If it’s broke, buy it
Last fall, the management team at Medina Enterprises asked Dale Nabors, the founder of the consulting firm FranSynergy, to be a consultant for its Cuppy's Coffee franchise. Nabors studied the company to uncover what management needed to do to right the troubled chain.
His conclusion? Management couldn't fix Cuppy's. So he bought Medina.
"With the management team in place, I did not think the change could be affected in a positive manner," Nabors told Franchise Times. "It's a good brand. Franchisees have invested a lot of money to grow their business. The franchisor has the responsibility of assisting them in facilitating that."
The deal, terms of which were not disclosed, includes all of Medina's assets, including Elite Manufacturing, and its liabilities, and deals to manage burgeoning franchises Planet Wings and San Gelato CafÉ. Nabors said he is working to renegotiate the management deals with the chain's owners to focus on slow, measured growth.
Still, the flagship is Cuppy's, which has 73 units and deals in place for another 135.
The chain was created when Doug Hibbing and Robert Morgan paid $3 million for the assets of Java Jo'z, Hibbing's former employer, and renamed the chain Cuppy's. The previous owner went to jail for tax evasion.
The new owners sold more than 100 franchises by promoting Cuppy's as a cheaper alternative to Starbucks. Blogs on the Internet began hammering the chain because many of the people who licensed the brand under the Java Jo'z name couldn't get refunds of their licensing fees when they couldn't open sites – and the switch to Cuppy's appeared suspicious. "It created a PR nightmare," Nabors said. "It was a mess."
That criticism seemed to ease off for a while following a legal and PR campaign, but stories of unopened stores and un-refunded franchise fees have emerged again in the weeks leading up to the sale announcement. "It certainly created some pain for ownership," Nabors said. "And it also devalued the brand."
When asked whether the company's reputation had given him pause when he considered a purchase, Nabors said, "it absolutely gave me hesitation. But if I didn't believe in my abilities and the ability of the team I put in place, there would have been no acquisition."
Nabors said the previous owners had "good intentions, but as grandma used to say, the road to someplace is paved with good intentions." The problem, he said, was inexperience – the previous management simply didn't have the experience and franchise know-how to support a rapidly growing chain.
He said the company plans to slow down its franchise sales process to focus on getting unopened stores open. Those who cannot open for various reasons may see refunds of their franchise fee, depending on their circumstances. The company, Nabors said, will decide on refunds on a case-by-case basis. "We're going to resolve those issues as quickly as possible," he said.
Once stores are open, Nabors said, the next step is to get a capable support system and help the franchisees become profitable. That will involve training franchisees on the food and retail parts of the business that will increase sales and boost the bottom line.
"The problem wasn't created overnight," Nabors said. "It won't be fixed overnight."