Doug Ducey's Record at Cold Stone Creamery Again on Blast
It's like 2010 all over again, in more ways than one, when it comes to the self-described "conservative ice cream guy," Republican state treasurer and wannabe governor Doug Ducey.
Back in 2010, Democrat Andrei Cherny opposed Ducey in the treasurer's race, and took aim at Ducey's leadership of Cold Stone Creamery, which ended in 2007, after Cold Stone was sold to Scottsdale-based Kahala Corporation, and Kahala cut Ducey loose.
Kahala since has sold a controlling interest in its company to Canadian investors. But Ducey's reign at Cold Stone resulted in a lot of ticked-off franchisees, who blame Ducey and Cold Stone for them losing their shirts.
I discussed the franchisees' complaints at length in an August 2010 article titled "Doug Ducey: Emperor of Ice Cream or as Sleazy as They Come?"
Here's an excerpt:
Indeed, many former franchisees who got into Cold Stone during the Ducey years -- from 1995 to 2007 -- have similar complaints about Cold Stone and what they refer to, over and over again, as a failed business model.
They say this business model encouraged expansion at all costs and hobbled them with high-priced goods they were obligated to purchase from Cold Stone-approved vendors. And they complain about Cold Stone's erstwhile two-for-one coupons, with the franchisee picking up the tab on the freebie, and the fact that stores were located too close together, thus diluting sales.
This year, in a review of the 10 most popular franchises, CNNMoney.com noted that Cold Stone franchisees have a 31 percent failure rate.
"The product is sweet, but the financials can be bitter," notes the article. "In the last 10 years, almost one in three [Small Business Administration]-backed franchisees defaulted on [its] loan. It's an expensive shop to start, too: The initial franchise fee is $42,000."
Far more devastating was a June 2008 piece by Richard Gibson in the Wall Street Journal that detailed the plights of ex-franchisees, some of whom had gone bankrupt, losing homes and life savings in the process.
That default rate was even higher according to a 2013 analysis done by the Small Business Administration's Office of Inspector General. The OIG's audit cited a 46 percent default rate on government-backed loans to Cold Stone's franchisees in the years 2002 to 2009. (Granted, that includes post-Ducey figures.)
A recent ad by a pro-Christine Jones independent expenditure committee repeats the 46 percent figure, and cites a cost to taxpayers of $29.6 million from a 2013 Dayton Daily News article.
See also: -Doug Ducey's Record at Cold Stone Could End Up His Albatross -Doug Ducey and the Stain of Simcox: Sources Say Accused Child Molester Chris Simcox Had Access to Families' Home Movies while Working for iMemories
To be fair, however, the problem with SBA loans was much larger than Cold Stone. The Dayton Daily News piece states that Quiznos, not Cold Stone, "led all franchises with $43.5 million in defaulted loan guarantees that SBA had to pay the lending banks."
The Dayton paper's investigation put much of the blame for the failures on the SBA, its lenders, the 2008 financial collapse, and the overvaluation of real estate. How much you can lay at Ducey's feet depends on whom you ask.
Some business models did much better, though. Subway franchisees, for instance, only had a fraction of the default rate Quiznos' franchisees had, according to the piece.
Still, pissed of franchisees are great fodder for Ducey's opposition. For instance, a 2010 Cherny campaign commercial attacking Ducey and featuring bitter franchisees is as fresh as if shot yesterday.
There may be another fly in Ducey's banana split: the details of Cold Stone's deal with Kahala, which remain undisclosed.
The Arizona Republic's Yvonne Wingett Sanchez has an intriguing story in today's paper that raises more questions about the transaction.
As Sanchez points out, in a recent Channel 3 gubernatorial debate, Jones called Ducey out on Kahala's acquisition of Cold Stone, suggesting Ducey was hiding something about a Kahala challenge to the transaction, and asking him to release a sealed deposition on the matter.
Ducey denied all, saying, "There was no challenge. Kahala and I discussed terms of the deal, we sold in 2007."
Sanchez reports that Ducey called up an attorney for Kahala, Leo Beus, and basically offered the guy a job in his new administration.
Beus fired off an e-mail to Ducey's attorney, which was cc'd to a couple of Ducey opponents and since has made the rounds.
It was sent to me, and it states, in part,
Since the recent debate among the republican primary candidates in which Doug Ducey denied having had a dispute with Kahala, Richard Williams and I have been asked questions about the Cold Stone arbitration with Kahala and the related depositions. This has put us in an uncomfortable position because we are not at liberty to discuss the pleadings, depositions or documents relating to that arbitration and have communicated that to the candidates.
You should also know Doug left a voicemail for me yesterday inviting me to work with him in his administration when he becomes governor. This is the first contact I have ever had with Doug as Richard interfaced with him during the arbitration.
In 2010, Cherny accused Ducey of a lack of transparency over Cold Stone, a charge that echoes today.
Actually, he accused Ducey of a lot worse.
"I'm a prosecutor," Cherny said during a televised debate in Tucson. "And I went after people committing financial fraud and corporate crime. I saw them in the courtroom, and I never thought I would see the day when I would see one of them sitting here running for state treasurer."
As we all recall, 2010 was a bad year for Dems, and Cherny's attacks on Ducey did not save Cherny from a devastating 10-point loss.
With less than a month to go in the GOP primary, and Ducey and Jones currently running at the top of a six-candidate field, it's hard to know whether complaints over Cold Stone will prove a decisive weapon against Ducey.
Unless, of course, someone out there leaks a very embarrassing deposition.
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