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Dream Dinners Hammered by Forbes

DreamDinners-OwnersDream 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 who utilize professional researchers and designers (McDonald’s is the most obvious example), and those who don’t. I have additional perspective on this in the financial industry because my wife is global director of user centered design for one of the world’s largest banks, and I see how many projects get screwed up when the bank’s business units try to short-cut improvements without leveraging the expert teams.

Meal Assembly Watch has an insightful post on how to fix Dream Dinners – 5 Ways to Save Dream Dinners. Executives of the franchisor with poor strategy and execution beyond selling franchise units seem to be the main problem.

Back to the Forbes article…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 you, but if you write fast, you can get it all down,'” she says… The slides, provided by Garner, present some tantalizing figures: Allen and Kuna projected that, at 187 customers per month, a franchisee could expect to earn $75,400 in profit annually, or 18.9% of total revenue. On the high end, at a quoted 328 customers per month, net profits jumped to $163,300, or 23.3% of sales. The estimated distance customers would be expected to drive: two to five miles. Allen and Kuna insist that “the figures were realistic and based on the actual performance of stores.”

The owners look innocent and reliable enough in the picture, eh? I would be tempted to believe Allen and Kuna. But, how could you have seen past their persuasive projections?

  1. Looking at the audited financial statements would have revealed a tightening financial situation.
  2. If the profits were as high as the owners said, they would be raising money to open company-owned stores.
  3. The inexperienced co-founders are still playing a leading role in the company…are they really the best people to be managing a fast-growing organization?
  4. …post your ideas on the waring signs in the comments below

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19 comments

  1. I still think the concept has great potential. I thought about opening one after visiting a Dream Dinners in Dallas. But there is a public educational piece missing because once people know about it and use it, they tell their friends. Whenever I tell someone about the concept, most people ask lots of questions and say they’d like to try it.

  2. Good for Forbes who seems not to be afraid to talk about some of the ugly attributes of the franchise world. I have always liked Steve Forbes and I would have voted for him for President had I gotten the opportunity.

    Forbes.Com actually published NOLO’s Ten Good Reasons Not to Buy a Franchise and I think all ten reasons would apply to this particular concept.

    Especially NOW when so many of the necessities of life are undergoing inflationary pressures.

    If you have money to invest today, a GOOD Investment Advisor like Franchise Pundit who is not afraid to call the shots is the only place to be.

    If you can’t afford an Investment Advisor and feel any great need or compulsion to buy a franchise, be sure to send a REGISTERED letter to your prospective franchisor and ask them to provide you with any UNIT financial performance statistics of the franchise. You can’t really do any effective “due diligence” with the Item 20 references as to survivability and profitability. If your franchisor, the seller of the franchise, doesn’t respond with UNIT performance statistics, and suggests that he doesn’t have them or doesn’t disclose them, put on your running shoes and close your check book and be thankful that you, perhaps, escaped the American Nightmare that was represented as the American Dream.

  3. [quote comment=”212382″]Good for Forbes who seems not to be afraid to talk about some of the ugly attributes of the franchise world.

    I have always liked Steve Forbes and I would have voted for him for President had I gotten the opportunity.

    Forbes.Com actually published NOLO’s Ten Good Reasons Not to Buy a Franchise and I think all ten reasons would apply to this particular concept.

    Especially NOW when so many of the necessities of life are undergoing inflationary pressures.

    If you have money to invest today,

    a GOOD Investment Advisor like Franchise Pundit who is not afraid to call the shots is the only place to be.

    If you can’t afford an Investment Advisor and feel any great need or compulsion to buy a franchise,

    be sure to send a REGISTERED letter to your prospective franchisor and ask them to provide you with any UNIT financial performance statistics of the franchise.

    You can’t really do any effective “due diligence” with the Item 20 references as to survivability and profitability.

    If your franchisor, the seller of the franchise, doesn’t respond with UNIT performance statistics, and suggests that he doesn’t have them or doesn’t disclose them, put on your running shoes and close your check book and be thankful that you, perhaps, escaped the American Nightmare that was represented as the American Dream.[/quote]
    Brilliant idea…but it won’t work. Franchisors are only going to send a person their Franchise Disclosure Document (FDD). Franchisors can make a variety of Financial Performance Representations in their FDD however they would be reckless to send out the information you suggest.

    Why are you sending people on a wild goose chase by making this suggestion?

    Joe1000

  4. [quote comment=”212839″]But Joe! You know that the majority of franchisors make no representations about success or profits in their UFOC/FDD’s because this then gives them 100% protection in a safe harbor in the courts against claims by franchisees that they have been fraudulently induced to conctract or have been mislead by fraudulent concealment of material facts in the sale of the franchise.

    Obviously, the franchisors will not want to disclose beyond what they disclose in their UFOC’s but if they disclose NOTHING about the unit performance of their networks and then are asked by registered letter for more information beyond what is provided in Item 19 and 20 of the FDD, at least the franchisee will have made a good faith effort to get material facts on which to base the purchase of the franchise.

    If the franchisor refuses to disclose any material facts concerning unit performance of the franchises,

    this may work against the franchisor in the courts if they are selling a high risk franchise to the public through the process of churning or encroaching of individual units within the system.

    Not a wild goose chase at all —-but insurance![/quote]
    You are misleading people, I don’t agree with your statements and there are hundreds of franchisors that make Financial Performance Representations.

    Joe1000

  5. I’m so happy Forbes has continued to pursue the Meal Assembly Industry, it’s not only DD that franchised the concept before it was fully vetted. I disagree with the guest above who says it could still work. It is a “great idea” but the world is full of great ideas that will not work in the real world. Meal Assembly is one of them. Let’s look at all the Meal Assembly companies who are losing their shirts…Make & Take Gourmet who’s new idea is to have “Botox Parties”-can you say Ewwww!? Loosing stores by closure
    Supper Thyme USA (who still claims to have 30- 40 stores open and is getting ready to “take the country by storm!”) They are hemmoraghing stores with 3-4 closing in the next month which will leave them with around 16. More of those will close in Sept with a few hold-outs until the first of next year. Some are just waiting to run-out their 5 year contracts.
    Super Suppers best idea to date is Pizza, and advertising by running a give-a-way on the Bill Engvall Show, while I LOVE him , his show sucks (sorry Bill!).
    Education is a misnomer and no one tells their friends and then starts a stampede…from experience it doesn’t happen. Here’s how it goes.
    Susie comes to my Meal Assembly store and tries my food, comes back and goes through a session. She LOVES it, she’s going to tell all of her friends (which she does) one frined says, that’s great! who tells her husband who says “that’s the dumbest idea I have ever heard” and too expensive-end of that friends interest. Another friend says-” Susie, you’re wasting 2 hours of your time and you can do it cheaper yourself without the MA store” That process repeats itself several times and Susie decides that she needs to have a private party to “show” her friends how easy and wonderful it is. No one signs up and Susie can’t understand why no one is interested. The reason is that you are asking people to change the fundamental way they live and practice. We can’t even get people to keep up with going to a gym let alone change the way they shop, cook and feed their families, not to mention higher food and gas prices that Meal Assembly owners HAVE to pass on to their customers. IT was NEVER cheaper for gals to use Meal Assembly Stores, we as store owners took a HUGE hit with our costs as high as 50%. That didn’t include our paying our royalties, employee wages, utilities and advertising. NO ONE is going to make money in this business EXCEPT Franchisors who make money on royalties every month and selling new franchises to schmoes like me. Most Store owners after 2-3 years of operation DO NOT RECIEVE a PAYCHECK. We all work for free, or more or less to pay customers to come into our stores.
    It is a MONEY LOOSER and now the chickens ae finally coming home to roost for franchisors.
    They ALL need to stop selling franchises and start to prepare their store owners for closure.
    This concept is not workable and it never will be.

  6. independent owner

    onthego says “This concept is not workable and it never will be.”

    –> For the majority it has not been workable, but the concept itself is not a total loss. We have been one of the fortunate few and continue to make a good living – salary comparable to what we were making in ‘the real world’ + profit.

    Ryan said, “If the profits were as high as the owners said, they would be raising money to open company-owned stores. ”

    –> BINGO! The majority of the companies that I’ve watched rush to franchise in our area never had great success with their own stores, hence the time to devote to franchising when their concept was in its infancy and should have needed their full-time (and then some) attention. Many don’t even operate a single company store at this point. A telling sign.

    Quoted from the article above: “Allen and Kuna projected that, at 187 customers per month, a franchisee could expect to earn $75,400 in profit annually, or 18.9% of total revenue. On the high end, at a quoted 328 customers per month, net profits jumped to $163,300, or 23.3% of sales.”

    –> Those numbers (if accurate) mean either food quality or quantity was lacking. Was the 6-8% franchise fee factored into this calculation, too? If so…Wow, sign me up! 🙂 In our first full year of business, we had a profit of around 23% (@ more than 350 customers/mo) and we worked ourselves to death because we had only two employees (one part time) and did almost everything ourselves. That was w/out having to pay any franchise fee.

  7. independent owner

    “How could you have seen past their persuasive projections?”

    The original Dream Dinners stores in the Seattle area were slammed with business after their concept was highlighted in several national publications, including Entrepreneur Magazine. From outside appearance, it looked highly successful. To accurately gage success, these questions should have been asked:

    — What is the customer retention rate? What percentage of customers coming in this month have been in at least 3 (or whatever) times before? What percentage of customers come only once?
    — What percentage of customers this month live within a 5-mile radius of the store?

    Information like this is easily tracked in a reservation-only business where signups are done online and directly into a reservation system. These are important questions for a ‘hot’ concept like the Dream Dinners one. They were the only one doing this at the time and many, many people who read one of those articles and considered opening an operation of their own (Dream Dinners or independent) went out to see this business and did a session as a ‘customer’.

    In the summer of 2003, they were booked solid. By early to mid 2004, sales were obviously down. This was all visible by simply looking at their website.

  8. Worked@DDCorporateStore

    I saw first hand as one of the Original Employee’s at the Everett Store the lies that Stephanie would say to potential Owners. If we dare questioned Stephanie we would be with out a job. I kept to myself, but observed closely. The customer sign ups continued to drop after the big ‘boom’ By 2006 we closed up the store and Tina & Stephanie relied on Totem Lake. 8 mos. later Totem Lake closed, because they had on average 110 customers a month.
    I feel sorry for all the people that took this risk. They by far, were lied to. I wish I would have said something then….

  9. [quote comment=”215269″]I saw first hand as one of the Original Employee’s at the Everett Store the lies that Stephanie would say to potential Owners……I wish I would have said something then….[/quote]

    Thank you for speaking up now. I would like to discuss this with you further.

    Jeanie

    dreamdinners at prodigy dot net

  10. [quote comment=”216237″][quote comment=”215269″]I saw first hand as one of the Original Employee’s at the Everett Store the lies that Stephanie would say to potential Owners……I wish I would have said something then….[/quote]

    Thank you for speaking up now. I would like to discuss this with you further.

    Jeanie

    dreamdinners at prodigy dot net[/quote]

    Not sure you work at the HO- Are you the Owner Indania?

  11. Yes, I am Jeanie Boling from the Mishawaka, Indiana Dream Dinners Store. I am closing my doors on Saturday after being open since February 2005. I interviewed in Everett November 2003.

    I am NOT associated with HO. I AM a part of the lawsuit.

    Even though “dreamdinners” is in the email it is a secure address that I have been using and HO can NOT access.

    dreamdinners@prodigy.net

  12. i am contacting Mindy Byers to see if she remembers you. You should be hearing from us shortly.

  13. Worked@DDCorporateStore

    I spoke with Mindy, and I think I have caused a huge misunderstanding. Mindy is not part helping the Owners with the lawsuit like I had heard she was. Please disregard the last post involving Mindy. I am sorry for the misunderstanding.

  14. I have an Exhibit A stating, ” A Core customer household, once it becomes a Dream Dinners’ guest, tends to use Dream Dinners eight times per year.” I’ve been open over a year and my guests have averaged 2 visits per year.

  15. I got news for anyone who thinks you can make a “decent living” in the MA of today with anything under 350 customers a month you’re nuts. The food costs alone are killer, not to mention, over-head and packaging. Independent Owner-I’m going to make a guess that you didn’t have a big up front investment like most franchisees have. We had to make $18,000-20,000/mth just to break even (that is without any salary) we didn’t have employees, we were a shoe string operation (family run) and we had low rent by most people’s standards. We paid under $2500 in rent/month for our store. Our food costs were on par with the average for most MA’s and we closed within 18 months of opening. We realized several months in that the “sessions only” format, touted by our HO, was not going to make money for us so started revamping our store to include other revenue streams, free assembly, grab & go dinners etc. AND since my partner was a Chef, we did catering, Personal Chef work, cooking lessons, kid academies and couples nights out where we provided dinner after their session. NONE of it work, and lest you misunderstand none of these ideas came from our franchisor, but they still wanted their cut of the royalties for sales.
    We lost hundreds of thousands of dollars and to add insult to injury was told over and over again by “professionals” in the franchise field AND our own Franchisor that it was out fault we failed. What a bunch of horse hockey!
    This concept is a dandy idea for small amount of people who have no competition and small up-front investment, for everyone else-even if you get the store as a resale, run for your lives, it’s a loser and you will NOT be anything but broke!

  16. [quote comment=”222735″]I have an Exhibit A stating, ” A Core customer household, once it becomes a Dream Dinners’ guest, tends to use Dream Dinners eight times per year.” I’ve been open over a year and my guests have averaged 2 visits per year.[/quote]

    Anonymous-if you would willing to send a copy my fax is 831-417-2763 (it is an efax number that is why is has the 831 area code). You can also scan a copy and send it to dreamdinners@prodigy.net .

    Again, I am NOT a part of home office.

    Jeanie Boling
    Mishawaka, Indiana Dream Dinners

  17. On another note-Jeanie-Good Luck to you on your Suit against Dream Dinners I and others are BEHIND YOU 100% and pray for your success!!
    You may want to be aware that there are some DD franchisees that are paying the “hush money, gentle arm twisting-extortion money” and signing the document that says they will not later sue DD on any grounds so they will be able to close, with no repercussions.
    Here is the point-for every store owner who goes the route of paying the hush/gently arm twisting hush money”, puts money into the DD coffers to fight the law-suit you have borught against them. I beleive Darin Leonard mentioned a price tag of $250,000 that they will have to expend in fighting your lawsuit. That means the likelyhood of that “hush money” is going into their defense fund.
    I would hope anyone who is even thinking about the route wouls rethink it. All you are doign is facilitating DD ability to put more money into their coffers. You have no need to do that since most likely they will not have the money nor the will to go after you if you close or fall behind on your royalties.
    Darin Leonard has said their exit strategy is to sell DD to for pennies on the dollar to a buyer- so save the hush money, since most of you hardly afford to pay the beastie even more.

  18. Yes we are aware of the hush money.

    Thank you, onthego, for your support.

    Jeanie

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