Article Scrutinizes Quiznos Rick Schaden, 1-2-3 Fit Franchise, Butterfly Life Franchise, Contours Express Franchise & Fitness Franchise Woes
February 15, 2008 by Sean Kelly
Filed under Business
Stuart Goldman of Club Industry’s Fitness Business Pro, a leading health club industry trade publication, has written an extensive and well-researched article on the struggling 30-minute fitness franchise chains and some of the powerful names that were instrumental in putting the match to this “hot new franchise” phenomenon.
I plan to look at particular points of this article in upcoming posts. Please share your initial comments below.
Here’s an excerpt. Click a link to read the entire article:
Source: Lights Out by Stuart Goldman, Managing Editor, Fitness Business Pro
The troubles that continue to plague circuit club companies also extend to business-savvy franchisees who trusted the reputations of some of the biggest names in the industry.
1-2-3 Fit, Denver, was founded in 2005 by Quiznos restaurant executives Rick Schaden and Brooksy Smith, who combined their efforts with fitness legend Ray Wilson. The 1-2-3 Fit Web site lists 27 stores open in 11 states, with seven more stores opening soon. One franchisee says 22 stores have closed since the company’s inception.
It sounded so simple. It made so much sense. Experienced, knowledgeable people banked on the marriage of a well-known sandwich chain and a fitness industry legend to create an exciting new circuit club franchise. At another promising company, people counted on the experience of a group of investors that included the founder of the biggest revenue-producing chain in the industry.
1-2-3 Fit, Denver, which opened in 2005, was the brainchild of Rick Schaden and Brooksy Smith, two men who made Quiznos a successful national restaurant chain. Schaden and Smith called upon fitness legend Ray Wilson, whose background includes opening several club companies, to help them with their venture into the fitness industry.
“It was the perfect mixture of franchise team and fitness team,” one former 1-2-3 Fit franchisee says.
Butterfly Life, San Ramon, CA, opened in 2003 and had the initial backing of Mark Mastrov, the founder of 24 Hour Fitness who resigned last month as chairman of 24 Hour. Mastrov’s colleagues, Mark Golob and Tom Gergley, had operated Linda Evans clubs in California before opening Butterfly Life.
“With Mastrov’s name, how could you go wrong?” one former Butterfly Life franchisee says.
But according to many franchisees at the two companies, plenty did go wrong…
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I’m real curious to know what “rights” franchisee’s have in all of this…. Will be interesting to see how it all plays out.
Success depends on growth of both parties. The Franchisee’s need the Franchise itself to grow in order to get the desired name recognition and the Franchisor needs the Franchisee’s to grow in order to sell more. It’s a vicious circle and there are no easy answers.
People only seem to make money in this society if you want to rip people off and sell garbage of some sort. You try to sell Fitness…..a proven way to improve your health and quality of life and apparently no one wants it.
You think Coca Cola wants people healthy? How about McDonalds? The Pharmacuetical companies? These companies can afford to cram their unhealthy products down our throats 24 hours a day 7 days a week. It’s tough for a strt up Fitness Franchise to combat.
Q: Why should I consider the Ameri shape Weight Loss Studio license over a franchise?
There are many reasons, but the two most often are… [Lengthy promotion deleted]
Anita: Please review the Franchise Pick Site Guidelines in regard to promotion in comments.
If you are interested in promoting your fitness opportunity, please email me at info[at]ideafarm.net. I’ll be happy to offer you some options.
Netiquette tip: posting generic sales copy into a blog comment area is considered “comment spam,” offensive and bad form. It’s more likely to do damage to your image than promote it. I always give the benefit of the doubt that it was a newbie mistake, so no harm done.
I however get to break the rules:
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VA Contours Express Franchise Pkg: 8 Piece Fitness Circuit, Signage, 2 Territories
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I worked deep in the Quiznos company for a number of years. After many franchise owners and those who never had gotten their restaurants opend, I left. The inside mindset is, “We don’t care if they open in time, just get them signed up and get their financial committment.” That philosophy extended to the 123 Fit as well as the new Smash Burger chain being opened by Quiznos. Schaden has purchased severla large jets, sailboats, left his former wife for his former personal assistant.
Our Veterans will be opening Cell Phone Recycling Workshops in all 50 states after the first of the yea. Will Quiznos consider authorizing stores to be “Collection Centers” to receive old cell phones from the public? It would be a great public service for you!
The Vet Coop Association (in formation)
William A. Ashe
SCORE councilor to the Vets
From the comments, it appears that so many franchisees and onlookers don’t understand that franchisors KNOW that they can make ORAL statements concerning profits and success but KNOW that their disclaimer in Item 19 of the UFOC/FDD generally protects them from claims of “fraudulent inducement” in arbitration and the courts. Many experts and franchisee advocates indicate that this was the actual intent of federal franchise regulation in the late 70’s –that in effect took franchisors out from under the common law fraud statutes of the States and Truth in Advertising laws.
I would hope the SCORE workers would independently investigate the actual failure rate of the franchises that veterans look at and explain that “churning” and “encroachment” and “appropriation of deposits” seem to be practices that are not deemed illegal under federal regulatory policy —-as demonstrated by Quiznos management practices that are upheld in the courts as long as the acknowledgement and reliance clauses are in place in the boilerplate contract that is presented in a package with the FDD.
It would seem that SCORE could do much more to bring the imperfections of franchise regulation to the attention of Veterans and their families who consult with them.
Remember that Quiznos borrowed several million in a securitization deal in 2006 and, in reality, many of their franchisees’ contracts are owned by a separate special vehicle legal entity. Quiznos is just a “servicer” under the law, I believe, of those franchisees’ contracts that were legally sold in the securitization process in 2006.
I wish Mr. Ashe success in his new venture to help VETS, and I would hope that SCORE would work to prevent VETS and their families from investing in high-risk churning organizations like Quiznos, the UPS Store, and many others.
Carol Cross writes: …franchisees and onlookers don’t understand that franchisors KNOW that they can make ORAL statements concerning profits and success but KNOW that their disclaimer in Item 19 of the UFOC/FDD generally protects them from claims of “fraudulent inducement” in arbitration and the courts.
Carol Cross makes some great points and is on a crusade to educate prospective franchisees to make better decisions. However, Carol tends to lump all franchisors together and imply that all of franchising is a plot to defraud.
My experience is with the 100+ franchisors that I have worked with (admittedly not a cross section). I have run across very few who would perceive that the disclaimers in the disclosure documents give them a license-to-scam. Legitimate franchise companies want to build successful chains by having successful franchisees – not by defrauding suckers. The consultants and attorneys I associate with counsel that once a legit franchisor has to resort to what the legal agreement says, both sides have lost. We do not get resistance to viewpoint, and we do not work with people who make illegal or misleading earnings claims – and we keep plenty busy.
Franchisors are a varied group. Burned franchisees tend to refer to them all as if they are all as underhanded as the one FR they perceive burned them.
Unfortunately, most entrepreneurial media and even well-meaning groups like SCORE err in the opposite direction – and make recommendations and “Best of” lists with absolutely no basis other than size or ad dollars. The last list of franchises I saw recommended by SCORE read like the Who’s Who of Franchise Litigation Defendents.
The most important thing a prospective franchisee can learn from this blog and these discussions is that they have to do their own thinking and research and make their own decisions because ultimately they – not me, Carol, SCORE, or Entrepreneur magazine – will reap the rewards or suffer the consequences of their decisions.
Absolutely true, Sean! There is NO SUBSTITUTE FOR DUE DILIGENCE with a knowledgable professional. But, it is MY POINT always that government regulation makes it possible for the franchisors to NOT DISCLOSE MATERIAL RISK FACTORS such as low or no profitability of a good percentage of their units to new buyers of their franchised proven plan.
Unfortunately, as is demonstrated by your site and Blue Mau Mau and Franchise Pundit, too many franchisees do not find these sites until AFTER they have made the investment and it is then TOO LATE for them.
I’m sure you realize that there are those who believe that the visability of the LARGE and MATURE franchisors is the proof of the pudding and they don’t find their way to sites like Blue Mau Mau or Franchise Pick or spend scarce resources on due diligence help.
Did you read Nick Bibby’s post on Blue Mau Mau on Nov. 11th where he warned VETS and their families about all of the bad franchisors out there, and suggested that VET Fran and others were pushing unviable franchise concepts, etc.. to the Vets —-since the introduction of the Patriot Express Loan Initiative in June of 2007?