CASE 8.1 HEARTACHE AND FINANCIAL FAILURE: WHAT HAPPENS

WHEN FINANCIAL CHALLENGES BECOME OVERWHELMING

AnthonyLiisi

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

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

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?

Question 1

• COST –> RENT + FRANCHISE FEES + OTHER EXPENSES

• INVESTMENT REQUIREMENTS• REVENUES – CONSUMER SURVEY• VALUE IN PAST YEARS

Question 2

• AFTER READING THE CASE, DO YOU SYMPATHIZE WITH THE DISGRUNTLED COLD STONE FRANCHISEES, OR DO YOU BELIEVE THE COMPANY’S EXPLANATIONS?

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.”

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.

Financials

• FORECASTING:– CASH FLOWS, – INCOME, – EXPENSES– DEMAND

• FINANCIAL PERFORMANCE OF SIMILAR COMPANIES

• FINANCIAL RATIO ANALYSIS

• MAKING SURE OF:– PROFITABILITY– LIQUIDITY– EFFICIENCY– STABILITY

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

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?

Question 4

• BUYING A FRANCHISE = INVESTING• BUYING A STOCK – EASIER, CHEAPER• DEPENDING ON MARKET SITUATION• WHAT DO YOU BELIEVE IN

Application question 1

• WHAT LESSONS, REGARDLESS OF THE TYPE OF BUSINESS INVOLVED, CAN A PROSPECTIVE BUSINESS OWNER LEARN BY READING THIS CASE?

• PREMIUM PRODUCTS SELL REQUIRED HEALTHY ECONOMY

• FRANCHISOR-FRANCHISEES’ RELATION– REQUIREMENT– PROFIT

• LOCATION

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.

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

Factors working for• HEAT WAVES• LABOR REGULATIONS

Factors working against• SUBSTITUTE PRODUCTS• COMPETITORS• TAX RATES• FLAT ECONOMY

Thank you for your attention!