COLD STONE CREAMERY Franchise Encroachment?
October 19, 2009 by Sean Kelly
Filed under Business
The test that launched 100 co-branded locations may have put one Cold Stone Creamery franchisee out of business.
Last February, Cold Stone Creamery announced that they had concluded a successful test co-branding two stores with Tim Horton’s, Canada’s largest coffee and doughnut chain.
The results of the two Rhode Island test stores were so impressive that Cold Stone Creamery and Tim Horton’s were initiating a 100-store co-brand expansion nationwide.
However, not everyone was pleased with the co-branding test or initiative. According to a post on Unhappy Franchisee, (COLD STONE CREAMERY: Bitter Franchisee Alleges Encroachment) an established Cold Stone Creamery franchisee in Providence, Rhode Island blames the recent failure of her previously successful franchise on encroachment from one of the initial Cold Stone Creamery – Tim Horton’s co-branded locations.
“I am bitter…” franchisee Kristina Gedutis reportedly said. “It wasn’t really fair.”
Read why Kristina & Craig believe Cold Stone Creamery cannibalized their sales and destroyed their business here:
COLD STONE CREAMERY: Bitter Franchisee Alleges Encroachment
Franchise tip: Encroachment is one of the most often litigated complaints by franchisees. 
Before you sign a franchise agreement, be sure you understand whether you have an exclusive territory and where that territory begins and ends. If you don’t have it in writing, you may find yourself competing with another franchisee or company-owned location.
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Photo: A closed Cold Stone Creamery franchise location, Lancaster, PA (FranBest Photo library)
It seems that prospective franchisees learn the hard way AFTER they sign on that “encroachment” and “churning” are methods in which the franchisor increases the gross sales of the system, even if this means the gross sales of an individual franchisee will be reduced.
They don’t understand that the business model is all about using franchisees as a resource to compete with other franchisors by saturating territories and that even when territorial lines are drawn, the franchisors can indulge in tactics such as the above with immunity under the signed contract.
A franchisor can legally put another franchisee right on the outer border of the territory as they deem to be in their best interests. Two franchisees at “breakeven” will produce more gross sales and profits for the franchisor than one franchisee who is making profits. If one of the franchisees ultimately fails, the surviving franchisee can pick up the unit for pennies and spread his risk.
Franchisors can encroach and churn at will, as necessary, to themselves survive in the economy. Compounded churning within large franchise systems does permit the franchisor to survive.
Some larger franchisees, who are in better financial condition, might agree to reduce royalties for franchisees who are impacted negatively but the END game is all about THEIR gross sales and THEIR profits and under law, regulation, and the binding contracts (in which nothing is promised in writing) the franchisee is an expendable resource of the franchisor under the law.
The franchise model is NOT fair to the franchisee –brutal reality and truth! It is the survival of the franchisor that is protected under public policy and the FTC Rule. The courts, of course, implement public policy through protection of public policy influenced by those who have the greatest influence/money on our representatives who make the laws.
http://thegreatfranchisingrobbery.blogspot.com/