Cold Stone Creamery
Number of SBA loans : 774
Total dispersed: $180.9 million
Average loan size: $233,687
Failure rate: 31%
Cold Stone Creamery's "super-premium" ice cream brand got its start in Tempe, Ariz., more than two decades ago. Known for its made-to-order treats with toppings folded into the ice cream on a frozen granite slab, Cold Stone Creamery currently has more than 1,400 locations. Kahala Corp., the parent company of Blimpie and other fast-food franchises, acquired Cold Stone in 2007.
The product is sweet, but the financials can be bitter. In the last 10 years almost one in three SBA-backed franchisees defaulted on their loan. It's an expensive shop to start, too: the initial franchise fee is $42,000. A 2008 Wall Street Journal article spotlighted the company's franchise troubles, including high operating costs and overambitious expansion.
The Cold Stone Creamery franchise is replete with a history of problems that include franchisee lawsuits and an expose in the Wall Street Journal. Learn why this franchise was destined to have problems right from the start.
I can recall when a Cold Stone Creamery opened less than 10 minutes from my house in a strip mall on Long Island. It was about four years ago and being someone who enjoys a good dish of ice cream I paid a visit to what was then a highly publicized franchise concept. After my visit I can recall telling my wife that Cold Stone ice cream was not worth the high price. That particular franchise closed two years later. Before reading glowing reports about the phenomenal growth of the franchise, including its high rankings in the Entrepreneur 500, personally I had known very little about Cold Stone.
In June 2008, the Wall Street Journal published an article reporting that a large number of franchise locations, approximately 16-20%, of Cold Stone Creamery franchises closed, or were being put up for sale by their owners. The article included claims by franchisees that the company had misrepresented the average revenues of Cold Stone stores and acted in ways that reduced stores' profit margins. Part of the problem, according to the Wall Street Journal, was Cold Stone’s rapid expansion in its earlier years, placing new stores too close to old ones, which hurt sales. Many times, this led to inexperienced franchisees buying into bad situations.
I could include other negative articles and anecdotes about Cold Stone; however, suffice it to say that this had the makings of a flawed franchise program.
