INDIANAPOLIS —Arguably, nothing could damage a franchisor’s reputation more than allegations it had duped franchisees with a bad concept, then took their money and ran. That’s probably so even considering complaints franchisees sometimes make about a brand owner’s tolerance for unrestricted encroachment, weak field support or unwise spending of marketing co-op dollars.
Nonetheless, duped-and-disregarded allegations are exactly what a group of current and former Noble Roman’s Pizza franchisees are making in a 29-page lawsuit involving the 1,056-unit chain’s rollout of a new two-in-one restaurant concept that the franchisor says was designed to boost revenues and improve operators’ profitability. —Arguably, nothing could damage a franchisor’s reputation more than allegations it had duped franchisees with a bad concept, then took their money and ran. That’s probably so even considering complaints franchisees sometimes make about a brand owner’s tolerance for unrestricted encroachment, weak field support or unwise spending of marketing co-op dollars.
Eight former franchisees and two active operators allege chain executives, in league with certain lenders, sold a dual-branded startup concept that the company knew was operationally flawed and too complicated to operate profitably. The plaintiffs claim Noble Roman’s Inc. defrauded them out of millions of dollars in investment costs. —Arguably, nothing could damage a franchisor’s reputation more than allegations it had duped franchisees with a bad concept, then took their money and ran. That’s probably so even considering complaints franchisees sometimes make about a brand owner’s tolerance for unrestricted encroachment, weak field support or unwise spending of marketing co-op dollars.
The franchisor, based here, which itself owns and operates only four Noble Roman’s units and last year reported net profit of $2.5 million on revenues of $11.6 million, vigorously denied the allegations and threatened lawsuits of its own against some plaintiffs. Their complaint alleges that the franchisor’s senior management provided no support services or marketing expertise when franchisees ran into trouble. Instead, the plaintiffs contend, Noble Roman’s turned its back on their operators and told them to fix their own problems. —Arguably, nothing could damage a franchisor’s reputation more than allegations it had duped franchisees with a bad concept, then took their money and ran. That’s probably so even considering complaints franchisees sometimes make about a brand owner’s tolerance for unrestricted encroachment, weak field support or unwise spending of marketing co-op dollars.
The franchisees’ suit, filed in June in a court in Hamilton County, Ind., seeks more than $6 million in actual damages and will probably shoot for a multiple of that sum in punitive damages, a lawyer representing the plaintiffs said. He also noted that the plaintiff group would probably grow far larger in time and could reach class-action status in a federal court. —Arguably, nothing could damage a franchisor’s reputation more than allegations it had duped franchisees with a bad concept, then took their money and ran. That’s probably so even considering complaints franchisees sometimes make about a brand owner’s tolerance for unrestricted encroachment, weak field support or unwise spending of marketing co-op dollars.
The lawsuit’s central charge is that when Noble Roman’s rolled out a dual-concept franchise vehicle about four years ago that married the brand’s heritage pizza concept with a proprietary startup called Tuscano’s Italian Style Subs, the franchisor did little to no market testing despite asking franchisees to pony up as much as $212,000 to $400,000 in investment costs per unit. —Arguably, nothing could damage a franchisor’s reputation more than allegations it had duped franchisees with a bad concept, then took their money and ran. That’s probably so even considering complaints franchisees sometimes make about a brand owner’s tolerance for unrestricted encroachment, weak field support or unwise spending of marketing co-op dollars.
The Noble Roman’s-Tuscano combo model was the preferred growth prototype the chain enthusiastically began franchising to new operators around 2004 and promoted to veteran franchisees whose older stores would need remodeling and were suitable for the prototype’s footprint. —Arguably, nothing could damage a franchisor’s reputation more than allegations it had duped franchisees with a bad concept, then took their money and ran. That’s probably so even considering complaints franchisees sometimes make about a brand owner’s tolerance for unrestricted encroachment, weak field support or unwise spending of marketing co-op dollars.
About 110 units operate with the co-branded format. —Arguably, nothing could damage a franchisor’s reputation more than allegations it had duped franchisees with a bad concept, then took their money and ran. That’s probably so even considering complaints franchisees sometimes make about a brand owner’s tolerance for unrestricted encroachment, weak field support or unwise spending of marketing co-op dollars.
Scott Mobley, president and chief operating officer of Noble Roman’s—whose father, Paul Mobley, started the chain on a college campus in 1972 and remains its chairman and chief financial officer—said he was disheartened by the lawsuit and offended by its allegations. Mobley said the company intends to defend its reputation to the hilt. —Arguably, nothing could damage a franchisor’s reputation more than allegations it had duped franchisees with a bad concept, then took their money and ran. That’s probably so even considering complaints franchisees sometimes make about a brand owner’s tolerance for unrestricted encroachment, weak field support or unwise spending of marketing co-op dollars.
“I’ve been here 20 years, and this is the first time we’ve ever had to deal with a lawsuit from our franchisees,” he said. “It’s an outright false characterization that we provide no franchise support and turned our backs on our operators. In fact, we are going to have counterclaims against several of the [plaintiffs], and I have no doubt we will be fully vindicated.” —Arguably, nothing could damage a franchisor’s reputation more than allegations it had duped franchisees with a bad concept, then took their money and ran. That’s probably so even considering complaints franchisees sometimes make about a brand owner’s tolerance for unrestricted encroachment, weak field support or unwise spending of marketing co-op dollars.
He took the claim that the company provides no marketing support or operational backup as an insult, noting that he had just returned from a several-day stint with a franchisee, helping to reverse some operational and marketing setbacks. —Arguably, nothing could damage a franchisor’s reputation more than allegations it had duped franchisees with a bad concept, then took their money and ran. That’s probably so even considering complaints franchisees sometimes make about a brand owner’s tolerance for unrestricted encroachment, weak field support or unwise spending of marketing co-op dollars.
“I’d rather be in the field with them than here [in the corporate office],” he said. —Arguably, nothing could damage a franchisor’s reputation more than allegations it had duped franchisees with a bad concept, then took their money and ran. That’s probably so even considering complaints franchisees sometimes make about a brand owner’s tolerance for unrestricted encroachment, weak field support or unwise spending of marketing co-op dollars.
Asked about the franchisees’ contention that the franchisor did not test the dual-concept model before selling it, Mobley was adamant that it had shown a lot of promise in its “several years” in the market by blending the popularity of sub sandwiches at lunch with the traditional dominance of pizza at dinner and lunch. —Arguably, nothing could damage a franchisor’s reputation more than allegations it had duped franchisees with a bad concept, then took their money and ran. That’s probably so even considering complaints franchisees sometimes make about a brand owner’s tolerance for unrestricted encroachment, weak field support or unwise spending of marketing co-op dollars.
Samer Youssef, who worked with his mother, Afifa Abdelmalek, is one of the two plaintiff-franchisees in the case who still are operating their Noble-Tuscano combo unit. He expressed bitterness and resignation over the way his mother, who speaks little English, purportedly was treated when they asked for help. —Arguably, nothing could damage a franchisor’s reputation more than allegations it had duped franchisees with a bad concept, then took their money and ran. That’s probably so even considering complaints franchisees sometimes make about a brand owner’s tolerance for unrestricted encroachment, weak field support or unwise spending of marketing co-op dollars.
“It was as if a father had turned his back on an adult child,” Youssef said. “They literally said to us: ‘You should know better. You made this mess, so fix it yourself.’ —Arguably, nothing could damage a franchisor’s reputation more than allegations it had duped franchisees with a bad concept, then took their money and ran. That’s probably so even considering complaints franchisees sometimes make about a brand owner’s tolerance for unrestricted encroachment, weak field support or unwise spending of marketing co-op dollars.
“In most chains, they send a rescue person to figure out how to turn things around. With Noble Roman’s, they attacked us as if we were the ones who screwed up.” —Arguably, nothing could damage a franchisor’s reputation more than allegations it had duped franchisees with a bad concept, then took their money and ran. That’s probably so even considering complaints franchisees sometimes make about a brand owner’s tolerance for unrestricted encroachment, weak field support or unwise spending of marketing co-op dollars.
In Noble Roman’s 2007 annual report, filed with security regulators March 12, 2008, the company said it had launched new initiatives to enhance its co-brand franchising program, including more rigorous franchisee selection criteria; a longer and “more robust” training period for new franchisees; more direct franchisee involvement in construction and marketing; and intensified monitoring and enforcement of operating standards and unit performance. However, no indication was given that the changes were a response to any franchisee discontent. —Arguably, nothing could damage a franchisor’s reputation more than allegations it had duped franchisees with a bad concept, then took their money and ran. That’s probably so even considering complaints franchisees sometimes make about a brand owner’s tolerance for unrestricted encroachment, weak field support or unwise spending of marketing co-op dollars.
A veteran restaurant investor, Youssef became an operating partner with his mother in September 2005 when they signed an operating agreement to open a dual-concept store and incurred $300,000 in initial franchise expenses. They did not open their unit in Carmel, Ind., until September 2006. —Arguably, nothing could damage a franchisor’s reputation more than allegations it had duped franchisees with a bad concept, then took their money and ran. That’s probably so even considering complaints franchisees sometimes make about a brand owner’s tolerance for unrestricted encroachment, weak field support or unwise spending of marketing co-op dollars.
Franchisee advocate Susan Keizios, president of the American Franchise Association, said a study of the AFA’s members indicated that it takes an average of about 32 months for an experienced franchisee to break even with a new concept. —Arguably, nothing could damage a franchisor’s reputation more than allegations it had duped franchisees with a bad concept, then took their money and ran. That’s probably so even considering complaints franchisees sometimes make about a brand owner’s tolerance for unrestricted encroachment, weak field support or unwise spending of marketing co-op dollars.
Youssef said he and his mother could tell within one month that they were losing money. According to court documents, the family seeks $550,000 in damages stemming from their conviction that Noble Roman’s officials failed to test the dual-brand concept and support it. Youssef said the hope that things will improve and an inability to extract invested capital are what keep him and his mother from abandoning a business they were convinced to invest in by Noble Roman’s officials. —Arguably, nothing could damage a franchisor’s reputation more than allegations it had duped franchisees with a bad concept, then took their money and ran. That’s probably so even considering complaints franchisees sometimes make about a brand owner’s tolerance for unrestricted encroachment, weak field support or unwise spending of marketing co-op dollars.
“We trusted them completely,” Youssef said, “and nothing they promised worked out in the end, and everybody lost. Why do we stay? We’re already too deep in it to quit now. We’ve spent over $300,000. All that is left is hope.” —Arguably, nothing could damage a franchisor’s reputation more than allegations it had duped franchisees with a bad concept, then took their money and ran. That’s probably so even considering complaints franchisees sometimes make about a brand owner’s tolerance for unrestricted encroachment, weak field support or unwise spending of marketing co-op dollars.
The 36-year-old Noble Roman’s brand competes in 45 states with a diverse array of unit formats and service styles. —Arguably, nothing could damage a franchisor’s reputation more than allegations it had duped franchisees with a bad concept, then took their money and ran. That’s probably so even considering complaints franchisees sometimes make about a brand owner’s tolerance for unrestricted encroachment, weak field support or unwise spending of marketing co-op dollars.
About 45 percent of the chain operates in convenience stores with Noble Roman’s full pizza menu available to go. But the brand also operates a number of stand-alone, fast-casual operations, kiosks and in-line units at a variety of venues. —Arguably, nothing could damage a franchisor’s reputation more than allegations it had duped franchisees with a bad concept, then took their money and ran. That’s probably so even considering complaints franchisees sometimes make about a brand owner’s tolerance for unrestricted encroachment, weak field support or unwise spending of marketing co-op dollars.
It has won high marks over the years for quality, taste and speed of service in consumer polling, but has turned in uneven financial results. Even as the company has been hit with a string of closings and has had to resort to corporate takeovers of troubled franchised units in the past year, the brand recently announced a 46-unit master franchise agreement for development of the combo-store concept in suburban Columbus, Ohio. —Arguably, nothing could damage a franchisor’s reputation more than allegations it had duped franchisees with a bad concept, then took their money and ran. That’s probably so even considering complaints franchisees sometimes make about a brand owner’s tolerance for unrestricted encroachment, weak field support or unwise spending of marketing co-op dollars.
A small-cap stock, the chain’s shares are traded on the so-called pink sheets for publicly held companies whose shares routinely trade under $1.50 each. For the first quarter ended March 31, Noble Roman’s Inc. reported net income of $321,431, a 57-percent decline from a year earlier, on a 21.5-percent decrease in revenues to $2.35 million. Last year, 90 percent of the company’s $11.6 million in revenues came from collecting franchising fees and sales royalties. —Arguably, nothing could damage a franchisor’s reputation more than allegations it had duped franchisees with a bad concept, then took their money and ran. That’s probably so even considering complaints franchisees sometimes make about a brand owner’s tolerance for unrestricted encroachment, weak field support or unwise spending of marketing co-op dollars.
Mobley said the franchise system’s annual systemwide sales were about $120 million in 2007. —Arguably, nothing could damage a franchisor’s reputation more than allegations it had duped franchisees with a bad concept, then took their money and ran. That’s probably so even considering complaints franchisees sometimes make about a brand owner’s tolerance for unrestricted encroachment, weak field support or unwise spending of marketing co-op dollars.
In March, Noble Roman’s Inc. disclosed that it had contracted with Roth Capital Partners to evaluate “various strategies to enhance shareholder value.” —Arguably, nothing could damage a franchisor’s reputation more than allegations it had duped franchisees with a bad concept, then took their money and ran. That’s probably so even considering complaints franchisees sometimes make about a brand owner’s tolerance for unrestricted encroachment, weak field support or unwise spending of marketing co-op dollars.
