Cold Stone Creamery Franchise: 50%+ Failure Rate in Colorado Springs
May 3, 2008 by Sean Kelly
Filed under Business
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(FranchisePick.Com)Spring may be warming up for some, but 3 out of the 5 Cold Stone Creamery franchises have gone cold and stiff in the past year.
Melissa Cassutt of the Colorado Springs Gazette reports:
The latest, at 2130 Southgate Road, was seized after owner Pittman Investments LLC, failed to pay $23,985 in state sales tax, according to a sign posted on the door. The assets of the store – including a industrial-size ice cream machine and three waffle cone makers – will be sold in a public auction Tuesday.
The city also has a tax lien against Pittman Investments. Company owner Ralph S. Pittman Jr. could not be reached for comment.
Cold Stone Creamery franchises at 218 N. Tejon St. and 765 N. Academy, Colorado Springs, also closed within the last year. In May 2007 Michelle Chocolatiers & Ice Cream closed, and a Maggie Moo’s Ice Cream and Treatery franchise closed in November 2006.
According to Cassutt, approximately 16 percent of all Cold Stone franchises are for sale. So you can have your pick of 228 out of 1,400 franchises open.
Why are Cold Stone Creamery franchises failing?
Food and beverage industry publication The Ice Cream Reporter, blames the high cost of operating a Cold Stone Creamery franchise.
According to the article, former CSC franchisee Bruce Hodgkins is quoted as saying that “location and corporate policy played into his decision to relinquish the franchise back to corporate in 2005, after three years of business.”
According to Hodgkins, Cold Stone allowed the Tejon franchisee to open too close to his store, and they forced him to remodel shortly after opening. He also complained that Cold Stone didn’t let him to do his own advertising, and forced him to honor $40,000 worth of corporate coupons in his last year of business.
According to Cold Stone franchisee Hodgkins, “You just don’t make any money the way it’s set up.”
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Photo credit: yanec Licensed under Creative Commons
I grew up in Colorado Springs — just about everyone I know thinks that the Tejon Street location was one of the poorest business decisions around. It was located very close to two of the city’s local ice cream institutions and, honestly, it was too close to other Cold Stone stores, as well.
It never had a chance.
When franchisors get into trouble because of increasing failures of franchisees, and their franchisees, of course, bear the brunt of the trouble in failure, the franchisors DON’T STOP selling new franchises out of the front door and try to fix the problem. They believe evidently that they THEY CAN’T SURVIVE if the SYSTEM contracts and doesn’t expand or at least retain the same number of units and gross sales as in the previous reporting period.
Instead! they continue to sell franchises to maintain their system gross sales knowing that the franchise may be unviable for a high percentage of the new buyers. They can continue to do this with the hope that the churning and sale of discounted units together with the sale of new units will mean survival for the franchisor.
Franchisors don’t have to disclose unit performance statistics to new buyers who, often, are unaware that there is a problem with the profitability of the units in the system and believe that the visibility of the system represents the viability of the business plan.
Under federal regulatory policy, franchisors can apparently sell their franchises at any rate of failure or unprofitability as long as they are compliant with the FTC Rule and the State FDD.
Franchisors have nothing to lose in trying to save their systems because their contracts with their franchisees protect them from any recourse from those franchisees who fail. (The FTC has deemed in the FTC Rule that unit performance statistics and “earnings” are not material information that has to be disclosed to new buyers.)
This, apparently, was the intent of the FTC Rule; i.e., to always save the franchise system that feeds the economy.
LET THE BUYER OF COLD STONE CREAMERY FRNCHISE BEWARE!