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| Legal.. |
Raving Fu fight
Franchisees sue over support issues
Mama Fu’s Asian House’s Web site says the concept “focuses on laughter and good times,” but 40 Mama Fu’s franchisees are bound to disagree.
In December, a group of franchisees and investors filed a lawsuit against Raving Brands, claiming the Atlanta-based franchising company failed to provide support, training and advertising that was required by their franchise agreements. Raving Brands launched Mama Fu’s Asian House, a fast-casual noodle concept, in 2003, and also franchises Moe’s Southwest Grill, PJ’s Coffee, Boneheads and Doc Green’s.
“(Raving Brands) was in essence trying to take Moe’s and put it in a Pan-Asian box. They tried to replicate Moe’s without doing the hard work to see if the concept would really work,” says Bob Casey Jr., of Casey Gilson Leibel, whose firm represents the franchisees.
Started in 2000, Moe’s has more than 300 locations. While Mama Fu’s at its peak had 40 stores, currently 18 are open. Jeff Goldt owns one of those remaining locations in a suburb of Atlanta, Ga., and says he intends to keep the store open—at least for now—despite the fact it’s not profitable.
Goldt opened his first Mama Fu’s location in 2004, and bought the rights for two more locations. Six months after opening, however, he says he realized the concept wasn’t going to deliver the sales he anticipated and opted not to open the additional stores.
“We haven’t taken a penny out of the business since day one and we’re right at break even. I look at that as losing money because I can’t take any money out of it and I’m not making any money on it,” he says.
In an attempt to boost sales, he says the franchisor implemented new menu items and added table service to dinner after franchisees first tried these ideas on their own. “They’ve looked to franchisees for how to support and help grow the brand because they don’t know what to do when the brand has a hiccup,” Goldt says. “That’s not why I bought into a franchise.”
Sandra Gray, Casey’s law partner, says franchisees’ stores opened with brisk sales that dropped dramatically. “They would have to make $20,000 to $25,000 per week and they saw their sales drop to $14,000 to $16,000 per week. They couldn’t cover their overhead let alone retire any of the debt,” she says. Financing to start a location, Gray says, typically ran between $300,000 to $500,000 per store.
Raving Brands President and Chief Operating Officer Steve Lamastra says they intend to fight the lawsuit, claiming the allegations are without merit. However, he adds Raving Brands is not actively selling franchises for Mama Fu’s. “We’re trying to focus on the 18 stores we have open and be as successful as we can,” he says. Mama Fu’s has two stores scheduled to open in 2007.
Recent improvements implemented by Raving Brands include a new menu board and a focus on local store marketing, Lamastra says, adding the company made these changes in conjunction with franchisee feedback and in response to consumer research.
As for the long-term viability of the concept, he says, “We’re pleased with Mama Fu’s.... People think the food and the experience are compelling and we have research that shows that.”
In an effort to regain their money, franchisees in the lawsuit are pursuing damages from Raving Brands and Moe’s Southwest Grill based on claims that the franchising company commingled funds between the concepts.
Casey adds the franchisees seek to recover the money invested to get their franchises up and running. He calculates that Raving Brands’ liability could surpass $5 million.
