Case 8.1 Heartache and Financial Failure: What Happens When Financial Challenges Become Overwhelming

1. Case 8.1 Heartache and Financial Failure: What Happens When Financial Challenges Become Overwhelming Anthony Liisi

2. Cold Stone Creamery • Founded in 1988 • First franchise in 1995 • Quick growth: late 1990s to mid-2000s • Stores number doubled from 2003 to 2005 • 1400 franchise stores

3. Cold Stone Creamery • Financial difficulties • Up to 60 closed stores in 2006 • 100 closed stores in 2007 • Disgruntled franchisees • Owners: success depends on operating a store

4. Question 1 • If you were thinking about buying a franchise, like a Cold Stone Creamery store, what financial information would you look at and analyze before you completed the purchase?

5. Question 1 • Cost –> rent + franchise fees + other expenses • Investment requirements • Revenues – consumer survey • Value in past years

6. Question 2 • After reading the case, do you sympathize with the disgruntled Cold Stone franchisees, or do you believe the company’s explanations?

7. Franchisees VS Franchisor • High prices in tough economy: rent issue • Saturated market: shops too close, competitor • Believing the hype • Franchisor control: Pepsi bottles issue, 2-for-1 coupon $40,000 • The ultimate success of an individual store depends on how well it’s operated • For-sale number of franchise as “at par with industry expectations.”

8. Question 3 • Do you think that some businesses that have financial trouble might never have had a chance to begin with? • If so, what can a business owner (including a franchisor of a Cold Stone Creamery) do ahead of time to make sure the business is financially feasible? Use the concepts conveyed in this chapter and Chapter 3 to formulate the answer.

9. Financials • Forecasting: • Cash flows, • Income, • Expenses • Demand • Financial performance of similar companies • Financial ratio analysis • Making sure of: • Profitability • Liquidity • Efficiency • Stability

10. Market & Industry Analysis • Industry Attractiveness, size, cost structure • Distribution channels • Assessment of the overall appeal of the product: desirability, environmental trend • Buyer behaviors • Competitors • Segmentation

11. Question 4 • At some point in your career, could you see yourself buying a franchise? If so, what type of franchise do you think you’d enjoy owning?

12. Question 4 • Buying a franchise = investing • Buying a stock – easier, cheaper • Depending on market situation • What do you believe in

13. Application question 1 • What lessons, regardless of the type of business involved, can a prospective business owner learn by reading this case?

14. Premium products sell required healthy economy • Franchisor-franchisees’ relation • Requirement • profit • Location

15. Application Question 2 • Has the business environment for Cold Stone Creamery franchisees improved or are a number of them still going out of business? • Make a list of the business and environmental factors working for and factors working against Cold Stone Creamery franchisees.

16. Today’s status • 1255 franchises in USA • 138 in foreign countries (Asia) • World’s top 50 franchises • Still unhappy franchisees • Franchise churning • Discounting • Lack of support

17. Factors working for Factors working against Substitute products Competitors Tax rates Flat economy • Heat waves • Labor regulations

18. Thank you for your attention!