-con as Founder and Chairman. That would be Francorp for those of you playing at home. Am I right?
Do you realize what condesending $(*@&($ you people are?
Listening to a bunch of lawyers and other leech type individuals demean hardworking franchisees, just pisses me off. It is hard to believe how immoral, cocky, self-absorbed twits can justify just about anything if there is money somehow involved. It's pathetic what attitudes you people can justify having. The worst examples of greed in human beings is on display here. My opinion, leech types choose to comment on franchisees because deep down they admire their unwaivering scrouples work ethic and their faith in others and confidence in themselves. Fair dealing is not a capability you have it is simply what you lack and always will. Whats really hard is being honest when so many sourounding are not.
DD franchisor ou of the core business
Right, but the current crew at Dunkin HQ are far removed from the Rosenbergs.
They are private equity money guys whose core competnecy is getting money to flow from your pocket to theirs, and you get to do most of the work to make it happen.
If they start franchising hedge funds and LBO shops, sign me up!
It is all about building the brand
Guest, I think some of what you say and feel has lots of merit.
However, in the big picture of things, the company (Franchisor) is trying to capture greater marketshare and when they have products that can be sold through various channels they can potentially grow faster and grab marketshare faster.
If they don't, however, share and compensate the very people who are also building the brand then it could be a mistake.
In the past company's like Haagen-Dass, the old A & W, Mrs. Fields and many others got hurt by competing in the same market for the same customer at the same time.
Collaboration is deeply needed in those cases and potential franchise owners need to determine if it is a brand they want to associate with.
Wouldn't you agree?
Craig Slavin
Franchise Architects
Franchise Navigator
847-465-0111
Calling Fred
The change was so dramatic that the AAFD gave Fred DeLuca the AAFD's highest award - I wasn't in the running! (Joke)
Michael Webster PhD LLB
Franchise News
Yes, you are right, Mr. or Ms. Guest
My comment though, regarded 'quallity franchising', not necessarily what happens to a franchise company when it moves from the founder's shoulders to the shoulders of Wall Street.
And, to your second statement, which is a good one, haven't we already institutionalized a franchised hedge fund in the form of Freddie Mac and Fannie Mae?
Nick Bibby is a franchise consultant and principal of the Bibby Group.
Building the brand
This guest wholeheartedly agrees, Mr. Slavin. Your collaborative approach is the ideal, and the tug of war between the Zor and Zee interests get some attention and balance.
Unfortunately, Zors like Dunkin Donuts corporate diagree.
Don't discriminate Nick Bibby
You did not allow for the possibility of Mr. AND Mrs. Guest. Hermaphrodites are people too.
LBO and Hedge fund franchises
LOL. True enough, but FreddieMae and Fannie Mac apparently weren't run by the same wunderkind.
You're exactly right about discrimination.
PC is, unfortunately, not my long suit. Funny - most of the good people in franchising seem to suffer from the same illness.
Nick Bibby is a franchise consultant and principal of the Bibby Group.
what exactly is your illness?
"PC is, unfortunately, not my long suit. Funny - most of the good people in franchising seem to suffer from the same illness."
Nick, what on earth type of illness do you have and is it contageous?
Who are the other "good" people in franchising who also have the same illness?