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The Cold Stone Creamery franchise is replete with a history of problems that include franchisee lawsuits and an exposé in the Wall Street Journal. Learn why this franchise was destined to have problems.
I can recall when a Cold Stone Creamery opened less than 10 minutes from my house in a strip mall on Long island. It was about four years ago and being someone who enjoys a good dish of ice cream I paid a visit to what was then a highly publicized franchise concept. After my visit I can recall telling my wife that Cold Stone ice cream was not worth the high price. The franchise closed two years later. Before reading glowing reports about the phenomenal growth of the franchise, including its high rankings in the Entrepreneur 500, I had known very little about Cold Stone.
I became more familiar with Cold Stone Creamery while consulting with a business brokerage group. This firm represented several Cold Stone franchisees who listed their franchisees for sale. All but one was losing money. Since I had reason to view the Cold Stone franchise agreement, it became obvious to me why these franchisees were looking to sell.
In June 2008 the Wall Street Journal published an article reporting that a large number of franchise locations, approximately 16-20 percent, of Cold Stone Creamery franchises closed, or were being put up for sale by their owners. The article included claims by franchisees that the company had misrepresented the average revenues of Cold Stone stores and acted in ways that reduced stores' profit margins. Part of the problem, according to the Wall Street Journal, was Cold Stone’s rapid expansion in its earlier years, placing new stores too close to old ones, which hurt sales. Many times this led to inexperienced franchisees buying into bad situations.
I looked at the 2007 Cold Stone Creamery franchise disclosure documents and there were obvious signs that pointed to potential problems. The following are several that stood out:
I could have included additional items on this list, but it really isn’t necessary to my point that this was a flawed franchise program. Here are some important things we can learn from the history of Cold Stone Creamery:
The numerous failures of Cold Stone Creamery franchisees could be laid at the feet of the franchisor, franchisee counsel and yes, even those franchisees who were caught up in the hype of what was then a “hot” franchise opportunity. After all, there was enough disclosure in the franchise documents to set off numerous alarms.
I can’t comment on the current Cold Stone Creamery Franchise Disclosure Document and its franchise agreement. However, I do know that if I had reason to review the 2007 UFOC for a prospective franchisee I would have told them to walk away in double time.