Cold Stone Creamery attracted a lot of franchisees thinking it was a sure thing. It wasn’t.

By RICHARD GIBSON

Earlier in this decade, Cold Stone Creamery was one of the hottest franchises around. The super-premium ice-cream stores attracted scores of franchisees hungry for a piece of the “Ultimate Ice Cream Experience.” Now many franchisees are selling their stores, overwhelmed by soaring bills and shrinking profits. Some have lost their homes, broken their retirement nest eggs or filed for bankruptcy. What happened?

Even as they rave about the quality of the ice cream, numerous franchisees say the numbers in Cold Stone’s business model didn’t add up. The cost of running one of the shops was so steep that making a profit was daunting, especially in an economy where a $4 scoop was a pricey indulgence, they argue. They also contend the company cut their margins even further by offering two-for-one coupons and making them buy costly ingredients from a single supplier. Some argue that the company’s rapid expansion crowded stores too close together — and brought in too many inexperienced franchisees. A number of franchisees also contend the company misled them, giving them promises of profit potential that proved unrealistic or inaccurate revenue numbers from existing stores. And some say that they got little help from the company as their stores went under. “They have a defective business model, there’s no question about it,” says Ken Gornall, a former franchisee who closed his Glendale, Ariz., store last October. He adds that the average revenue numbers he received before signing up “were quite misleading,” exaggerating likely annual sales. Cold Stone says more than 100 of its stores closed last year.

Deborah Lickteig

…while many failed Cold Stone franchisees were new to franchising, experienced franchisees also have lost money. “This was not our first rodeo,” says Deborah Lickteig, whose family had operated KFC chicken outlets in Arizona and New Mexico. “We worked it real hard for a year,” she says. But she and her husband sold their store in June 2006 after weekly sales at the San Antonio outlet fell several thousand dollars short of what she calls “skewed” pro-forma figures from the company. A glut of Cold Stone stores in the area, high food costs and the buy-one, get-one-free coupons made things worse, she says.