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Behind The Stone



This is a blog about former Cold Stone Franchisees....how they were taken advantage of by Cold Stone Creamery, Inc., and lost everything. It is about discovering the lies behind one of the largest franchise scams in the history of franchising.



Updated: 2016-06-10T06:41:44.491-07:00

 



The Great Franchising Robbery

2010-03-30T13:01:22.153-07:00

So, after months of agonizing about the decision you must make, the inevitable happens. With the advice of former franchisees, your attorney, your accountant, your spouse, and close friends, you end your relationship with Cold Stone. Hopefully, you have protected yourself, both from a legal and a financial standpoint. Remember, Cold Stone will come after you. Now, comes the process of rebuilding your life. It will seem like a daunting task. Looking for a job may be at the top of your list of priorities. Your financial condition may be a real concern. You may have relationship issues to deal with. Begin the work immediately! During this life changing process, you will undoubtedly have questions about why this has happened to you. We have all faced those questions. The answers to your questions can be found in blogs like mine, or by contacting people like Cecil Rolle, or talking to other ex-franchisees.     So where do we all go from here? Can we take steps together to help each other to cope with what has happened to us? Are there legal steps that we could take either individually, or as a group that might force Cold Stone to pay for their actions? Your first step should be to contact Cecil Rolle, so that he can add your name to our database. I believe that only as a group do we have strength. Your second step is to gather information (e-mails, conversations with area developers or corporate employees, notes from Co-Op meetings, any written correspondence you may have had with Cold Stone, copies of your franchise agreement). This information will be invaluable in the future. Step three would be to educate yourself. Know what is out there.....read blogs (like this one), look for forums online, and talk to other franchisees, and ex-franchisees.I found a very interesting blog by Carol Cross that many of you might find interesting, called The Great Franchising Robbery. This may give you some insight as to the problems with franchising, and how the deck is stacked against the franchisee. Enjoy!      With the specter of the global economy and multi-national corporations, who would operate within the global economy, it became necessary for American multi-national corporations to outsource many good American jobs to remain competitive in the global economy. Our manufacturing base has diminished over the years as well, and this has produced a problem for government as to "Where are Americans going to work to realize their American Dream." Where are the jobs of the future?" Franchising has given the government job numbers to report to the American People and franchising has grown disproportionately in our economy because of all of the recessions we have had in the past thirty years.     Thirty years ago the franchisors and the special interests who surround franchising, to include the federal and state governments, determined that franchising could grow jobs and financial activity in the economy, especially during recessions, when those with the financial resources to invest in themselves, and who had lost their jobs and income, would invest in franchises to restore their income and security. These investments and the redistribution of the savings/assets of franchisees would provide the cheap "venture" capital and the cheap labor to encourage those with successful businesses to franchise these businesses and grow jobs within the slowing economy.     McDonald's, the great American success story, was, and is, the inspiration for franchisors to franchise their businesses to grow a chain that will make them millionaires within a few years if their "concept" catches on and the American people fall in love with THEIR concept.     It is the Franchisors who are the ENTREPRENEURS and the franchisees are merely the resources of the franchisors used to grow the franchisors' chain operations. Of course, all franchisors are delighted if ALL of their "founding" franchisees are successful and make it, at least, to a "breakeven" status. But, re[...]



What About the Stress?

2010-01-10T15:27:17.631-08:00

Your health matters! During the four years operating my Cold Stone stores, I completely ignored the health issues that had been building inside me due to the immense stress I faced each and every day. There were some days I'd go into the bathroom just to throw up. I felt a tightness in my chest constantly! My blood pressure had skyrocketed to 180/115, and I developed Type 2 diabeties. I've had franchisee's tell me that there were days they could'nt get out of bed. Cecil Rolle's latest e-mail included a section on this very topic, and with Cecil's permission I'd like to re-print it:"The stress associated with operating a Cold Stone Creamery franchise is caustic and overwhelming. Franchisees report time and time again that their stress level is constantly elevated by the financial shortfall from Cold Stone's failed business model. The constant worry of making payroll every 14 days, Sysco/Sygma payments, rent, utilities, royalties, money, money, money--stress, stress, stress. Franchisees often have to pull money from their savings, investments, kids' college fund, 401(k), or invest their inheritance from their hard-working parents, borrow against the equity in their homes or other property. They borrow from their friends, family and whatever source they are able to procure cash from to keep their unprofitable stores open. Many report that they are often concerned about such issues as having their power and water disconnected. They report that Kahala-Cold Stone's constant, active and aggressive effort to terminate and take stores for the company's own financial benefit is an enormous source of stress even for franchisees operating well between the lines. Stress has a long term--adverse affect on your quality of life. The sleepless nights, nervousness, irritability, cause irreparable damage to your health, not to mention the damage that it does to your relationships. I hear from franchisees all the time regarding the relief they feel once they have closed their stores. Stress has been definitively linked to premature aging, sleeplessness, anxiety, nervousness, frequent urination, frequent stomachaches, urinary track and other infections, irregular menstruation, immune suppression causing chronic infection and disease, and other conditions. It causes the onset of diabetes, high blood pressure, cardiovascular disease, abnormal circulation, depression, hardening of the arteries and other diseases. According to wikipedia.org: Stress is how the body reacts to a stressor, real or imagined, a stimulus that causes stress. [A Cold Stone franchise clearly qualifies.] Alarm is the first stage. . . Resistance is the second stage. If the stressor persists, it becomes necessary to attempt some means of coping with the stress. Although the body begins to try to adapt to the strains or demands of the environment, the body cannot keep this up indefinitely, so its resources are gradually depleted. [Emphasis added.] Exhaustion is the third and final stage. . . . At this point, all of the body's resources are eventually depleted and the body is unable to maintain normal function. At this point the initial autonomic nervous system symptoms may reappear (sweating, raised heart rate etc.). If stage three is extended, long term damage may result as the capacity of glands, especially the adrenal gland, and the immune system is exhausted and function is impaired resulting in decompensation. [Emphasis added.] The result can manifest itself in obvious illnesses such as ulcers, depression, diabetes, trouble with the digestive system or even cardiovascular problems, along with other mental illnesses. Responses to stress include adaptation, psychological coping such as stress management, anxiety, and depression. Over the long term, distress can lead to diminished health and/or increased propensity to illness; to avoid this, stress must be managed. [Emphasis added.]Your health matters and it should take precedence over even your finances. You can live--even thrive without money. (Many Cold Stone Creamery franchisees are firsthand[...]



What Next?

2010-01-07T14:58:31.202-08:00

You've finally realized what is happening (deep down you already knew). The situation seems to be spiraling out of control. You are continually "robbing Peter to pay Paul". You are having trouble paying Sysco (they might even have you on C.O.D.). You have payroll on Tuesday, and there is no money in the account. You are afraid to answer the phone. The bank calls to tell you that your account is seriously negative........Things are not going to get better. Cold Stone is not going to rescue you. You have exhausted all of your savings, closed your 401K, borrowed from most of your family (and now cannot pay them back). Your house has liens on it to secure your loans. Your ability to borrow against it is gone(you realize you might even lose it!). You may even be having relationship issues because of your situation. What do you do now? The first thing is to realize that you are not alone. Often times, you go to a Co-Op meeting, and everyone else seems to be fine, maybe even doing well. That's what Cold Stone wants you to think. You are afraid to talk to your fellow franchisees about your situation, maybe out of fear or shame. Trust me, more than 50% of them are in the same situation!Please, the next thing to do is critical. Call or contact Cecil Rolle! His phone number is 352-262-6798, and his e-mail address is cdrolle@bellsouth.net. He knows what you are going through. He's been there. He will put you into his database, and he will keep you informed about any legal action that may take place, but more so, through his semi-monthly e-mails, he will give you insight and answers to many of the questions you may have. He will also keep you informed about what strategies Cold Stone is currently employing to mislead and misdirect you about their efforts to "help" you.The next thing to do is to begin to gather and consolidate any and all information, e-mails, communications, and conservations you may have had with Cold Stone/Area Developers about your situation. Start building a file that includes all documents pertaining to your association with Cold Stone. This will include things like your UFOC documents, your QSC & E results, and any written communication you have had with Cold Stone or your Area Developers. Save, and print any e-mails you send or receive from Cold Stone/Area Developers. All of this information will be extremely valuable to you as you move forward with your dealings with Cold Stone.Now this is extremely important.....do not under any circumstance, sign any document with Cold Stone that ask you to give up any rights of litigation. Trust me, this verbiage will most likely be included in any document Cold Stone wants you to sign from now on. DO NOT TRUST THEM to do the right thing!Once Cold Stone discovers that you are in financial trouble, they will begin to do everything they can to take your store. They will base their decision on "Out of Compliance" issues which, according to your franchise agreement, can be almost anything. Why do they want your store? When they acquire it, it becomes an instant asset! It cost them almost nothing to acquire it, and they will resell it for .30 to .5o cents on the dollar(this is called "churning"). The liability is on you! This is where Cecil can help you. He will give you strategies to preserve assets you may have left,and what legal strategies you may need to move forward. I urge you again to contact Cecil! You are going to be hurt financially. You are going to "fall off the truck..." You just need to minimize how much you will be hurt in the fall! I've been through the entire ugly process. The sooner you decide to walk through that door, then close it, the sooner other doors will open up for you. I didn't think I could survive the fall, or even if I wanted to survive. I thank God every day when someone forwarded me an e-mail from Cecil Rolle. Cecil saved my life,and gave me hope. You've got to take that first step if you're going to move forward. You can call me at 559-999-2599 if you need someone to talk to, but make [...]



The Twelve Worst Franchise Provision Agreements

2009-01-26T10:12:26.156-08:00

I've told you my story, and it is one that will continue for some time. Currently, I am working on a legal action against Cold Stone Creamery, but it will be a long arduous process. Hopefully, you will find this blog both entertaining as well as informative.There are hundreds of us within the Cold Stone community that have been affected greatly by the actions of Cold Stone Creamery. I realize that there is a larger community out there, composed of many franchise opportunities, and tens of thousands of franchisees. Not all franchisors are dishonest, or use deceptive practices to recruit franchisees. Take McDonald's for example. The relationship between its franchisees, and its suppliers is the model for quality franchising. But, you must always do your due diligence when examining a franchise opportunity. With that in mind, lets take a look at a list of the twelve worst franchise provision agreements within any UFOC (Unified Franchise Offering Circular) document. As you examine the UFOC document you may have received from a franchisor, look for any of these franchise provisions within the UFOC. If you find any of them, try to negotiate these provisions out of the UFOC document. If the franchisor is unwilling to do so, do not move forward! And remember, the UFOC offers you almost no protection. Essentially it is designed to protect the franchisor, and to give them almost unlimited latitude when dealing with their franchisees. Ok, so what are the top twelve worst provisions? You can link to them if you want a copy, using the link to the right, but let me cover all twelve. I'll give you my take on each of them:1. Gag Rules. Some franchise agreements now prohibit franchisees from discussing any aspect of their franchise experience with anyone outside the system. This defeats the FTC rule and other state disclosure laws which require lists of terminated franchisees to be provided to prospective franchisees. It may even prevent ex-franchisees from discussing any issues that caused them to leave the system, at least for a period of time.2. Franchisor Venue Provisions. These provisions require franchise disputes to be litigated or arbitrated in the home state of the franchisor. This not only increases costs for the franchisee, but also allows the franchisor to litigate, arbitrate or even mediate on their home turf. Some agreements only allow for mitigation for the franchisee, while allowing the franchisor the right to seek legal action in a court of law! There has been a ruling recently in California that may allow the franchisee the right to seek legal remedies through the court system, even with the mediation provision in the UFOC document. I will post that court decision in the sidebar to the right later this week.3. Lack of Reciprocal Cure Periods. Many franchise agreements give the franchisor 30, 60, or 90 days to cure any alleged defaults; some even do not allow the franchisee any remedy if the franchisor defaults. On the other hand, some franchise agreements provide for no cure periods for any alleged default by the franchisee. What is good for the goose is certainly good for the gander! It has been my experience that the franchisor rarely gives the franchisee enough time to cure any default, and in fact, wants the franchisee to default! This way, the franchisor can come in and acquire an asset for virtually nothing, and resell it over and over again. This process is known as "churning".4. Nonreciprocal Noncompetition Covenants. Many franchise agreements have oppressive post-term noncompetition covenants, both in terms of duration and geographical scope. At the same time, many franchise agreements allow the franchisor to place competing units pretty much where they want. If the franchisor wants protection from the franchisee after the agreement expires or terminates, why shouldn't the franchisee be entitled to the same protection during the franchise agreement? The franchisor, many times is more interested in their royalty fees and service fe[...]



Cold Stone's Strategy

2008-12-29T09:50:31.711-08:00

Was it Cold Stone's plan to defraud prospective franchisees? Cheat them out of their life savings? Ruin families? Not in the beginning. The early years were both exciting and challenging. There were just a few employees in the fledgling company, and like many startups, they had their share of ups and downs. Doug Ducy often told the story about the first franchisee that signed up, and Cold Stone Creamery receiving their first franchisee fee! Finally, they could buy a brand new computer! Maybe some office equipment.....even pay themselves! Cold Stone Creamery had started to grow. So how did it all go wrong? What happend that changed the way Cold Stone would operate? One word.......Greed.I’ve given this a lot of thought. Let me explain how I think Cold Stone’s strategy changed over the years. In the first few years of their growth, they indeed wanted success for their franchisees. There was lots of room for growth, and virtually no opportunity for impact from any competitors, or even other Cold Stones. And the company’s growth was way beyond expectations. Cold Stone was flush with money. They advertised for franchisees right at the store level, providing applications to anyone who wanted one. It didn’t matter if someone wasn’t financially qualified…they would loan them the money! This was a Bart Dunn strategy. Some of you who got in before 2005 remember Bart Dunn. If the borrower didn’t pay the loan back, Cold Stone would just take back the asset, and re-sell it! They did have an almost unlimited supply of people wanting a Cold Stone! After a few years of this, and a number of defaults on the loans, Cold Stone was experiencing some cash flow issues itself. It owned a lot of notes, but didn’t have a lot of cash. They hired in-house accountants, and fired Bart Dunn. Financially, Cold Stone was a mess. Their own in-house accountants told them that they weren’t a bank, and should not be lending money to anyone. All the notes were sold off. Hopefully, Cold Stone was now back on track financially. But sales were beginning to decline. Look, Cold Stone was aware that their business model wouldn’t work. The prices of the product we sold needed to be high enough to overcome the high cost of the debt load we had assumed. But the prices crossed over that threshold that customers would be willing to pay. If and when the economy turned down, no one would be willing to pay the kind of prices we needed to feed the machine. This wasn’t even considering the high costs of the raw materials we would experience.The declining top line sales greatly affected royalty and advertising dollars that Cold Stone was receiving. They instituted programs whereby they could extract more money from their franchisees. They were already receiving money from the vendors, called Flexible Marketing Plan dollars. The more cases they could generate for the vendor, the more FMP dollars they would receive. Someone thought that by breaking up a case of strawberries from a 30 pound box to three 10 pound boxes would work. They never considered what the franchisees might say, or how inconvenient it would be. That is, until we all let them know! But they had just completed a new headquarters that was spectacular. They had to feed their machine too. They began a “guaranteed rent” program. It worked like this. They would be the primary lessee, and the franchisee became the secondary on the lease. They had convinced the franchisee that this was a good thing for both them and the franchisee. In the event that there were issues, the company, being the primary on the lease, would be accountable to pay the rent. For this “guarantee”, the franchisee had to pay them up-front, a 2% fee equal to the dollar value of the rent for the life of the lease, usually 5 years. For me, that amounted to about $6,000. What incentive did Cold Stone have to demand lower rents? After all, that would lower the 2% money they were receiving. What a deal [...]



My story

2008-12-24T11:40:00.507-08:00

First of all, let me give you a few details about my background prior to Cold Stone. I started with McDonald’s in 1972. I worked for them in one capacity or another for most of my adult life, including a 10 year stint as a franchisee. I am well acquainted with how to run a successful restaurant….I eventually sold my store, and about five years ago saw my first Cold Stone in Hawaii. I was amazed! What a great idea, I thought. I knew that there wasn’t a Cold Stone in Bellingham, WA where I lived. The size of the store and the number of employees was small, by McDonald’s standards. It should be easy to run and manage one of these. I ask the owner for an application and when I returned home, completed all the paperwork, and sent it in. A few weeks later, I got a call from the area developer. We arraigned a meeting, we talked about my background, she gave me the history of Cold Stone, and then I asked about financials. She told me that in the Pacific Northwest Region, the Average Unit Volume was $425,000 (this was in 2003), and had grown steadily for the previous four years. We were told that franchisees were generating between 15% and 20% profits! That sounded impressive! She was very engaging, and my wife and I were very interested. Just prior to the end of our meeting, I told the area developer, that before we made a decision, we would like to see specific financials from franchisees in the area. She explained that she could not give out that kind of information, because it would violate confidentiality agreements with the current franchisees. I told her that she did not have to give us names, just the supporting documentation. She said that the P & L information from each franchisee was not readily available to the area developers, but what she could supply us with was a generalized P & L, that had Cold Stone recommended expenditures listed. She said that I should be able to complete a pro forma based on that. We agreed to look at the information she would provide us, complete a pro forma, and call her by the next week. She supplied us with a list of franchisees to call (her list).The P & L information she provided looked reasonable. The generalized P & L indicated that Food Costs (including paper) should run about 23-24%, and that labor costs, around 24%. Seemed reasonable, at least in the McDonalds world. Little did we know that these numbers were far from realistic? But we completed a number of projected P & L’s based on the AUV provided by the area developer, looking at the high side, the average, and the low side. It did look doable. We called a name or two on the list. The franchisee in Vancouver, WA was ecstatic about Cold Stone. His comments were “What are you waiting for? You’ve worked for McDonalds! This will be easy for you!” The second franchisee wasn’t quite as glowing, but wasn’t anywhere as enthusiastic either. We decided to take the chance….we called the area developer and told her we wanted to be a part of the Cold Stone family. We wanted in. We signed the paperwork, gave her a check for the franchise fee…..we had done it! Like most of you, we were excited. We signed an agreement for a second location a few months later, paid a second franchise fee, then, even a third location! Another franchisee fee! We still didn’t have an open location, but we were growing! We went to our first co-op meeting. There seemed to be quite a bit of negativity at that meeting. But I didn’t think too much of it, at first. I had been to co-op meetings with McDonalds, and there was always some dissention…usually over how the advertising dollars were spent. But this was different. I got that uneasy feeling you get when you buy a new car, buyer’s remorse……but I attributed it to not knowing these people. We finally opened our first store. There was a lot of difficulty with financing, however, even though I had put up 20% of the projected cost[...]