CUPPY’S COFFEE: A Franchise Without a Franchisor
February 21, 2009 by Sean Kelly
Filed under Business
If ever there were a group in need of an economic bailout, it would be the hundreds of victims of the most blatant franchise scam in recent history: Cuppy’s Coffee. Just in case any government official or agency cares (why start now?), there are three distinct groups of victims struggling to recover from their own financial Katrinas:
Cuppy’s Coffee “Depositers”: As many as 100 or more individuals paid upfront construction deposits ranging from $29,500 to more than $100,000 that were to be returned if they failed to find a location or secure financing for the project; however, when they requested their refunds they got nothingbut a runaround.
Cuppy’s Coffee “SNO-ed” Franchisees: Dozens of Cuppy’s Coffee depositers who were able to secure funding commitments from lenders for their $150K – $300K investments ended up in the industry category of “Sold Never Opened” (SNO). Since the Cuppy’s construction entities (Elite Manufacturing, Supreme Building Technologies) were more efficient at collecting payments than paying subcontractors, fulfilling commitments, not getting sued and avoiding bankruptcy, many SNO-ed franchisees ended up with unfinished sites, liens on equipment they paid for, massive debt and no coffee shops.
Cuppy’s Coffee “Orphan” Franchisees: The final group of Cuppy’s Coffee victims consists of those who somehow battled through the process, incurred extra 
expenses of $100,000 or more, and somehow managed to get their cafe or drive-thru unit opened despite the fact that the parent company and related entities have disappeared and the corporate officers seem to be in hiding. Of course, the challenges facing these businesses are enormous, as they are burdened with extra debt and expenses while receiving none of the franchise support they were promised.
Despite the odds, orphaned Cuppy’s Coffee continue to open somehow. Some recently opened locations include:
Cuppy’s Coffee – Wilmington, DE Claudia & Alan Robbins managed to open in November, 2008.
Cuppy’s Coffee – Eagle, ID Franchise owners Larry and Marci Addleston opened their cafe December 8, 2008
Cuppy’s Coffee – Clawson, MI Franchise owner Steve Ott opened January, 2009
Cuppy’s Coffee – Mansfield, OH Franchise owner Bill Lewis celebrated his Grand Opening February 6, 2009
[Photo, right, Claudia Robbins promoting her Cuppy's Coffee in Wilmington, DE with a local team mascot. Claudia is the one on the left. Photo courtesy Cuppy's Wilmington]
ARE YOU FAMILIAR WITH CUPPY’S COFFEE? DO YOU HAVE A LOCATION TO LIST? SHARE AN INSIGHT BELOW.
Dale Nabors was “Dear Frannie” on Blue Mau Mau, wasn’t he?
He always advised franchisees not to invest more than they could afford to lose and to believe and succeed. Did he not follow his own advice, as a franchisor. As you said, what was in his cool ade? Is he a victim or a villian?
Really tough on the new owners who are opening and wish them all the best of luck. Will they be paying royalties in spite of the fact that they are getting no support from the franchisor, who is hiding, or what? Interesting legal situation —but, of course, when franchisors go bankrupt and are reorganized in a Chapter 11, I believe the franchisee’s obligations to pay royalties are never stayed.
We send our best wishes to new franchisees who opened their stores and to those which could not open due to reasons beyond their control. We just opened our Cuppy’s Coffee store in Los Angeles, CA and are in the similar situation. In November 2007 we inquired about Cuppy’s Coffee franchise and in a few days their representative Sam called us. He gave us a lot of interesting information and a lot of promises. After that we decided to become Cuppy’s Coffee franchisees and let Sam know. In a few days we got a call from Elite Manufactures and they e-mailed us proposal and purchase order. They gave us an offer: they would pay $25,000 franchise fees for us and give us first inventory valued $2,000 for free if we wire 20% security deposit in 48 hours. We agreed. After that we started working with their real estate department that found a space for our store on the new shopping mall. At the same time we kept working on our SBA loan and obtaining licenses.
When the negotiations with Westfield Management Company (mall management company) started, they requested architectural floor plan to build the white box. All requests that were sent to Elite Manufactures were ignored because as Elite said they would not do anything until they have signed lease agreement. After lease agreement was signed nothing changed. According to lease agreement, our store had to be open by November 1, 2008, but when we tried to reach Elite Manufactures by phone or e-mail, we did not have any response. Nobody answered the phone and the voice mail system did not work. It looked like they were hiding from their clients. Westfield Management Company started building white box and we asked Cuppy’s Coffee and Elite Manufacture to communicate with Westfield Management Company regarding Cuppy’s Coffee requirements for white box. It had never been done.
In the same time we started having problems with our loan. Commerce Bank refused to loan money to Cuppy’s franchisees to protect its clients from Elite Manufactures. The bank did not refuse loan money to us as a corporation though and we had to choose the contractor who we wanted to work with. We chose the local contractor Sturdy Built and architect Aaron Brumer and they completed the job within three months. When they started building the store we had a new expense: to upgrade white box according to Cuppy’s standards. This costed us more than $30,000. At that time Elite Manufactures and Cuppy’s Coffee completely disappeared and so did our deposit. Our total lost including deposit to Elite Manufacture, white box upgrade and delays in opening (rent payments) is over $100,000. We had to invest into business all our personal savings. I withdrew money from my pension plan and paid penalty for that. We had to open the store without any training and marketing materials. We greatly appreciate the help that Cuppy’s Coffee in Moorpark gave us in providing training and sharing all necessary information. We also appreciate all help and support from Coffee D’Arte and Dr. Smoothies.
Finally, our store opened on February 2, but because of all losses and huge extra expenses we do not have enough working capital. We planned to open the store before Christmas, the best time of the year. Instead of that we opened it in the worst time of the year and during the recession. Our business is slow, rent is high, we don’t have any employees, spend 12 hours a day, 7 days a week in the store, but during the first month did not earn enough to pay even half of the rent, We truly believe that business can be much better, but we need time to let people know us and we do not have this time because Elite Manufactures and Cuppy’s Coffee took our money when we need them the most and caused huge delays in opening the store. We cannot even afford an attorney to start legal action against Cuppy’s Coffee.
Please give us advice on what is the best thing we could do in our situation. We highly appreciate any help and suggestions. Our store is located at
Westfield Topanga
6600 Topnga Cyn. Blvd.
Store #2054
Canoga Park, CA 91303
Sincerely
Alex and Igor Rekhtman
Cuppy’s Coffee, Smoothies and More on Westfield Topanga
Alex and Igor!
Thank you for sharing your experience with readers of Franchise Pick.
Has anyone tried to collect royalties from you since you opened and, if so, where do you send them?
I am not an attorney and can’t give you legal advice. But, you need legal advice at this point. If you don’t have working capital and can’t borrow more to see if you can bring your business to breakeven in a year or so, you must start looking for solutions now to cut your losses.
Maybe the local SCORE people and some government agencies would put you in touch with somone who could help you pro bono.
Good Luck to you!
http://w.w.w.unhappyfranchisee.com/2009/02/carolcross/