case 8.1 heartache and financial failure: what happens when financial challenges become overwhelming
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Case 8.1 Heartache and Financial Failure: What Happens When Financial Challenges Become Overwhelming. Anthony Liisi. Cold Stone Creamery. Founded in 1988 First franchise in 1995 Quick growth: late 1990s to mid-2000s Stores number doubled from 2003 to 2005 1400 franchise stores. - PowerPoint PPT PresentationTRANSCRIPT
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CASE 8.1 HEARTACHE AND FINANCIAL FAILURE: WHAT HAPPENS
WHEN FINANCIAL CHALLENGES BECOME OVERWHELMING
AnthonyLiisi
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Cold Stone Creamery
• FOUNDED IN 1988• FIRST FRANCHISE IN 1995• QUICK GROWTH: LATE 1990S TO MID-2000S• STORES NUMBER DOUBLED
FROM 2003 TO 2005• 1400 FRANCHISE STORES
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Cold Stone Creamery
• FINANCIAL DIFFICULTIES• UP TO 60 CLOSED STORES IN 2006• 100 CLOSED STORES IN 2007• DISGRUNTLED FRANCHISEES• OWNERS: SUCCESS DEPENDS ON OPERATING
A STORE
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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 COMPLETED THE PURCHASE?
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Question 1
• COST –> RENT + FRANCHISE FEES + OTHER EXPENSES
• INVESTMENT REQUIREMENTS• REVENUES – CONSUMER SURVEY• VALUE IN PAST YEARS
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Question 2
• AFTER READING THE CASE, DO YOU SYMPATHIZE WITH THE DISGRUNTLED COLD STONE FRANCHISEES, OR DO YOU BELIEVE THE COMPANY’S EXPLANATIONS?
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Franchisees VS Franchisor
• HIGH PRICES IN TOUGH ECONOMY: RENT ISSUE
• SATURATED MARKET: SHOPS TOO CLOSE, COMPETITOR
• BELIEVING THE HYPE• FRANCHISOR CONTROL:
PEPSI BOTTLES ISSUE, 2-FOR-1 COUPON $40,000
• THE ULTIMATE SUCCESS OF AN INDIVIDUAL STORE DEPENDS ON HOW WELL IT’S OPERATED
• FOR-SALE NUMBER OF FRANCHISE AS “AT PAR WITH INDUSTRY EXPECTATIONS.”
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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 STONE 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 THE ANSWER.
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Financials
• FORECASTING:– CASH FLOWS, – INCOME, – EXPENSES– DEMAND
• FINANCIAL PERFORMANCE OF SIMILAR COMPANIES
• FINANCIAL RATIO ANALYSIS
• MAKING SURE OF:– PROFITABILITY– LIQUIDITY– EFFICIENCY– STABILITY
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Market & Industry Analysis
• INDUSTRY ATTRACTIVENESS, SIZE, COST STRUCTURE
• DISTRIBUTION CHANNELS• ASSESSMENT OF THE OVERALL APPEAL OF THE
PRODUCT: DESIRABILITY, ENVIRONMENTAL TREND
• BUYER BEHAVIORS• COMPETITORS• SEGMENTATION
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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?
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Question 4
• BUYING A FRANCHISE = INVESTING• BUYING A STOCK – EASIER, CHEAPER• DEPENDING ON MARKET SITUATION• WHAT DO YOU BELIEVE IN
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Application question 1
• WHAT LESSONS, REGARDLESS OF THE TYPE OF BUSINESS INVOLVED, CAN A PROSPECTIVE BUSINESS OWNER LEARN BY READING THIS CASE?
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• PREMIUM PRODUCTS SELL REQUIRED HEALTHY ECONOMY
• FRANCHISOR-FRANCHISEES’ RELATION– REQUIREMENT– PROFIT
• LOCATION
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Application Question 2
• 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.
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Today’s status
• 1255 FRANCHISES IN USA• 138 IN FOREIGN COUNTRIES (ASIA)• WORLD’S TOP 50 FRANCHISES• STILL UNHAPPY FRANCHISEES– FRANCHISE CHURNING– DISCOUNTING– LACK OF SUPPORT
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Factors working for• HEAT WAVES• LABOR REGULATIONS
Factors working against• SUBSTITUTE PRODUCTS• COMPETITORS• TAX RATES• FLAT ECONOMY
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Thank you for your attention!