Vera’s Burgershack – Port Moody Franchise Sells for Staggering Loss

“What? Me worry?” – This could have been the caption on Gerald Tritt’s recent Instagram upload that portrays him living it up with a smile that would put Alfred E Neumann of Mad Magazine to shame.  Mr.Tritt appears not to have a care in the world as he tools about in a loaner Ferrari for the weekend, living the dream as he weekends in Chicago and hangs out with the Boss Man himself, Bruce Springsteen – champagne dreams and caviar fairy tales indeed!
Alas, it is a lifestyle that many Vera’s Burger Shack Franchisees can only aspire to after investing in the Gerald Tritt Franchise system.

In September 2014, the original Port Moody Franchisee managed to escape The System after having his store on the market for over a year.  That particular Franchisee purchased a brand new location on Newport Drive and opened in or about September 2012 at a cost rumoured to be in the range of $375,000.00 to $400,000.00.   Initially, the location recorded robust sales as it consistently ranked among the top of Vera’s locations in monthly sales and $2,000 daily sales were often recorded.  However, the good times were not to last as the Port Moody location began a descent down the sales rankings by location.  By June 2013 a scant nine months after opening, the Franchisee had had enough and listed the location for $379,000.00, but, like the Broadway location, the Franchisee could not find any takers.  The location remained on the market as sales continued to decline pushing it ever downward on the Vera’s sales rankings by location.  In September 2014, the news broke that the location had sold but at a price far far below the Franchisee’s investment.  Reports suggested the location, less than two years old, had sold for a price between $215,000 – $200,000.00 representing a loss in excess of $150,000.00 to the Franchisee who had bought into the Vera’s Burger Shack brand.

It was the second location within three months that had sold at a loss in excess of $100,000.00 to its selling Franchisee.  Unfortunately, it appears that unlike Gerald Tritt, neither the Port Moody nor the Broadway Franchisees will be driving Ferraris anytime soon.

Vera’s Burgershack: A Poor Broadway Performance for a Vancouver Franchise

veras-wink

In late March 2013, Gerald drew a sigh of relief as the soon to be ex-Franchisee walked out of Vera’s flagship location in Kitsilano with lease assignment in hand.  As sales figures across a number of franchised locations had sagged, the Franchisee had proven quarrelsome and unwilling to follow the Gerald Tritt Franchise System to a tee.  Even worse, the Franchisee had shown Gerald up in email discourse that took place in full view of all the Franchisees when the Franchisee pointed out that absence of inspections and adequate training from head office had led to a lack of standardized behaviour throughout the franchise system.  Gerald’s response to this rebellious insolence was to change the email settings so that a Franchisee could only reply to Gerald and not to the Franchisees at large.

Gerald’s response to this rebellious insolence was to change the email settings so that a Franchisee could only reply to Gerald and not to the Franchisees at large.

In any event, the Franchisee was gone and with him out of the way only better days could lay ahead for the Vera’s franchise system – or so Gerald had assumed.  His optimism proved to be short lived.

In the fall of 2012, while warring with the aforementioned troublesome Franchisee he had approved the sale of the Broadway location to the youngest Franchisee ever.  The Broadway location had had a troubled history in that in recent years it had not been that profitable.  Of course, profitability from the Franchisees perspective is quite different from that of the Franchisor.  While a store Franchisee (location owner) can be barely paying the bills or even losing money hand over fist, the Franchisor will always take their cut off the top of every transaction that goes through the till. From Gerald’s perspective, franchise fees generated by this location read ‘just fine’ on the profitability meter.  In any event, the location had changed hands repeatedly over the past five years.

Notwithstanding new ownership, the Broadway location lagged at the bottom of the Vera’s locations’ monthly sales rankings being in front of only the Aberdeen Mall location.  As ‘victory has a thousand fathers and defeat is but an orphan’ as quoted by John F. Kennedy, Vera’s head office and the Franchisee began to blame each other for the location’s poor performance.  The details of the relationship between Gerald and the outgoing Franchisee remain murky but without doubt it was fractured.  The Franchisee blamed Gerald for a lack of training while Gerald blamed the Franchisee for being unable to operate the location in a professional manner – a typical Franchisor-Franchisee dialogue where systems are found wanting and Franchisee’s bank accounts drained.

By the fall of 2013, the negative reviews online were stunning in their criticism of the Broadway location’s operations with some of the reviewers going so far as to accuse the Franchisee of tax fraud because of its “cash only” policy.  Inexplicably, Vera’s Head Office failed to take steps to revoke the franchise and allowed Vera fans’ to part with their hard earned cash to pay for what appeared to be a substandard product and experience.  The negative reviews continued to pile up online yet Vera’s Head Office appeared, at least on the surface, to do little to intervene to protect the brand.  Other Franchisees began to express concern that brand integrity was being compromised yet Vera’s Head Office failed to revoke the location although, based on online reviews as a starting point, sufficient grounds may have existed for such action.

While it is uncertain when Vera’s Head Office began to sour on the Franchisee, it is clear that a scant 3-4 months after buying the Broadway location,  the Franchisee had seen enough of the Vera’s franchise model and listed the franchise for sale for $275,000.00.   Over the next twelve months the listing price inched downwards to the low $200s, as there were no takers.  As 2013 turned to 2014 and the online reviews went from the sublime to the ridiculous, the Franchisee finally had a taker to assume control of the troubled location.  Some reports suggest the sale price as low as $40,000.00 meaning the Vera’s Brand was worth little more than restaurant equipment at this location.  Other reports say the sale price came in between $100,000 to $120,000.00 meaning the Vera’s Brand was worth equal to the equipment and leasehold improvements leaving little value to goodwill.  At this location, instead of becoming a smash hit, the Vera’s Burgershack brand became a Broadway flop.

At this location, instead of becoming a smash hit, the Vera’s Burgershack brand became a Broadway flop.

veras-wink

 

Shortcomings in the Vera’s Burgershack Franchise System

veras-wink

By the summer of 2011, the Vera’s franchise chain was riding high.  In 10 short years, Gerald Tritt had created a chain numbering over a dozen locations.  The franchise locations were selling in excess of $300,000.00 with people lining up to buy them.  Underneath the surface though, a series of decisions at Vera’s head office along with the simultaneous end of the North American burger craze and Olympic stimulus spending would send Vera’s on a downward spiral from which it has yet to recover.
Firstly, Vera’s head office failed to set up an adequate training program for new Franchisees.  For the first franchised locations this did not prove too problematic considering these buyers came equipped with years of experience in the restaurant business. As some franchise locations were flipped to new franchisees, however, problems soon arose.  The new generation of Franchisees did not possess years of restaurant expertise and were trained by the Franchisees on their way out who no longer had a stake in the Vera’s franchise system or brand.  Secondly, Vera’s head office ceased inspections of franchised locations in late spring of 2012.  Thirdly, Vera’s head office failed to provide a comprehensive operations manual for the Franchisees until the summer of 2013.  The combination of these head office omissions resulted in an ill-trained and poorly supervised second generation of Franchisees who were being released onto an unsuspecting public creating a wildly inconsistent dining experience from location to location.

Rather than addressing these obvious shortcomings, Vera’s head office began to look for ways to simplify the burger making process for these ill-trained and unsupervised Franchisees.  The first attempt at simplification came when some locations introduced a conveyor belt style oven to cook the burger patties.  Vera’s, a place rooted in the tastiness of a flame broiled burger cooked under a gas grill, had thrown that aside and introduced an assembly-line-style oven using electrically powered coils to cook the burgers.  Aficionados were not fooled and began to complain to Franchisees about how the burgers tasted different depending upon the location.

A quick scan of Yelp reveals reviews that range from 1 to 5 stars depending on the location with many of the reviewers commenting on how there was no consistency between locations or even between multiple visits to the same location.   Vera’s head office’s failure to create a comprehensive training program, maintain inspections, and enforce even one uniform way of cooking the burgers, resulted in a complete failure in establishing standards for day to day behavior for its Franchisees thereby creating a product and dining experience that was markedly different from location to location.  Franchisees were learning the restaurant business through “trial by fire” and became resentful at the royalties being charged by a head office that never seemed to provide an idea as to how to make operations easier or more profitable.  Commencing in 2011, sales began to stall and decline at a significant number of the locations across the Franchise.

When concerns were raised regarding the absence of training and inspections within the Vera’s franchise system, Gerald Tritt brushed these concerns aside and insisted that the key to success for a Franchisee in the Vera’s system was for him or her to

  1. Get to know their customers’ names;
  2. Get to know the employees of surrounding businesses;
  3. Get to know their customers’ favourite burgers; and
  4. Tell the customers entertaining stories and become a person that your customers would want to patronize to differentiate from the nearby Quiznos.

It was becoming crystal clear to the more savvy of the Franchisees that Gerald Tritt was peddling a franchise system consisting little more than a cartoon face and a “magical” burger spice.

Next: Aberdeen Mall Vera’s – the Gerald Tritt system in action

British Columbia Law Institute (BCLI) Releases Report on a Franchise Act in British Columbia

Members of the VCSFA had an opportunity to meet with Greg Blue of the British Columbia Law Institute (BCLI) approximately one year ago where we had the chance to hear more about the plans for a proposed Franchise Act for BC.  We created this post shortly after this meeting.

At this point, it was in the ‘consultation phase’ where feedback was being gathered by stakeholders in the franchise industry.  To read the original document, you can click this link and download it directly or go to the Franchise Act Project page at the BCLI.

We are pleased to announce that the conclusions from the consultation phase have now been compiled into this document: Report on a Franchise Act for British Columbia which can also be viewed/downloaded from the BCLI project page above.

In the near future, we will write a report with our feedback on the report.

The VCSFA would like to extend our most sincere thanks to Greg Blue and all the others who contributed to this worthwhile project as it has already contributed to the exposure of the oftentimes questionable nature of the Franchise-Franchisor relationship in general, but especially in BC, and will most certainly help any potential buyer (who does their due diligence) avoid some of the common pitfalls prevalent in the industry,

 

 

Why Quiznos is Going Bankrupt and What You Can Learn From It

Franchising is set on a pedestal in the minds of business minded people and customers alike as a dream model – a goal to reach as it were.  For some people, to franchise your business means you are validated by the business world.  To open hundreds of stores means you are awesome.  To open thousands?  Now you’re a rock star, baby.  But wait!  While your business groupies marvelled at your copying-and-pasting skills, your lovely, innocent, country bumpkin girlfriend who was always there for you got neglected on the way to your stardom.  That’s quite sad.

Some people believe that franchises are started by directors with abusive and even predatory business goals but most believe they start out innocently but are then corrupted by the sudden infusion of cash in their banks created by their army of burger flipping, latte steaming, foot-long wrapping worker bees.

You choose what you believe.

The Franchisees of Quiznos in the USA may now have to figure out how to walk on their own two feet while proceedings for the funeral of their corporate franchise mother ship get underway.  Will their Landlords extend expiring lease renewals now that their never-failing rent guarantor has failed?  Will the owners be able to sell their stores and recuperate the hundreds of thousands they spent to buy the business name and systems?  Will this bankruptcy ultimately mean the doom of Quiznos in Canada?  What buyer would purchase a franchise that may no longer be a franchise?  How much goodwill value is left in the brand?

This article in the Business in Vancouver publication summarizes the situation at Quiznos best as ‘…struggling with high debt, angry Franchisees, and increasing competition.”  Many of the angry Franchisees apparently sued the head office for failing to support them and for overcharging them for supplies.  Quiznos settled out of court for $95 million.  And just a few years later – good bye, sugar pie.

But it makes sense.  When a lawsuit is filed against a Franchisor, its roots didn’t magically grow like Jack’s beanstalk, especially if the lawsuit involves more than one Franchisee as it did in this case.  The Franchisees had to have been angry enough to fight against their own ‘fear of the Franchisor’ and start meeting privately to come up with a plan – a sort of revolution.  Money was taken from them unfairly so they went to get it back.  They paid for support that they didn’t get so they went for a court imposed refund – and they got it.  It would be interesting to ask the Franchisees who chose not to fight how they feel about their decision now.

One of the most interesting quotes from the BIV article on the topic is the following:

All except seven of its nearly 2,100 restaurants are independently owned and operated by franchisees and will not be affected by the bankruptcy, the company said in a statement.

How they will not be affected by the bankruptcy is nothing short of a very large mystery.  To remove a stigma of this size from a brand is a formidable task – regardless of where the bankruptcy is filed.  Think about Jack in the Box.  Stigmas are sticky.

So what can we learn from the woes that are sweeping over Quiznos?  Here are a few points to consider:

  • If Quiznos was focused on helping the Franchisees make money instead of finding ways to take it from them, none of this would have happened.  They would have had Ambassadors of the Brand instead of Assassins of the Brand.  Win + win = win  (Note: this formula still works in 2014)
  • If there are a bunch of Franchisees going after the Franchisor, you should probably be concerned.  Deeply concerned.
  •  ‘Too big to fall’ Franchises don’t exist (although McDonald’s might admittedly be trickier to topple).  The bigger they are the harder they fall – eventually.

How does your Franchise Grade (dot com)?

Anyone considering the purchase of any Franchise location or system needs to be fully aware of the best thing that happened to a Franchise buyer.  Conversely it is probably the worst thing that has ever happened to bad Franchisors…

Franchise Grade is amazing and it’s no joke.  Jeff Lefner and his team blends quality raw data from actual Franchisees with technology to spit out a report card that should make any Franchise organization stand up and take notice if not quake in their boots with fear.  If I were the Franchisor, I’d want to make sure I was getting a good grade before this hits critical mass.  On the flip side, well run Franchises who earnestly care about the profitability and general well-being of their Franchisees stand to sell many locations through this website – and they don’t even have to pay for the marketing!  Those Franchisors who have been using fear tactics, writing scummy deals with tricky contracts and who like skimming all the profits for themselves are in for a very rude awakening as Franchise Grade gains awareness.

These reports are not cheap by any means, but most Franchisees would agree that, if they had the chance, they would have cut a cheque for $10,000 to have learned these details before they purchased.

From our understanding of the system, current Franchisees are given about 90 questions to answer anonymously key and revealing questions about their Franchisor.  The results of that data is then handed off to an actual team of professional statisticians who verify everything and make sure its as solid as possible.  From there, when the reports are ordered, the data is pumped into a nice report and handed off to the prospective buyer at which point the Franchisor will either weep or rejoice.

We will continue to review FranchiseGrade.com but for now, we give them an A+ and strongly recommend every potential Franchise buyer purchase these reports whenever available.  If the reports are *not* available we strongly recommend you ask the Franchisor to make sure their Franchisees have submitted their anonymous report before you buy.  This one report could save you literally hundreds of thousands and in some cases – millions.

 

Quiznos Files for Bankruptcy

Most people reading this CBC article about Quiznos filing for bankruptcy will probably be thinking ‘where am I going to get my upscale sub?”  Franchisees, however, are probably asking “What will happen to the franchisees in this case?”

And what a great question that is.  There are lots of stakeholders in a franchise system, including, but not limited to:

  • the Franchisee
  • the vendors
  • the customers (better spend your gift card money asap!)
  • the landlord (who are you going to go after for late rent?)

One would hope that they have already formed an association that could immediately meet and start taking measures to protect their investments.  One would hope that the Franchisees are not relying on their head office to provide accurate, timely, or beneficial information at this point.  One would hope that they have their legal team lined up and ready to start work.

It will be most interesting to follow the results this event will have on the Franchisees and we hope that some of them will be able to write to us with their insight.

As always, send your comments and stories to info@vcsfa.ca.  We are here to help.

Franchising, Suffering, and Stockholm Syndrome

Franchising, Suffering, and Stockholm Syndrome

Over the last couple of months, we have been involved in painful conversations with several coffee shop Franchisees which was not unlike the dialogue a parent might have with their children about the dangers of drinking and driving or getting involved with gangs.  The older, wiser parent explains – from their own experience – the death and pain surrounding these important life decisions and why it’s important to avoid bad decisions at all costs.

In the first dialogue, the Franchisee had already been abused by their Franchisor when asked to cough up a large amount of money that was clearly for the unilateral gain of the Franchisee and the unilateral pain of the Franchisee.  Yet the Franchisee paid.  The Franchise also told us that the business was for sale and has been for a long time.  We explained that the commercial agent the Franchisee was using was highly questionable and may have other motives than the sale of the shop.  Yet, the Franchisee continued to use this agent.  This person even went so far as to explain that there was no happiness surrounding the business and it is not making much if any money.  Yet this person remains the Franchisee on record for that location today.

In the second dialogue, a Franchisee who has watched several other owners in the same chain get raked over the coals by exorbitantly priced – and forced -renovations (which lead to their eventual demise) reached out to us for our advice.  Can you guess what our advice was?  You guessed it.  We said, “Run for the hills and do not look back.”  Yet, it is rumoured that this Franchisee is about to hand over the money!

These two dialogues have resulted not only in the hurt of the Franchisee while they operate but also in the hurt of the people who advised them – much like the parents who watch their children drink and drive against their advice.  One can understand the teenager making life decisions like this but it does not explain very well the adults because they are… well…  adults.

One former business owner presented the idea that these people are suffering from Stockholm Syndrome.  Don’t worry, I didn’t know what it was either so here is a pretty good video link that will bring you up to speed.  I believe this person has hit the nail right on the head.

Franchisors (and the courts of law know this) are in a position of power over the Franchisees.  There are no two ways about it and even before signing the Franchise Agreements, everyone knows it.  If the Franchisor turns out to be highly ethical and wants a win-win business relationship you have done well and have obviously been an avid reader of VCSFA articles.  However, if the opposite happens, you are now a captive for the duration of your lease term unless the franchise allows you to take back your retail space and go independent.

We have witnessed, first hand, Franchisees begin to defend their Franchisors even though they had previously acknowledged them as abusive dictators.  Their mental condition began to change as the pressure was put on them by the Franchisor.  They began to think about their seemingly powerless situation and feel hopeless against their new Goliath.  They began to have thoughts that perhaps if they tried to work with the Franchisor amicably that their hostile environment would somehow turn out less hostile and they would have a better chance of coming out unscathed – both legally and financially.

From the non-business owner and former Franchisee’s perspective, this kind of behaviour is akin to the nice girl who insists on staying in the abusive relationship.  No matter what counsellor or agency you refer her to, she insists that she will be able to change this abusive man and that somehow things will get better and one day she won’t wake up with black and blue eyes.  In both situations, what they haven’t considered is that a man cannot change another man’s heart.  Whether it’s a corporation or an individual, a change must occur in the heart for outward change to manifest.

So how do you know which chain is oppressive and captor-like?  You will know them by their fruit. No good seed from a good tree will produce bad fruit and conversely no bad seed from a bad tree can produce good fruit. In a franchise environment, the individual Franchisees and their locations are the fruit.

No good seed from a good tree will produce bad fruit and conversely no bad seed from a bad tree can produce good fruit. In a franchise environment, the individual Franchisees and their locations are the fruit.

 

Need some advice? Considering signing up with a franchise?  We are here to help.  Shoot us an email at info@vcsfa.ca

Blenz Coffee Sells Off Corporate Training Centre at Prestigious Library Blenz

Blenz the Canadian Coffee Company LTD has sold their corporate training centre at Library Square to a new franchisee.  A sign reading “This location has new owners! We look forward to serving you!” was posted on the window.

new-owners

This location was a very useful component to the Blenz brand and had been the location used not only for giving new franchisees (owners) a chance to train with the public before running their own stores, but also for hosting events such as ‘That Barista Thing’.  They also used the location to do dry runs on new products and get feedback from customers.

This location has a challenging history as it was reportedly owned by a franchisee before Blenz took over the location from the upset owner.

Adding to the story of the sudden recent change of hands of this prestigious location is the simultaneous erection of a dividing wall between what was the ‘training side’ (left) and the ‘customer side’ (right) as shown in the this photo:

closed-training

This most serious corporate decision begs the following questions:

  • Where will new franchisees in the Blenz chain get trained moving forward and how will this affect the quality of the training?
  • Has Blenz protected the current owner of this Library Square location from a potentially competing business opening right next store?  There is not hint of what kind of business will be moving in to the former training space.  What if it turned out to be another coffee shop or tea shop?
  • Why did Blenz sell this location?  Did the city of Vancouver charge too much rent?  Our reports show that lease rates in Library Square are some of the most manageable in the city.  There are fewer locations with such a captive audience as library square.

This seemingly silent transaction should prompt franchisees and all stakeholders involved with Blenz the Canadian Coffee Company LTD to be on high alert if this decision was indeed not explained in advance.

As always, send us your industry information and we will be pleased to do a follow up report.  We are here to help.

How to Start a Coffee Shop for under $25K without your money?

 

One of our members submitted this video uploaded by David Hayward and we thought it had tremendous value for potential coffee shop owner.

Many prospective coffee shop purchasers don’t have any confidence in themselves.  They think that since they don’t have any experience in the field, or they don’t have any small business background at all (financing, leasing, etc), that they will not be able to do something powerful on their own.  Instead, they often choose the path of Franchising.  We are not saying that it is not possible to make money with a coffee franchise, but we are suggesting that there are other ways (I.e. spending $25k versus $250K!)

This ten minute video is great because it gives tips that will even help you choose a coffee franchise if you are purchasing an existing store (ie. you should have your store on the right side of the road during morning traffic).

We hope this video will be just another tool along the road to creating a better chance of success for you and your family