IF YOU ARE CONSIDERING BUYING AN MTY OR KAHALA FRANCHISE, WE STRONGLY SUGGEST YOU READ THIS WEBPAGE FIRST. CONSIDER THAT MTY, IT’S CEO ERIC LEFEBVRE AND AUDIT CHAIRMAN, GARY O’CONNOR MADE FALSE STATEMENTS TO INVESTORS TO COVER-UP ALLEGED REGULATORY VIOLATIONS. MTY CHAIRMAN STANLEY MA LATER SOLD $43 MILLION OF WELL OVERPRICED STOCK WHILE INVESTORS REMAINED IN THE DARK ABOUT THE FALSE. YOU SHOULD ALSO KNOW THAT MTY RECEIVED $64 MILLION IN KICKBACKS IN 2019—AN INCREASE OF MORE THAN $8 MILLION FROM THE PRIOR YEAR.

KICKBACKS CAUSE FRANCHISES TO FAIL!

MTY/Cold Stone Creamery Franchise Reviews

Updated November 12, 2021

MTY is a publicly traded franchising company of questionable stock value with more than 70 concepts. Cold Stone is MTY’s leading franchise. Because growth is an indication of franchisee success, MTY has a heightened financial interest in portraying the concept as growing. Despite that Cold Stone has closed more than 500 locations since 2007, MTY falsely portrays it as growing in order to attract more investors and generate more kickbacks.

Our attorney reported 100+ whistleblower allegations to MTY according to this timeline. Shortly afterward, MTY Chairman Stanley Ma dispatched CEO Eric Lefebvre and Audit Chairman, Gary O’Connor to cover-up the allegations with false statements. Later, MTY Chairman Stanley Ma sold $43 million of well overpriced stock while investors remained in the dark about the false statements by MTY’s board and management. This is so eerily reminiscent to former Enron CEO Kenneth Lay selling his personal stock while misleading investors and stakeholders.

 A cover-up “always makes things worse”.

It seems MTY has a problem with the truth and that starts with the most powerful man in the company, Chairman Stanley Ma. Generally speaking, we think it’s important that franchisees have confidence that their franchisor is being truthful with them. Stanley Ma knows this. Then why bear the risk of continuing to make so many false statements to potential investors? Franchise companies need new franchise owners in order to grow. If potential investors knew the truth about MTY’s failure rate and kickback scheme, they likely wouldn’t invest in any MTY franchise.

The 2020 pandemic was hard on restaurants. For example, after growing an average of 959 new locations each year from 2016–2019, MTY’s closest competitor, RBI, was down 213 locations in 2020.

On the other hand, MTY began 2020 with 6,989 franchises. It closed 1,324 (18.3%) locations in 2020. (This includes 578 “closed during the period”, as well as 338 and 408 “network” and “MTY” locations, respectively, that the company claims are “expected to reopen” at some undetermined time (PDF pg. 26).) Curiously, no explanation is provided for the MTY location closures, although MTY previously reported it was “buying out struggling franchises”.) The company closed 1,769 in the four years before the pandemic (average 442 or 9.3% per year). That’s a total of 3,093 locations closed in the last five years.

So, while MTY’s competition was opening an average of nearly 1,000 locations each year in the four-years leading up to the pandemic, MTY was closing an average of 442 locations. MTY/Cold Stone alone reported 375 franchisees ceased to do business with the company during the same timeframe.

Over the past several years, MTY has grown its franchise network through acquisitions of brands such as Cold Stone, Papa Murphy, Taco Time and others. This has masked management’s operational failures year-after-year as demonstrated by its frightening average store failure rate of 9.3% during the four-year period before to the pandemic (2016–2019) and 11.1% including the pandemic year (*).

If franchises form the basis of a company’s revenue, how does a company survive with a 9.3% franchise failure rate? Long term, the answer is: it doesn’t. Short term, the answer is: increase kickbacks on the shrinking number of franchise owners that remain. This enables MTY to meet shareholder earning expectations and claim a “track record of growth”. However, it also causes more-and-more franchises to close. It’s cannibalization at its best! Thus, MTY is currently in a death spiral.

As a threshold to initiating and maintaining an investor or other stakeholder relationship with a corporation, those parties should undertake some form of quantitative and qualitative analysis to assess the company’s values and performance beyond its financials. Investors and stakeholders would not have engaged in Enron had they known the company was corrupt and its management was underperforming. Thus, investors have a responsibility to make such assessments on a regular basis.

We believe MTY/Cold Stone’s numerous false statements to investors, their cover-up scheme and Chairman Stanley Ma’s sale of $43 million of overpriced stock while investors were in the dark, proves the company is dishonest and corrupt. This is a level of shady dealing that would fail any reasonable qualitative analysis of whether an investor or other stakeholder should consider initiating or maintaining a partnership with MTY.

We also believe MTY’s kickbacks, high failure (approaching 10% even before the pandemic) and its exceptionally high closure rate for “all its concepts” makes MTY franchises a very risky investment. Contrary to MTY’s effort to portray itself as demonstrating “operational know-how”, this is evidence of insufficient managerial talent and would fail any reasonable quantitative analysis of whether an investor or other stakeholder should consider initiating or maintaining a partnership with MTY.

Please don’t hesitate to contact us if we can assist you in your decision-making process.

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