Baskin-Robbins losing two shops
Most franchise agreements have a term of about 10 years with options to renew. If the franchisee wants to renew, they must sign the then current franchise agreement, which may require upgrades to the building, menu, operations, adherrence to the new operations manual, etc. Sometimes those required upgrades just don’t make economic sense for the franchisee because the economic realities show that you won’t make that money back over the next few years. If you are already netting less money than you hoped (say $40,000/year), do you invest the $70,000 to keep the franchise? Or, do you walk away from your entire investment, all the machinery, investment in the fixtures and local brand, the relationships? One longtime Baskin-Robbins franchisee in Champaign, Illinois faced such a decision, and decided to not continue.
Panchal has operated the store since 1991, but said Baskin-Robbins wants him to spend $70,000 renovating the shop. He said if he were making $300,000 a year, he might do that, but the revenues and location haven’t been that strong.
…
Stover figures he sells about 3,000 gallons of ice cream a year. The ice cream, made by Dean Foods for Baskin-Robbins, comes in 3-gallon tubs that yield about 72 scoops each.
About 60 percent of his revenues come from ice cream sold by the cone or the dish. Desserts, such as ice cream cakes and pies, account for another 20 percent.
The remainder comes from miscellaneous products, such as prepackaged ice cream.
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Ryan is an attorney and valuation specialist residing in Chicago. He chronicles his thoughts and research on FranchisePundit.com. You may reach him by email ryanknoll@gmail.com or mobile telephone 312-715-8115.
Seems unfair to some degree. I bet a franchisee would invest a few hundred thousand in the storefront, and it is unlikely they are able to make a double-digit return on that portion of their investment. Perhaps a smart franchisor will include a proration of franchise fees until certain return on investments are met.