Whose Fault is the Coldstone Fiasco?

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(The coupon some franchisees say killed their business.)

Nothing beats a heath-bar cheesecake and chocolate ice cream beaten with big metal spoons on a slab. Especially before a summer movie. Or a trip to the beach. Unfortunately, thanks to a widespread franchise failure, hand-beaten gourmet ice cream may not be an option anymore. At least, not everywhere. Slab-beaten ice cream lovers will have to look harder for their $4 treats.

I’m gonna miss you, Coldstone.

For the past year or so, Coldstone franchises have been dropping like flies. The WSJ recounts the current situation:

Owners say potential revenue numbers were misleading and they complain some national promotions cut margins. Some are trying to organize a class-action suit seeking remedy from Cold Stone and its parent company Kahala Corp. For its part, Cold Stone contests the charges and suggests some franchisees were ill-prepared to run a business.

The WSJ points to a series of flaws in the Coldstone franchise strategy that may have led to its current collapse. Bad moves include too much expansion, a two-for-one coupon that sliced into profits, and a luxury product ($4 per scoop) whose sales slumped when consumers started watching their expenditures.

Franchisees say Coldstone was irresponsible and insensitive. Coldstone officials say franchisees were at fault.
Who’s right? Check out the three main mistakes each side made leading up to the disaster:

CORPORATE
They took the fad too far. Several years ago, Coldstone was a fad. Everyone simply had to have a Coldstone before a movie, or late at night when there was nothing else to do. Corporate’s eagerness to expand led to overexpansion. Once the fad ended, Coldstone Creameries were on every streetcorner, but people had halted their voracious consumption.

They didn’t adjust to the recession. Ben & Jerry’s, Haagen-Dazs, and other high-end treat retailers are also suffering, but nobody’s shutting doors en masse. Why didn’t Coldstone adjust its strategy to mitigate fallout? Giving losing franchisees a bailout incentive, say, or introducing a new? Overexpansion has its consequences, but it seems to me that the company should have been able to curb the current extreme level of fallout.

They didn’t offer franchisees bailout options. Franchisees cite bad area managers, belligerent failure policies (it’s all the franchisees fault when things go south), and lack of support systems as reasons they hate Coldstone enough to file a class-action lawsuit. Though Coldstone negotiated many business owners’ leases, it didn’t provide the same type of assistance to a failing franchise.

FRANCHISEES
Bought into positive aspects of franchising without researching the risks. To their credit, there’s a pronounced information deficit when it comes to the realities of owning a franchise. The cold and hard facts—90-hour weeks, a constant in-store presence, providing the franchise owner with a percentage of your hard-earned profits—aren’t part of a franchise owner’s sales pitch. Case in point: the “Ownership Facts” section on Coldstone’s website:

The Cold, Hard, Happy Facts on Cold Stone® Ownership

• Cold Stone Creamery’s founding store opened in 1988.
• We’ve been awarding successful franchises since 1995.
• Nearly 1,400 stores have already opened in the US, Puerto Rico, Guam, Japan and Korea with an additional 1,000 agreements awarded worldwide.
• In 2006, Cold Stone was ranked #11 in Entrepreneur Magazine’s Fastest Growing Franchises.
• Initial Franchise Fee is $42,000 with a total investment between $294,250 and $438,850.

These aren’t so much ownership facts as vague but positive franchise characteristics.

Many franchisees lacked experience and small-business acumen. They expected to get the franchise up and running within a year, when in fact the process took much longer. When expectations were muddled, fear and disappointment set in, causing franchisees to reconsider their choices. Some franchisees should not have entered the business in the first place. But whose fault is that—that of the misleading company or the ignorant franchisee?

Franchisees put up more than they could afford. It’s part of the American business model to leverage yourself to the hilt. Accordingly, some Coldstone franchisees put up everything—their houses, their children’s education—against their Coldstone franchise. If your life is your exit strategy, things get dire when the turds hit the turbines. Now, franchisees are dealing with the fallout from over-investment, and it hurts.

The Coldstone scenario looks suspicious to me—and not in Coldstone’s favor.
Overexpansion isn’t a franchisee mistake, it’s a bad corporate strategy. The corporation, then, is responsible for adjusting to its own mistakes. On the other hand, the company seems to be doing fine in Asia and Mexico. Maybe its new strategy is to ignore the fallout back home while focusing on its successes abroad.

Humans are a company’s biggest asset. Coldstone hired inexperienced employees to serve its expansion hunger, then turned its back on them when they needed support. No matter how insensitive you are, it’s bad business to wangle your franchisees to the point of a class-action lawsuit.

Whose fault is it? I’m pointing my finger at Coldstone.

Now, can someone tell me where to find a cheesecake chocolate heath bar stone-beaten double scoop of ice cream?