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An Unhappy Franchisee Shares Advice on Franchise Due Diligence

Franchising

When she decided to invest in a coffee franchise, Criston Menz lacked neither education nor experience. Criston had earned both an MBA and an upper management position with a leading retail chain. She had 26 years of experience in the cafe business as an owner/operator of Cheese & Coffee Cafe, a General Manager at Einstein’s Bros. Bagels, and a manager with Starbucks. She even conducted her franchise due diligence.

Despite her extensive experience, she made the same mistake as dozens of other. She gave a $39,500 “refundable” deposit to Elite Manufacturing for a Cuppy's Coffee franchise. More than a year and countless hours of aggravation later, she is still fighting to get her money back.

A part of franchise due diligence is trusting your initial suspicions

Criston answered an ad for a Cuppy's Coffee franchise. Although she had read on the internet that licensees of Cuppy’s Coffee predecessor, Java Jo’z, had been up in arms about unreturned deposits, Cuppy's Coffee executive Robert “Morg” Morgan assured her that those problems were caused by the previous owner, and it was ancient history.

Morgan's Florida-based home office staff also put Criston at ease. “We were immediately impressed with how friendly and family oriented the entire Cuppy’s Coffee organization was,” says Criston. “It was so inviting to see a company value their people the way they described they did and what their vision was for the franchisor/franchisee relationship.”

She adds, “The charm of the Cuppy’s Coffee organization was the forefront 'lure.' Throughout the application process they made you feel that you had to 'audition' to see if you were right for them. Looking back, it was more about was your bank book looked like.”

Once they had our money, everything changed

Cuppy's Coffee affiliate Elite Manufacturing pushed Criston for a $39,500 deposit while they worked to secure financing for the rest of the investment. The deposit would be returned if financing was not secured, or within 30 days of it being secured.

Says Criston: “The support was FABULOUS until they got our 20% down payment of $39,500 paid to Elite for the construction of the buildout . . .  Once they had our money, everything changed. From then on, we were ignored and left wondering what was going on.”

Criston sent her deposit in November 2006. By January 2007, the company admitted they were having problems securing the financing. In March 2007, Criston formally requested the return of her deposit. The company refused, saying that they had spent the money. They said they would withhold $15,000 as a franchise fee, and only pay her back $20,900 in eight equal installments over 8 months. And she would have to sign a “gag order” that would prevent her from sharing her experience with anyone else. She refused.

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Be advised: Little to no help is available to victims

Criston Menz retained an attorney at additional expense who sent a series of demand letters. She reported Elite Manufacturing and Cuppy's Coffee to the Better Business Bureau of Florida, the Department of Agriculture and Consumer Services of Florida, and the Florida Attorney General, and the American Association of Franchisees & Dealers (AAFD).

Only after posting to consumer complaint sites like Ripoff Report and franchise industry websites like Unhappy Franchisee did she finally hear from Cuppy's Coffee. She received a settlement offer, but it was rescinded before she could respond. The company was sold a short while later.

Prospective franchisees: Conduct your franchise due diligence

Criston Menz continues to try to get her money back from Alabama-based FranSynergy and Dale Nabors, the new owners of Cuppy's Coffee, Elite Manufacturing, and parent Medina Enterprises. Her painful lessons continue.

“Do not give refundable deposits unless it's going to a third-party escrow service with clear terms on how and when it can be refunded,” Criston advises would-be franchise owners. “Dig deep in your research. Read the blogs. You will find out more information regarding any company by reading the blogs and asking all the right questions there. Be informed, very informed.”

RELATED: Buying a Franchise vs. an Independent Business: What Are the Pros and Cons?

Profile: Sean Kelly

Kelly is a leading expert in marketing and brand development for start-up, franchise companies with 20 years and hundreds of client engagements to his credit. He writes for the Franchise Blog on AllBusiness.