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I wouldn’t buy it

Management Recruiters International – The Bad

Back in 2006, I listed MRI (Management Recruiters International) on a list of franchises I wouldn’t buy.  Today, a commenter named Bob Stewart in the forum reiterated from his own experience which included false representations about who actually was a valid franchisee.Here is Bob’s web site listing his alleged misrepresentations, with emails from MRI and MRI’s parent company CEO.  It certainly is an interesting case study.

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Meal Prep Tanking in Milwaukee Too

Rick Romell from the Sentinel Journal in Milwaukee called me to discuss the Meal Prep industry a few weeks ago.  He produced an informative article which can be read here.

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How to Make Subway Look Like a Good Opportunity

Entrepreneur.com’s Janean Chun posted an article entitled,  Can You Buy a Big Franchise?  The topic seemed interesting so I read it.  The article essentially says you too can own popular franchise brands, if you meet the net worth requirements.  She supports her proposition by interviewing a Subway agent in California as a credible source, where he implies that Subway is a strict selector of franchisees who only work with entrepreurs, not investors.  What a hoot.  Disgruntled franchisees would disagree.

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More Quiznos Franchisees Can’t Turn A Profit

Quiznos seems to be in perpetual defeat.  Here is another money-losing franchisee from Quiznos:   “We can’t make money,” said Quiznos franchisee Marty Tate, who said his Erie, Pa., store leads the region in sales. Mr. Tate, who is not part of the lawsuit, said 40% of his sales go directly into advertising, royalties and food for the next week. He added that three of seven locations in his county have closed in the past year. Mr. Tate said that when his contract expires next spring, he will open his own independent store. Advertising funds are always somewhat of a mystery. Typically, the franchisee will pay about 5-8% into an advertising pool that is supposed to be leveraged across all applicable markets. Unfortunately, there is often not as much bang for the buck as the franchisor would like you to believe, particularly in the creative production and media buys. Quiznos example: Then there’s the issue of advertising. Quiznos’ agency is Cliff Freeman & Partners. According to TNS Media Intelligence, the chain spent $83 million in measured media in 2007 and $55 million in the first half of 2008. Despite the increase, many franchisees said that they rarely see their own ads, and most say the work isn’t memorable. (By comparison, Subway spent $361 million in during 2007, according to TNS. “The last good Quiznos commercial was Baby Bob, and that was 2004,” said Mr. Tate, who said he’s complained to executives about the creative. “I would challenge anyone to remember the last Quiznos ad they saw.”

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Dream Dinners Hammered by Forbes

Dream Dinners is an example of good idea but profit challenged business model.   It’s just too expensive to attract and retain customers. A Forbes article looked through the Dream Dinners FDD from the state of Washington, and focused on the required audited financial statements. As of Dec. 31, the company boasted $2.9 million in assets, against which it carried $3.4 million in liabilities. (Such negative book value implies that if Dream Dinners were unwound today, shareholders wouldn’t get much.) That’s a snapshot, but here’s a trend: Last year, the company lost $628,000 on $7.5 million in sales; compare that to 2005, when it earned $928,000 on sales of $4.5 million. …. Typically, new business concepts need up to five years to season before they can be franchised successfully. Dream Dinners–along with its next largest competitor Super Suppers, now with 165 stores–both began franchising in less than two years. Franchisees accused the franchisor of false promises and unsubstantiated financial projections. A major point of contention has to do with rosy promises Dream Dinners seemed to have made to its franchisees. Under the Federal Trade Commission’s franchise law, franchisers are not permitted to make “predictions” about franchisees’ financial success–unless they do it in the Uniform Franchise Offering Document, which typically contains a host of disclaimers. Dream Dinners “totally disregarded these regulations,” says Garner. It not only posted financial projections on its company Web site, he says, it also put them in a Power Point presentation given to potential franchisees. Jennifer Hemann, a former Dream Dinners franchisee in Maryland and one of the plaintiffs in the suit, alleges that she was shown that Power Point presentation–which included estimated profit margins for a given volume of customers–when interviewing with the founders. “They told us, ‘Our lawyers said not to show this to …

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Going Green May Loose You Green

Source Chris Toman’s plan to go green could have put him in the red. The owner of a local pizza franchise plans to apply for LEED certification for his 2,600-square-foot restaurant space on the back burner because it was going to cost too much. Toman said he would have to pay between $30,000 and $40,000 to become certified by the U.S. Green Building Council under its Leadership in Energy and Environmental Design program, which awards points to structures that are energy efficient and otherwise good for the environment. $40,000 for a small restaurant to get green certified is proportionally a huge expense., plus the cost of the alternative materials such as insulation made of old jeans and coke bottles for a countertop. Would that $40,000 be more profitably spent on advertising? While going green can sometimes attract additional customers in certain markets, the increase in price compared to the market will divert others to your competitors. Toman is opening a Pizza Fusion franchise, which requires all of its restaurants to be built to LEED standards, as part of its self-described mission to “Save the Earth one Pizza at a Time.” Not only are the buildings green, the chain delivers pizzas in hybrid vehicles. The cost of going green for Pizza Fusions in other markets is less than half of what Toman was told he’d have to pay here. Much of the cost goes to consulting companies that develop energy-efficiency plans for buildings seeking certification. These firms also make sure the buildings ultimately perform the way they were designed and file reams of paperwork required on all projects regardless of their size. “It seems like they’re overcharging,” he said. “I’m trying to do the right thing, but someone’s taking advantage of it and charging high rates.”

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Cuppy’s Accreditation Revoked – No Surprise

The American Association of Franchise Dealers (AAFD), who previously awarded Cuppy’s Coffee a Fair Franchising Seal, has suspended Cuppy’s accreditation pending a determination of the Association’s Board of Directors at a scheduled meeting on September 24, 2008. This comes after many obvious shameful contracts breeches by Cuppy’s old and new management over the past year.   Below the fold you can read the entire statement released by the AAFD.   Here’s a link to the email sent by Robert Purvin, AAFD’s chair, to Cuppy’s owner Dale Nabors informing him of the suspension.  For a full background of articles, see FranchisePick’s biography of this situation.  Also read Paul Steinberg’s recent post on bluemaumau.org Blogger Opinions and Reports: Sean Kelly, Michael Webster, Janet Sparks

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Surprise – Quiznos sued by Franchisees Again

Source: Daily Courier (Pittsburgh)A law suit was filed on July 3, 2008 by a few dozen franchisees in Western Pennsylvania.   The allegations are: The lawsuit alleges that Quiznos engages in a “pattern of racketeering” and generates “grossly inflated profits” at the expense of franchises that usually fail. It also accuses the company of saturating geographic areas with more franchises that can be supported. Quiznos is accused of allowing customers to redeem coupons for free or discounted sandwiches, a practice that allegedly benefits the company but not the franchise holders, who are not compensated for the loss of revenue, according to the lawsuit. Quiznos, according to the filing, requires its franchise owners to buy products they do not need and work only with suppliers connected to Quiznos who charge high prices.   The financial strain on the franchisees causes the business to fail, the suit maintains. When the franchise fails, Quiznos threatens the owners with lawsuits to enforce the agreement, which requires them to pay royalties for 15 years even if the business has been forced to close, according to the lawsuit.     Quiznos Response: Richard Emmett, general counsel for Quiznos, said the allegations in the lawsuit are similar to those in an action filed two years ago in Illinois that was dismissed recently by a federal judge.”This is a copycat of that lawsuit,” Emmett said. “We’re confident the claims have no merit and this lawsuit, like the other one, will be dismissed.”   He added that the allegations contained in the action arose several years ago.” They have nothing to do with the way we’re operating now. It’s historical rather than present day,” Emmett added.  

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Meal Prep Trending Down

Julie Moran Aletrio from New York’s LowHud.com did a great job in her article on the meal prep trend in New York’s Lower Hudson Valley. Thanks for quoting me in the article. Here are a few highlights: From a Let’s Dish franchisee: “This concept is meant to help a busy person, but people found themselves so busy that they didn’t know how to incorporate this into their lives,” Hunerson said. Closings nationwide: By the end of last year, there were 1,353 meal-prep stores in the United States, according to the Easy Meal Prep Association. Although the idea spread quickly, the failures followed with 264 meal-prep stores closing last year and another 200 expected to fail this year. Industry consultant Bert Vermeulen, who founded the association in 2005, said the idea was too new to support the number of stores that opened. “This is a concept where the stores got ahead of the market. The majority of the target market is not aware of this concept and why it works,” he said. New concepts: Rolling out a new concept requires a deep commitment in marketing from the franchiser, Vermeulen said, something that Let’s Dish and others didn’t provide. “Many of the franchisers thought it was easier than it was. They sold franchises without thinking through the marketing program they were going to run,” he said. Vermeulen pointed to Pappa Murphy’s Pizza, which has more than 1,000 stores, as a franchiser that did it right. “If you remember 10 years ago, there was something militarily called the Powell Doctrine, which meant going in with overwhelming force. Pappa Murphy’s wouldn’t go into a particular metro area unless they went in big so they could establish awareness of their concept. Their concept is pizzas you pick up uncooked that you cook at home. …

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Subway Franchisee Upset

Source: http://www.stuff.co.nz/4599872a13.html Keely Clements also says her repeated pleas for support from Subway management were ignored, despite telling them her Northlands Mall store was losing money. That franchise was closed on Monday, after mall management terminated the lease, because it was owed $164,000 in unpaid rent. Clements also stands to lose her second store, in Kaiapoi, after Subway served her with papers to terminate her lease on July 1, meaning there was no way for her to on-sell the store and recoup capital. Clements has been protesting outside Subway stores in Christchurch this week to highlight her situation. Christchurch has 23 stores, one for every 16,000 residents. Clements worked at Subway before buying a franchise in Kaiapoi in 2005 for $480,000. After the success of that store, a year later she bought a second franchise at Northlands Mall for $410,000.

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Dream Dinners Hammered by Forbes

Dream Dinners is an example of good idea but unprofitable business model. It’s just too expensive to attract and retain customers. A Forbes article looked through the Dream Dinners FDD from the state of Washington, and focused on the required audited financial statements. As of Dec. 31, the company boasted $2.9 million in assets, against which it carried $3.4 million in liabilities. (Such negative book value implies that if Dream Dinners were unwound today, shareholders wouldn’t get much.) That’s a snapshot, but here’s a trend: Last year, the company lost $628,000 on $7.5 million in sales; compare that to 2005, when it earned $928,000 on sales of $4.5 million. …. Typically, new business concepts need up to five years to season before they can be franchised successfully. Dream Dinners–along with its next largest competitor Super Suppers, now with 165 stores–both began franchising in less than two years. Many of my law firm’s clients are small franchisors, and frankly most do not have experienced managers or have enough invested capital. The new managers often spend way too much time on franchise sales and not enough resources on marketing programs for their franchisees and brand/product development. The franchise sales process is always longer and more expensive than anticipated, and that focus ends up monopolizing the franchisor’s time and money. These franchise programs have an extremely high management risk, meaning that not only is the franchisor’s management unproven in this specific strategy, but they are underfunded which keeps the focus on franchise unit sales. I used to be extremely skeptical of consultants, and still am to large extent, but I have come to greatly appreciate the need and effectiveness of professional research and design teams to innovate and set the program up for success. The distinction is night and day between franchisors …

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An insiders view on why eBay Franchise Drop Stores failed

Scott Pooler, a former official eBay Trading Assistant, and a master franchise representative for an eBay drop store franchise chain weighs in on the subject of franchising and stand alone eBay drop stores in Trading Assistant Journal, a weblog that provides news and commentary for eBay consignment specialists. Scott’s experience on both sides of the fence reveals certain truths, and since he was at one time a proponent of the franchise model, his views are helpful to anyone considering the purchase of a new franchise eBay drop store or opening one on their own. These views are Scott’s opinion and do not reflect upon eBay any eBay franchise drop store chain in particular or upon eBay consignment as an addition to any other type of business. His views regarding the stand alone drop store franchise model and why it has failed are worth reading. Read the whole story Cross Posted at Let’s Talk Franchising

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Will this evolution save the Meal Assembly business?

It was announced in Convenience Store News that Dinner by Design, a meal assembly chain based in Grayslake, Ill., has unveiled a new package of convenience services that the company expects will change the easy meal prep industry. Specifically, Dinner by Design’s new services include: Delivery services that allow people to preorder entrees and side dishes and have them delivered to their company, daycare, school or other organization. Based on a test marketing effort, the company already has more than 300 group delivery clients nationwide. Home delivery will be unveiled and tested in one location in mid-March. Pick Up meals for busy people who don’t have delivery service. Take & Bake entrees, desserts and side dishes are premade and can be picked up anytime during expanded business hours. Orders can be placed online, e-mailed, faxed or phoned in. Dinner Tonight selections geared for people who need something for dinner without defrosting time. This service helps meet the needs of nearly 37 percent of people who don’t think about dinner until just before preparing it, the company stated. Group delivery, Pick Up service and Take & Bake selections are already available and operating successfully at most locations nationwide. Dinner by Design has nearly 60 kitchens open, and agreements for another 40 locations in the U.S. and Canada. “This is the wave of the future,” president and CEO John Matthews said in a company statement. “This new business model has been very attractive to existing and potential franchise owners alike. We anticipate that the new meal assembly model will mean added growth for Dinner by Design owners and operators.” It may be a move in the right direction, though I am always concerned when a franchisor introduces a whole new program before the program has received proper testing. I think the …

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Captain D’s Largest Franchisee Files Chapter 11 Bankruptcy

http://www.bizjournals.com/memphis/stories/2008/01/28/story4.html Serve Holdings LLC, the largest franchisee of Captain D’s restaurants in the country with 26, has filed for Chapter 11 bankruptcy to, in part, avoid payment of $245,000 to the franchisor. [note: post title amended on 2-1-2008 to more accurately identify the zee as filing….hat tip: FuwaFuwaUsagi and Michael Webster in the comments]

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QuikDrop Closes eBay Drop-off Store Franchise

QuikDrop is closing its eBay drop-off store franchise business at the end of the month, but franchise stores will be able to continue to use the QuikDrop name, logos, and signage. A conversation with the company’s cofounder Jack Reynolds on Wednesday netted a laundry list of complaints about the challenges of selling on eBay that contributed to his company’s demise, beginning in 2006 with the Stores search and fee changes. QuikDrop storeowners did not seem surprised at the news of the closure, which arrived via email from QuikDrop headquarters on Friday night – and some actually seemed relieved. The number of QuikDrop stores shrunk from a high of 95 in mid-2006 to under 30 stores today. Reynolds said the store closings, combined with a number of stores who were unable to pay franchise royalties, led to the decision to close the corporate franchise office. In late 2005 and early 2006, Reynolds said eBay worked on joint marketing with QuikDrop and things were going well. eBay discovered that consumers who visited drop off stores became more active as buyers on eBay, so the auction site marketed to people who weren’t sellers to promote eBay Trading Assistants. But things took a downward turn in 2006, he said. Read more in an article by Ina Steiner in Auctionbytes.com Read an earlier article on Franchise Pundit about eBay Drop Off Franchises Cross posted at Let’s Talk Franchising <!– –>

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Quiznos Claims More Profits for Franchisees

I would not let one semi-positive article influence my opinion of Quiznos, but here it is: A year after some franchise owners sued Quiznos over business practices, the restaurant chain’s chief executive said Monday he expects franchisee profits to increase 60 percent overall in the wake of improvements to the system. 60% increase sounds fantastic, but it is relative from the starting profit level. Going from a $20,000 profit to a $32,000 helps but doesn’t save the day. Danny Kessels, a Quiznos store owner in Boulder who said he was not invited to the meeting, said he knows of other Quiznos store owners who are struggling. “Nothing’s really changed, in my opinion,” said Kessels, the head of an Quiznos independent franchise group called the Toasted Subs Franchisee Association. “The whole system is still on shaky ground.” It looks like the new CEO-turnaround specialist is trying to make changes, but as I have personally learned in business – don’t try to catch a falling knife.

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