Entrepreneurship & Innovation Class
Case Study 8.1
Heartache and Financial Failure: What
Happens When Financial Challenges Become
Overwhelming
TEAM CS: Michal MA1N0219
Emil MA1N0211
Anja MA1N0206
Lubica MA1N0212
13/11/2013
Introduction
About Cold Stone Creamery:
– Selling ice cream (with nuts, Oreo biscuits etc.)
– In 1988, first shop opened by Susan and Donald
Sutherland in Arizona, U.S.A.
– In 1995, first franchise store opened
– From late 1990s to mid. 2000s fast growth
– At its peak had 1,400 franchise stores
– From 2003- 2005 number of stores doubled
Franchisees’ Challenges (1/3)
• In 2008 many franchise stores were put on
sale or closed due to financial losses and
emotional distress that franchisees had
• Claims from franchisees:
– Costs are too high comparing to revenues
– Selling a premium priced product in tough
economy
– Difficult to cover overheads as the stores are
located in expensive locations (one scoop of ice
cream is $4.00, rent alone around $7000 monthly)
Franchisees’ Challenges (2/3)
– Rapid expansion of the brand as well as their
competitors (Haagen-Dazs, Ben & Jerry’s)
– Stores are located close together
– Franchisees are required to buy products from
approved distributor even if there is a discount in
a supermarket for the same product
– Franchisees are not allowed to do their own
advertising
– Forced to honour $40,000 in two-for-one coupons
mailed by the corporate office
Franchisees’ Challenges (3/3)
• Franchisees complain it is extremely difficult to make
money owing and operating Cold Stone Creamery
• They also say that company’s model is “broken”
• Internet full of franchisees talk about their financial
and emotional toll because of losing their Cold Stone
franchise.
Word of the Company
• Cold Stone’s president stated that: ”inventory of
stores for sales now is higher that it has been”
• The company’s spokeswoman characterised the forsale number as “at par with industry expectations”
• In 2008, still more that 1,000 stores opened and the
company continues to sell franchises
• The company argues that the ultimate success of an
individual store depends on how well it’s operated.
Case Questions
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 compete the purchase?
Answer to Question 1
•
•
•
•
Market share
Potential market growth
Costs and revenues of franchisees
Forecasted costs and revenues of the franchisee I
would open (based on the information of other
franchisees with similar features to the one that I
would open)
• Potential market threats
• Consumers and suppliers bargaining power
Question 2
• After reading the case, do you sympathize or
do you believe the company’s explanations?
Answer to Question 2
• We do not believe the company’s
explanations. Despite of the company’s
obvious decline in market share and threat of
bankrupt, the company spokeswoman
characterized the for-sale number as “at par
with industry expectations”
• Why?
– If a company would confess their decline, they
would have to decrease a price for the potential
buyers (because the firm face a bankrupt).
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 Store 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 your answer.
Answer to Question 3 (1/2)
• There is a chance for firm with a financial
trouble to get investment. However no
investor wants to invest to the company that
does not appear to have a potential growth
and / or has a poor management
• According the feasibility analysis theory if the
company is not financially feasible, the main
idea of the business should be recreated
Answer to Question 3 (2/2)
• The business owner (or franchisee) should
make a feasibility analysis to make sure that
the business idea is (financially) feasible.
• Buying intention survey should be
administered in order to predict revenue of
the business and subsequently analyze costs
and assess a financial feasibility
– It is especially important for franchisees who plan
to open a franchisee because every location of the
business has different factors influencing the
feasibility
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?
Answer to Question 4
• In order to make a right decision whether and
what type of franchisee to buy, there should
be done a detailed research about markets’
and franchisers’ potential growth as well as a
feasibility analysis of a franchisee in the
proposed environment and factors influencing
business.
• List of top 10 franchisees in 2013:
http://www.entrepreneur.com/franchise500/i
ndex.html
Application Question 1
• What lessons, regardless of the type of
business involved, can a prospective business
owner learn by reading this case?
Answer to Application Question 1
• It is important that business practice prudent
financial management.
• Otherwise not only owner but everybody else
involved in the business (and / or franchisees)
might hard but it does not improve a quality
of their life (because of the bad management).
Application Question 2
• Do some Internet research to see what the
status of Cold Stone Creamery and its
franchisees are today.
– 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.
Answer to Application Question 2 (1/2)
• According analysis of Cold Stone Creamery
from 2010:
– “Cold Stone has closed approximately 160 stores in
two years, and more than 20% of its current stores
are up for sale. Many franchisees are
overwhelmed with debt, and some store owners
are even claiming personal bankruptcy.”
http://www.lewrockwell.com/decoster/decoster132.html
Answer to Application Question 2 (2/2)
High Prices of
products
Factors working for
franchisee
Franchisees’ stores
are too close to
one another
Factors working against
franchisee
Thank You for Your Attention