As founder struggles to fix Edible, franchisees file lawsuit
Illustration by Jonathan Hankin
February 14, 2020, dubbed the Valentine’s Day disaster in a lawsuit, was the last straw for a group of Edible Arrangements franchisees.
“Our ordering process, which is called EA Connect, which we pay exorbitant amounts to them, it went down,” said Ben Hiner, who operates four Edible Arrangements stores in Kentucky, down from eight, and is president of the Edible Arrangements Group Advancement Association or EAGAA.
That left franchisees able to see the number of orders they had but unable to access customer information to fulfill them. “There were tons of orders that didn’t get delivered on Valentine’s Day,” Hiner said. Nonetheless, the lawsuit alleges, EA Connect, an affiliate of Edible Arrangements, continued to automatically collect its fees for the service—recently hiked to 10 percent of sales.
The association, started about five years ago and with 500 members, Hiner said, lists many grievances in its lawsuit, including “self-dealing” by the franchise’s founder, Tariq Farid, and his affiliate companies.
They allege misuse of money paid into the national advertising fund. “We believe they are using the marketing fund to pay operational expenses, which as you know is a common yet illegal practice,” said Robert Zarco, the attorney pressing the suit on behalf of the franchisee association.
They blast the diversion of Edible Arrangements resources to a new venture Farid is exploring called Incredible Edibles, a line of CBD-infused products and stores.
And they’re irked by automatic shipments of products from Rocky Mountain Chocolate Factory, where Farid has joined the board, to franchisee stores even though the franchisees haven’t ordered the products and they don’t sell well, the lawsuit said.
“We are seeking a remedy that will provide a complete and total relief to franchisees, including compensation for business losses as well as a change in the business model going forward,” said Zarco, whose firm is Zarco Einhorn Salkowski & Brito.
Here’s the root of the association’s grievances: increased fees from Edible’s affiliate companies that bring in revenue for the franchisor, its founder and his affiliate companies, but cut the franchisee profits, Hiner said.
“When I first signed, there was no EA Connect fee,” Hiner said. Then it was 2 percent; then 6.2 percent. “That’s where stores really started having to close. That was back in November of last year,” when with 30 to 60 days of notice, the fee went from 6.2 percent to 10 percent.
Add the 5 percent royalty; 3 percent to the national advertising fund; and a local co-op fee of 1.5 percent, and the problem is clear. “We get a 20 percent haircut right off the beginning, and stores are closing,” he said.
“Off the top of my head, I know we’ve lost 110 to 150 stores over the last 36 months. I think we’ve lost almost 40 since the beginning of the year,” and that was before the coronavirus hit. “People are walking away from their businesses. Our overall profits, for me personally I’m off 30, 40 percent” from the “bottom line number,” he said.
Farid seeks ‘total transformation’
Tariq Farid, inducted into the International Franchise Association’s Hall of Fame in 2018, is one of the legends in franchising. He emigrated to Connecticut from Pakistan at age 13, borrowed money to open a flower shop at 17, then poured all his resources into fresh fruit arrangements in 1999. In 2018 Edible Arrangements posted $501 million in systemwide sales and had 1,172 stores worldwide, according to the Franchise Times Top 200+.
Through an outside spokesperson, Edible Arrangements declined an interview request about the lawsuit, filed March 20, sending this statement: “As a matter of policy, we do not comment on pending litigation.”
In an interview last November, Farid addressed the ousting of CEO Mike Rotondo and Farid’s return to the CEO role, along with a 10.3 percent decline in sales for 2018. “They’re finally leveling out,” he said at the time about sales. “We have some challenges. I knew we had to transform our stores a while back. Our stores were not a destination, so that’s why we started to do the smoothies and other products that people can come in for.”
The gifting space, too, “got very competitive with these direct-to-consumer websites,” he said. “A lot of multi-unit owners were struggling, so that’s leveling out now. We closed a lot of stores, we had to combine stores.”
He didn’t expect a dramatic turnaround. “The numbers are good right now, but we’ll have another difficult year.” He estimated sales would be down 5 percent for 2019, “but it all depends on how this last quarter is.”
Of the new plan, he said at the time: “All our stores will be known as Edible, and we’re calling them gift and treat stores.” Many franchisees had been focused on “high price tag gifting,” with an average check of $75. He wants to push more of the “$10, $15” moments. “We’ll be introducing delivery, and we’ll get it there in an hour.
“It’s a total transformation of the brand. It’s more the Domino’s of gifting,” he said, and he acknowledged the road will be hard. “It’s easier to launch a new brand than to transform a brand. Now I have a thousand franchisees to convince and these are small-business owners,” he said.
“Of course, no one wants to change because they remember how easy it was. That whole transformation, of course it’s scary. It’s difficult, it requires investment. And the biggest thing it requires is grit,” he said.
‘I love this company’
Hiner says he knows Farid well and has won numerous awards from the franchisor, but has not had conversations with him lately.
“They say money changes everybody,” he said. “I don’t know if that’s the case with him, but the last three to four years, five years, it’s been one thing after another that’s only benefited him or his family or the direct owners of the company. We have not had one thing that’s done us well in the last three or four years.”
At the end of a lengthy interview, he makes sure to add this coda. “I love this company. I love what he started,” he said, emphasizing the word ‘love’ and referring to the founder. “I love our brand and I think our future could be so bright, if he could fix the system.”
Beth Ewen is senior editor of Franchise Times, and writes the Continental Franchise Review® column in each issue. Send interesting legal and public policy cases to firstname.lastname@example.org.