Whose Fault is the Coldstone Fiasco?

coldstone.jpg
(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?

  • Coldstone definitely is due a good portion of the blame, but let’s not let the franchisees off the hook. They had a responsibility as well and failed their due diligence. The sad thing is that they jumped in feet first without fully understanding the business.

  • Ah, but where was the information necessary for franchisees to fully understand the business supposed to come from? Coldstone, of course. Unless there’s a magazine called “Cold Slab Ice Cream Store Monthly” out there somewhere.

  • I.Screamer

    I cant’ get past the first paragraph where you call it “gourmet” ice cream. Have you ever had it without any mix-ins? It’s simply awful. They put a secret additive in it so that it doesn’t melt so easily on the stone. But all it does it give it the consistency of Silly Putty. Even Consumer Reports said it was unbearably stretchy and way too expensive for the not-so-high quality.

    Maybe the public is finally catching on that beneath the mix-in “show” is just a poor product and that’s why Cold Stone is having problems.

  • There’s an interesting article about the factors to look at BEFORE buying a franchise at the Franchise Foundations website. The Cold Stone case is mentioned, as are other franchise company mistakes under the individual factors. You can find it at http://www.franchisefoundations.com/franchisearticlesi.html#Bookmark4

    The author, Mr. Franchise (google him) is a San Francisco franchise attorney, author, instructor and franchise expert. He’s the one who was the franchise expert in the Nagrampa case, where the California 9th Circuit of Appeals threw out the franchise arbitration clause.

    Sorry, the correct link for the Buying a Franchise evaluation factors article is http://www.franchisefoundations.com/franchisearticlesii.html#Bookmark1

    One thing the author, Mr. Franchise, points out is the attorney who traded her briefcase for an ice cream scoop in the Cold Stone case failed to research the l-e-a-s-e aspects before buying the franchise. While you or me might possibly make this kind of mistake – an attorney making a mistake like that? Like he says, it’s almost another bad attorney joke – except she’s not laughing. Paying back a $350,000 loan balance isn’t funny.

  • Patricia

    I’m back and just returned from the IFA discussion forums. Incredibly, there are a lot of people asking about how they can tap into their 401k retirement funds to finance franchise investments – like Coldstone.

    Are these people brain-dead? Or, more likely, they are the victims of smooth-talking franchise salespersons who appeal to the emotions and get prospects so hyped up they don’t know up from down. That’s the big question of the day.

    If you don’t have liquid, non-retirement assets to play the franchise game, then don’t play! Don’t risk your retirement assets – that’s basic common and business sense. Especially these days where franchise companies only give you a short, 90-day estimate of working capital needs when it can take years to reach the break even point and cost a multiple of the estimated INITIAL investment to get there, if you ever do.

    There are more great articles about these topics on the Franchise Foundations website. Start with the http://www.franchisefoundations.com/buyingafranchise.html page, then read the new http://www.franchisefoundations.com/fddevaluator.html page.

    It’s an investment that will only cost you time to read. You’ll be glad you did. – Pat

  • G. L. LAMBERTI

    MY WIFE & I WERE UNFORTUNATE TO INVEST IN A (COLD STONE CREAMERY “RIP – OFF” STORE) IN CARSON CITY , NEVADA THAT WAS OPEN FOR 14 MONTHS. WHAT A JOKE & THE (CONEHEADS) ARE NO HELP TO THE FRANCHISEES WHEN THEY HAVE A PROBLEM. THEY SURE TALK A “GOOD GAME” AND THATS WHY THEY ARE ENJOYING THEMSELVES IN THE CARIBBEAN ON THEIR YACHT (LAUGHING THEIR ASSES OFF). I WOULD LIKE TO KNOW WHERE THEY ARE DOCKED & PAY THEM A LITTLE VISIT. WE WERE TAKEN IN BY THEIR SMOOTH TALK , CHARM & LIES , AS WE WERE STABBED IN THE BACK & OUR WALLETS RIPPED – OFF. !!!!!
    MY WIFE & I WERE IGNORANT TO GET INVOLVED IN THIS FIACSO AS WE LOST EVERYTHING WE HAD. AS WE WERE GOING THROUGHT THIS TROUBLED TIME WHERE WAS (COLD STONE) NO WHERE TO BE FOUND. NOTHING BUT EXCUSE AFTER EXCUSE , HOW CAN THEY LOOK AT THEMSELVES IN THE MIRROR.
    WELL THATS MY STORY , SO IF ANYBODY HAS ANY INFORMATION ON A (CLASS ACTION LAWSUIT) PLEASE “E-MAIL” ME. ( I WANT ON BOARD )GLLAMBERTI@CHARTER.NET
    THANKS: GEORGE & SHEILA LAMBERTI

  • Patricia

    If you have a problem with a franchise investment, contact the Franchise Foundations Legal Help Hotlinelegal help hotline at 1.800.942.4402

  • franchisee77

    My husband and I were originally screened by Cold Stone and Kahala and interviewed about our strengths related to owning and operating a Cold Stone. I scored with high scores while my husband was more the accounting type. I received the week training in Arizona and the two weeks in the store. I was fully qualified to run a store if the franchise was a good model, but it is a failed model and they try to pass it off as if it is good. We were given a trainee area developer, and received used equipment sold as new to us. We received no support from our Area Developers in these issues.

  • Robert Lasher

    Any of you Cold Stone franchisees have equipment to sell? I am in the market for a good batch freezer, a hardening freezer, and some dipping cabinets.

  • kevins a fraud

    Kevin Blackwell runs Kahala like his own personal piggy bank. He is a fraud and he is a bully. He brags about winning lawsuits, he even bragged about the lawsuit he won against the previous owners of Cold Stone. Well I hope our class action lands him in prison where he belongs. We need to demand that the lawsuit audits Cold Stone and Kahala because the book keeper down there is crooked as well. Does anyone know anything about the Robert Petersen trust being an owner in Kahala? I was told Mr. Blackwell owned the majority share…I dont think thats true…I think he lies and makes himself out to be something bigger and better than he is….much like they did with Cold Stone. Must be a part of their business model.

  • Don

    Can anyone tell me how to get on the class action lawsuit for any formers Cold Stone Creamery owners?