THERE IS A SUBSTANTIAL RISK OF FAILURE ASSOCIATED WITH MTY FRANCHISES. IF YOU ARE CONSIDERING BUYING ANY MTY OR KAHALA FRANCHISE, WE STRONGLY SUGGEST YOU LEARN ABOUT SOME OF THE RISKS OF OWNING AN MTY FRANCHISE. YOU SHOULD ALSO KNOW THAT MTY RECEIVED $64 MILLION IN KICKBACKS IN 2019—AN INCREASE OF MORE THAN $5.3 MILLION FROM THE PRIOR YEAR.
KICKBACKS CAUSE FRANCHISES TO FAIL!
MTY Discloses Kickback Scheme
Updated September 12, 2021
Kickbacks are “commercial bribes” that are harmful to franchisees—causing operators to pay “artificially high” prices. Franchisors use them to increase revenues. Kickbacks create a “windfall to the franchisor at the franchisees’ expense”. The U.S. Inspector General’s Office acknowledged the financial devastation suffered by Cold Stone and Quiznos franchisees—two franchise companies that perhaps rank as the most criticized for excessive kickbacks linked to store closures.
For years, MTY Food Group, has been engaged in a kickback scheme. This has led to an exceptionally high overall franchise failure rate of 9.3% through 2019 and a store closure rate of 11.1% through 2020. Thus, a larger dollar amount of kickbacks is forced onto a shrinking number of franchise owners each year.
For example, MTY’s largest two brands are Cold Stone and Papa Murphy’s. MTY disclosed an average increase of $1.4 million each year in kickbacks totaling $87.5 million from 2017–2020 (PDF pgs. 62, 66, 59 and 54) on a declining number of U.S. franchisees. MTY reported kickbacks in other brands as well. For example, MTY more than doubled Papa Murphy’s 2019 kickbacks from $781,545 (PDF pg. 48) to more than $1.6 million in 2020 (PDF pg. 44). The company also increased Taco Time’s 2019 kickbacks from $23 million (PDF pg. 59) to more than $24 million in 2020 (PDF pg. 52).