Doug Ducey's Record at Cold Stone Could End Up His Albatross

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Andrei Cherny's ad attacking Doug Ducey has the ex-Cold Stone CEO playing defense

My head's been so buried in statistics for an upcoming feature that I missed a news conference last week for former Clinton advisor and Democratic contender for Arizona State Treasurer Andrei Cherny.

In it, the Cherny camp offered up several ex-Cold Stone Creamery franchisees whose tales of bankruptcy and woe belied former Cold Stone CEO Doug Ducey's claims of being some sort of uber-businessman.

Ducey is the GOP trotter in the treasurer's race, but the main qualification he touts as making him deserving of office -- his supposed success in expanding Cold Stone's franchise base -- is now becoming a liability for him.

That's because, as I detailed in an August Bird column, there's an army of former franchisees from coast to coast that'd love to tar and feather Ducey for the business practices alleged of Cold Stone while he was the top canine there.

Cherny's been running a TV ad featuring former franchisees Ken and Jennifer Gornall, who blast Ducey for having "cheated people out of their life's investments." Jennifer Gornall labels Ducey a "crook." The spot's drawn blood, and Ducey's been forced to counter it with his own ad calling Cherny "desperate."

But Ducey never answers the claims of the Gornalls, who were forced to declare bankruptcy and lost a home after their Cold Stone franchise went south. And the Gornalls are hardly the only ones who are speaking out, as I noted in my August column, where I quote others sour on the Cold Stone experience.

The Gornalls were part of last week's Cherny presser, as were ex-Cold Stone franchisees Hal Hickman, Randy Redd, and Ed Normand. YouTube videos of the press conference can be accessed through Cherny's Web site.

The ex-Cold Stone hawkers ran through a litany of common complaints regarding Cold Stone's alleged business practices: promises of profits that rarely materialized; "cannibalizing" sales by placing franchises too close together; forcing franchisees to purchase high-priced goods from favored vendors who provided "remunerations" to Cold Stone; two-for-one coupons that the franchisees had to eat the cost of; and on and on.

One allegation in particular was an eyebrow-raiser. Redd, who operated four stores in Arizona, said on camera that the franchisees were supposed to pay sales tax on the freebie ice cream offered by the infamous two-for-one coupons. He said he was forced to pay this when he was audited by the state. Moreover, Redd claimed he informed Ducey and Cold Stone about the situation.

"We told Cold Stone about it," Redd explained at the press conference. "They told us to just not pay the sales tax, to just, you know, throw the coupons away."

Redd suggested that Cold Stone may not have paid state sales tax on "hundreds of millions of dollars of ice cream" distributed through the promotion.

I called the Kahala Corporation for a response to Redd's accusation. The company's PR manager Veronica Graves e-mailed the following statement to me:

"Cold Stone Creamery locations are individually owned and operated by franchisees. As part of the Cold Stone franchisee agreement, store owners are responsible for complying with all federal, state and local laws."

I asked Ducey's campaign about the Redd allegation as well. Ducey's campaign manager Sara Mueller e-mailed me this reply from Ducey:

"Mr. Redd's statement has no merit. Through the litigation process, he had all of his allegations heard and ruled on by a neutral arbitrator. They were found lacking, and he was made to pay the attorney fees. Mr. Redd is using this campaign as another means to continue his vendetta, and what he says is not true."

I suspect Mr. Redd will have a reply to this. I've called him and will update the post when I hear from him.

Hickman, who owned stores in Las Vegas and in Utah, charged that if a franchisee wanted to sell, Cold Stone reps would discourage potential buyers. Ultimately, he complained, Cold Stone wanted the sites for themselves, so they could reopen the store and resell the franchise.

"Cold Stone didn't make a lot of money selling ice cream," Hickman stated. "That was really not their business. Their business was selling franchises."

In 2008, the Wall Street Journal published a devastating piece on the plight of former Cold Stone franchisees and cited problems with Cold Stone's business model. Ducey left the company in 2007, following Cold Stone's acquisition by Kahala.

In April, CNNMoney.com noted that according to Small Business Administration statistics, Cold Stone franchisees have a 31 percent failure rate on SBA-backed loans.

The state treasurer's contest is one of the few places where Dems have a chance of scoring a statewide office. Ducey may be getting loads of bad press, but the race is still expected to be tight.

Considering the allegations swirling around Ducey's business record, Arizonans should have some serious reservations about handing him the state's $10 billion investment portfolio to play with as treasurer. But hey, look who's governor of this great state -- and who likely will remain so after election day. Maybe Ducey is just what the people of Arizona deserve.

Note: I briefly published a version of this post that attributed the Cold Stone quote to Ducey. I unpublished almost immediately once I realized the mistake and fixed it. Sorry for any confusion caused by my hasty trigger finger. 

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