Cold Stone Creamery isn't just any ice cream shop. After waiting in what are typically long lines, customers order custom-made concoctions of their own design. First they choose the flavor ice cream they want, then any of the dozens of available mix-ins such as sponge cake, graham-cracker pie crust, apple pie filling, cookie dough, brownies, candies, nuts, fruit, and coconut. Employees brandishing metal spades mix the ice cream together on a granite surface refrigerated from underneath – the "cold stone." They break out into song on a whim, especially when they receive tips. Donald and Susan Sutherland founded the first Cold Stone Creamery in 1988, and after four years of booming business they expanded to a second location. They continued to grow within their hometown of Phoenix and then answered the demands of entrepreneurs across the country and started franchising. As the company expanded in 1995, the Sutherlands brought in veteran businessman Doug Ducey to help establish the brand. In 2000 he was named CEO of Cold Stone Creamery, with the goal of turning it into the Starbucks of ice cream shops. Under his leadership, Cold Stone expanded to over 1,300 locations and was named Entrepreneur magazine's 11th fastest growing franchise in 2006. But now, Cold Stone's ice cream empire is melting. Despite a high-quality product, locations from coast to coast, and a recent merger with the fast-food franchising company Kahala, Cold Stone Creameries across the country are closing for good. More than 100 were shuttered in 2007, and in 2008 another 303 stores, or 20% of the total, were put up for sale, leaving Cold Stone's executives, franchisees, and investors wondering what went wrong. One former franchisee, Ken Gornall, said he bought a Cold Stone Creamery franchise because "the stores seemed busy all the time. You assume that 'busy' equates to profitability." This turned out not to be the case for Gornall, who, along with other franchisees, claims Cold Stone misled potential franchisees with inflated prospective annual sales. Gornall also said the company required him to buy over-priced ingredients at larger quantities than he needed, and that a catastrophic two-for-one coupon devastated his profits. When Gornall appealed to the company for support, he received none. He said Cold Stone's area franchise developer visited his store only once and provided no useful advice. After paying for the store's debts with his own credit cards, Gornall was forced to close when his losses exceeded $100,000. Cold Stone has also been criticized for expanding too quickly. Many new stores were built too close to old ones, taking large amounts of business away from existing stores. But Cold Stone executives assert their failing franchises are simply a reflection of economically challenging times, not mismanagement. Still, Cold Stone Creamery's dream of becoming as common a sight as Starbucks won't come true. The company's executives have implemented a new plan to slow down expansion and focus on improving the revenue of current stores instead of building new ones. Q1: The average scoop of ice cream at Cold Stone Creamery costs $4.
1. Do you think price has anything to do with the chain's recent problems?
2. What other factors may have contributed to Cold Stone's melting bottom line?
3. What would you recommend Cold Stone Creamery do to fix its franchising troubles?