1. Evaluate the “Deal” as it is presented in the case
As outlined below, ICEDELIGHTS is willing to provide an acceptable option to the franchisees due to their inability to commit to the venture immediately. The revisions to the deal allow the franchisees flexibility in their timeline for raising capital and financing the deal. Regardless of the timeline, the situation presents a concern with the franchisees ability to raise the amount of capital required to open their first three stores in a timely manner.
• ICEDELIGHTS did not want to be legally bound to the Florida franchise because they felt they might not have sufficient resources to accommodate the franchisees. • A deal was proposed that would provide the franchisee and franchisor security o Pay $200,000 up front for development fees and franchise fees for the first five stores o Pay $20,000 per store opened after the first five stores o Pay a 5% royalty on sales
• ICEDELIGHTS would then allow the franchisees to use their brand name and product, would train the franchisees and one manager per store, and would provide support for finding locations and construction of the stores. • The deal would come with an option because of ICEDELIGHTS inability to commit to the Florida franchise up front o The franchisees would make a deposit of $75,000 up front o The remaining $125,000 up front charge would not be owed until ICEDELIGHTS provided one acceptable location and the lease was signed o The franchisee would have the opportunity to build a production facility if ICEDELIGHTS was unable to provide the product to the new stores • The franchisees have two weeks to make a decision on the deal • Compared to other franchise opportunities, ICEDELIGHTS seemed expensive for an unproven concept • The profitability of the concept appeared to be very enticing to the franchisees • The franchisees would have to raise approximately $750,000 of outside financing to fund the venture
2. Evaluate the positive and negative features of the business opportunity
• Provides the potential entrepreneurs a business opportunity in a timely manner o They would be involved in the franchise before they had a lot to lose • Franchisees believe that they have the skill set to run a food franchise o The idea also seemed fun and financially rewarding
• The management team at ICEDELIGHTS impressed the franchisees • The product, systems, and management were standardized by the franchisor • The franchisees could leverage the ICEDELIGHTS brand, product, training capabilities, and real estate experience once ICEDELIGHTS could provide the support • Franchisees could obtain rights to the entire state of Florida
• The franchise was new and not yet proven in the industry or the potential market • It took approximately one year between signing the rights and opening a store • ICEDELIGHTS could not commit to supporting the franchisees because their resources were at capacity o They were interested in “slow, quality growth”
• The “homemade” product was actually produced off-site, frozen, and shipped to the locations • The product, systems, and management were standardized by the franchisor • The franchisees had no previous experience in the food industry • A tremendous amount of capital had to be raised to be successful • The franchisees would have to give up more than 25% of their company to investors o Investors had stringent requirements for control and repayment • The market had not been thoroughly researched or understood o Franchisees were not aware of the potential for this product in Florida • If ICEDELIGHTS could not provide the necessary support to the franchisees in the future, they would be left with little experience, a need to build a...