Melting profits stir up dismay

Their inspiration was a Ben & Jerry's store in Charlottesville, where the Shermans spent a lot of time when their teenage son, Jack, underwent chemotherapy at the University of Virginia Medical Center for a brain tumor…The Shermans wanted a fun business of their own. Jack Sherman was 17 when he died in May of 2006.

The Roanoke Times
November 28, 2007

Melting profits stir up dismay
Ben & Jerry's franchisees plan to sue the company, saying they were misled into financial hardship.
Shawna Morrison

BLACKSBURG — The cold goes beyond the ice cream these days at the Ben & Jerry's in Kent Square.

The owners, Alan and Shannon Sherman, have gone public with their discontent with the well-known ice cream brand's corporate flagship. The Shermans and some other Ben & Jerry's franchisees are featured in a Newsweek article out this week about the situation. The publicity has opened up the company's business operations for mass consumption.

Although the Shermans work almost every day at the store, they say they're not getting a paycheck.

To keep their Blacksburg Ben & Jerry's franchise open, the Shermans say they have sold other investments, sold a piece of their real estate, and tapped into their savings, including their son's college fund.

The last thing they want to do, Alan Sherman said, is close the store. So he and his wife plan to file a civil suit against Ben & Jerry's, claiming that misleading company literature is to blame for the financial hole they're in and hoping the company will be forced to pay for their losses.

"We feel they made a mistake, and we want them to correct the mistake," Sherman said.

Sherman said he built his business plan based on average sales figures from the company. Sherman said he expected the shop to gross at least $340,000 a year from the start.

But Ben & Jerry's spokesman Rob Michalak countered Tuesday, saying that number was nothing more than an average. While the average gross sales for 2003 totaled $364,892, the median average gross sales totaled $311,728 — meaning half the franchises made more than that, but half made less.

Earnings ranged in 2003 from $50,347 to more than $1.4 million. Included in the circular with the numbers is a disclaimer saying they "should not be considered as the actual or probable sales or costs that may be realized by any franchisee."

Sherman said he also relied on a different set of numbers to build his business plan.

Posted on the company's internal Web site at the time, he said, were profit and loss figures from 2001 broken down into several categories: for the mid-Atlantic region; for tourist, university and downtown locations; and based on volume. He said he asked a regional manager if more recent numbers were available and was told they were not.

Based on the numbers, Sherman expected his business to gross about $340,000 a year. To be on the safe side, he said, he estimated he would earn 10 percent less.

But his shop has grossed only about two-thirds of that, he said, bringing in $200,000 to $250,000 a year. Sherman estimated he has lost about half a million dollars all together when the shop's expenses are added up since it opened in 2005. Michalak said the numbers provided on the internal Web site are for franchise owners, not prospective franchisees.

"It's not information that's intended as a forecasting tool or data that might be used to develop a business plan," he said.

Michalak spoke in only general terms, declining to comment on Sherman's specific situation.

Sherman said he's not the only franchisee who feels misled by the company.

"It's with a very large group of us that came on board between 2003 and 2006," he said.

And according to the Newsweek article, at least one franchisee has already filed suit against Ben & Jerry's, claiming the company's financial projections were false and misleading.

Michalak said there were a group of franchisees who came on board in that time period when "the marketplace was flooded with ice cream shops" — not just Ben & Jerry's, but several other companies as well.

Their inspiration was a Ben & Jerry's store in Charlottesville, where the Shermans spent a lot of time when their teenage son, Jack, underwent chemotherapy at the University of Virginia Medical Center for a brain tumor.

Although the radiation Jack received on his brain and spine dulled his appetite, he still enjoyed Ben & Jerry's ice cream, Sherman said.

The more time he spent in the Charlottesville ice cream shop, Sherman said, the more he noticed the disposition of customers.

"I started noticing the people coming in were happy they were going to get ice cream and they were even happier coming out," he said.

The Shermans wanted a fun business of their own.

Jack Sherman was 17 when he died in May of 2006.

His brother, Cord Sherman, is a senior at Christiansburg High School and works at the ice cream shop.

He's one of 12 to 15 part-time employees the store keeps year-round.

"Except Shannon and I who are here all the time, but we don't get paid so I don't know what you'd call us," Alan Sherman said.

Sherman said sales in 2005 didn't meet his expectations, but he chalked it up to being a new store.

In 2006, however, sales were as much as 25 percent lower than the year before.

"And this year has been no better," he said.

In addition to filing a civil suit, Sherman said he plans to file a complaint with the Virginia State Corporation Commission, which could fine the company and force it to refund the Shermans' losses.

The Shermans' Washington, D.C.-based lawyer, Jeff Goldstein, didn't return a call seeking comment. Goldstein's Web site touts his firm as "a franchise law firm that defends the franchisee."

Ben & Jerry's has new managers in place who are helpful and want to aid franchises in moving forward but don't want anything to do with the past, Sherman said.

"If I had started today, I think I'd be in much better shape," he said. But the financial hole he's in now is so deep he doesn't think he can get out of it without help.

"Ben & Jerry's makes absolutely the best ice cream," Sherman said. "That's what breaks our hearts. We love this store."

"Nobody wins when somebody doesn't succeed," Michalak said. "We all hang the same sign above our door. We all want to be proud of that sign."

http://www.roanoke.com/business/wb/141337


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