Cold Stone Creamery sued by franchisee association

Jan. 24, 2012

A lawsuit was filed Monday against Cold Stone Creamery and its parent company Kahala on behalf of an independent franchisee association. According to Blue Mau Mau, the suit claims the company failed to give franchisees an accounting of money collected from third-party vendors and the franchisor's gift card program.

Counsel for the National Association of Cold Stone Creamery Franchisees (NIACCF) said the lack of transparency left the association with "little choice other than to allow the courts to settle their differences."

NIACCF, formed at the end of 2010, has an open membership to all current Cold Stone franchisees and area developers.

The suit claims that the NIACCF members didn't receive an accounting of vendor rebates under its Flexible Marketing Program. Franchisees are asking what percentage of vendor rebates that are marked for the FMP are actually being used for marketing.

They're also seeking more transparency from the parent company about what percentage of supply prices from vendors were used to offset kickbacks to the franchisor. The NIACCF claims the company agreed to provide such information to store owners on several occasions, but has failed to do so.

Another issue outlined in the suit is a dispute about "gift card breakage," referring to gift cards that have been sold but not redeemed. The franchise association claims detailed accounting of this amount, and the accrued interest, has not been provided by Cold Stone Creamery.

The plaintiffs are asking the parent company to provide detailed information about both the vendor programs and the gift card breakage/interest. They're also asking for the cost of the litigation and other relief deemed appropriate.

Cold Stone's past franchise issue

This lawsuit is not the first time Cold Stone Creamery has been called out for being unfair to its franchise base. A year ago, CNBC's documentary "Behind the Counter: The Untold Story of Franchising," focused on a disgruntled former franchisee who claimed that Cold Stone charged him and other operators hidden expenses. The former franchisee, Cecil Rolle, also accused the company of requiring him to purchase equipment from a company it controls, and relying on kickbacks from vendors.

CNBC pulled the documentary from its rotation after Cold Stone threatened legal action against the network, claiming an erroneous portrayal of the company as corrupt.

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Topics: Coffee/Bakery/Donut , Equipment & Supplies , Franchising & Growth , Legal Issues , Marketing / Branding / Promotion , Operations Management

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