Last night CNBC aired a one hour television program focusing on franchising (“Behind the Counter – The Untold Story of Franchising”). The program, hosted by Darren Rovell, looked at Five Guys, Coldstone Creamery, Doggy Bow Wow, Mr. Clean Car Wash, Tide Dry Cleaners and Dunkin Donuts. The focus was on the positive and negative aspects of franchising as told by both the franchisor and franchisee.
The Five Guys segment was a fascinating look at their supply chain for potatoes for their french fries. It presented Five Guys in a very positive light and showed their fascinating method of logistically providing the franchisees with fresh Idaho potatoes.
The Coldstone Creamery segment was quite negative, showing a former and dissatisfied Coldstone multi-unit franchisee. This former franchisee claims that their system does not work to produce sufficient revenues for the franchisees to pay the requisite fees to the franchisor and still leave funds from which the franchisee may take a profit. The former franchisee’s biggest complaint related to all of the rebates or kickbacks that Coldstone takes through the various required vendors. In addition, the former franchisee claimed that franchisees are required to buy a lot of expensive equipment that is unnecessary.
Doggy Bow Wow started as a positive look at this dog day care concept. The interview with the CEO was quite positive and upbeat initially. However, upon further investigation, the Mr. Revell discussed the franchise’s high rate of both sold, but unopened franchises and failed businesses. According to the host, the franchise is successful in selling franchises, but not in helping the franchisees find locations in residential areas that will allow a canine day care business. This just reiterates the importance of speaking with franchisees in the system that someone is considering investing, but also former franchisees of that system.
The show discussed Proctor & Gamble’s new venture into franchising using known brands such as Mr. Clean and Tide. This segment was quite positive. However there were some troubling aspects to this segment. The spokesperson for P & G stated that royalties and advertising fees were based on net sales. However, the FDD (Disclosure Document) filed with California states that the royalties and advertising fees are based on gross sales. This is a huge difference. Both franchise systems are quite costly to open, but were presented as potentially very promising franchises.
Lastly the program looked at Dunkin Donuts focusing on a family who were third generation Dunkin Donut franchisees owning over 700 franchises in their extended family. This was a very postive focus on Dunkin Donuts from the perspective of very happy franchisees. Mr. Rovell discussed how Dunkin Donuts is used by its franchisees as a way for foreign born individuals to achieve the “American Dream”.
Mr. Rovell also interviewed a spokesperson for the Federal Trade Commission (FTC) the federal agency that governs franchising, about the protections the FTC offers to consumers. As discussed by the spokesperson, the FTC does not offer specific protections or remedies to any individuals or businesses that invest in a franchise. The conclusion that one should reach from this program is that It is critical that anyone looking to invest in a franchise do their due diligence thoroughly and with open eyes.