TERIYAKI MADNESS Franchise: “Why I Didn’t Buy”

The Teriyaki Madness franchise company made a number of changes last year, including moving its headquarters to Denver in February and naming Michael Haith (Franchise Sherpas, Maui Wowi, Doc Popcorn) CEO in August.

(UnhappyFranchisee.Com) Teriyaki Madness is a 15-unit quickservice chain that claims to be on the verge of aggressive expansion.

We have discussed some of the controversies surrounding Teriyaki Madness in previous posts:

TERIYAKI MADNESS Franchise Warning

TERIYAKI MADNESS Franchise Disclosure Document (FDD), CA Impoundment Order

Recently, an UnhappyFranchisee.Com reader who had seriously considered becoming a multi-unit franchise of Teriyaki Madness shared his experience with the company’s sales process and personnel.

In the end, Teriyaki Madness salesman Mike Edwards dismissed him as a candidate, allegedly saying that he was “too corporate.”  Our prospective franchisee interpreted that as meaning he asked too many good questions.

Here’s what our intrepid Franchise Shopper shared with us.

[Disclaimer:  “Franchise Shopper” states that the following comments are simply his opinions and his interpretations of what he was told.  He could be wrong.  It’s up to each prospective franchisee to do their own due diligence.]

Teriyaki Madness Profitability Claim May be Inflated

Franchise Shopper wrote:

My background is varied.  I spent 15 years working as a bank commercial lender.  In that capacity, my job description required expertise in all areas of client due diligence, including financial, company management, market conditions, competition and other pertinent analyses & investigations for the purpose of providing term loans and working capital.  Over the past 15 years, I have been involved in the start-up of several businesses, including one which now trades on the NYSE.  I am self employed as an entrepreneur in the real estate industry in Dallas / Fort Worth.

Over the past five years, I have been looking at franchises for the “right” opportunity.  Last year, I began to analyze Teriyaki Madness as an attractive franchise possibility. The company boasts healthy, casual fast food. Mike Edwards, the company’s franchise salesman, told me that a franchisee can expect to make net earnings before taxes and debt service (if any) between 18% and 22%.  These returns were almost “too good to be true,” so I pursued the investment, filling out forms, and asking questions.  I spent scores of hours reading about Teriyaki Madness and traveled to Austin, Texas, to the only Teriyaki Madness store in Texas, to try the menu and talk to the owners or manager.  The food was good.

Teriyaki Madness’ claim of 18% – 22% profit may be inflated.  After more research, the 18% to 22% is from one of the two stores owned by the founders.  That store does not pay the 6% royalty, or the range would be 12% to 16%.  I don’t know if the store pays the 2% marketing fee.  If not, that would reduce the net earnings range to 10% to 14%.  Of course, there are additional fees & obligations including spending $15,000 a year “locally” on marketing – that’s another 2%+, depending on sales, and an “audit fee” which can be another 2%+.  These fees, if not paid by the founders’ store, would reduce their net earnings range to 6% to 10%…and this does not include taxes or debt service interest. And I’m not sure if their numbers include store managers’ salaries.

1 of Founders’ 3 Teriyaki Madness Locations Failed

Franchise Shopper wrote:

One of the concerns I brought to Mr. Edwards’ attention was regarding some of the negative comments about the food quality found on Yelp.  Mr. Edwards responded that he “doesn’t pay any attention to those type of websites.”  He went on to say that the individual stores are seeing year over year growth and that is good enough for him.  I asked Mr. Edwards how many stores have failed.  He said two, one owned by a franchisee and one owned by the founders. (This significant when one understands the founders only opened three stores.)

So, the founders opened three stores.  One failed and was closed.  One has reached $1 million in gross annual revenue.  So, one would ask, “If the Teriyaki Madness stores are making 18% to 22%, why not open more stores (Panda Express & Chipotle–100% of locations are corporate owned.  McDonald’s corporation owns 20% of its stores…similar to Wendy’s, Burger King, etc.)

Franchise Conference Call Was Disorganized & Weak

Franchise Shopper wrote:

I was invited to join a conference call two weeks ago which, I was told, would include about a dozen other prospective franchisees.  No one was on the call.  I was later contacted and told that there were technical problems….  The call was rescheduled for last week.  The call was simply prospective franchisees asking questions.  There was no format.  There was no agenda.  One of the founders was on the call, together with 2 existing franchisees.  One of the franchisees opened his store about three to four months ago.  The other franchisee has two stores.  Unfortunately, the latter franchisee was only on the call a brief time as “his mother-in-law was in town to have dinner.”  The company’s CEO, Michael Haith, who, I was told, is a “franchising expert,” was surprisingly not on the call…surprising because Teriyaki Madness only has about 13 locations (4 of which recently opened) and the prospective franchisees on the conference call potentially represented a doubling or tripling of the company’s stores.

When I asked about the “expected time to break even,” the founder, Eric Garma, was clearly uncomfortable trying to answer the question, saying that “it depends on so many variables.”  When he was asked about how many stores have reached the key goal of $1 million in gross annual revenue, Mr. Garma said maybe three or four stores.  My understanding is that only one of the two stores owned by the founders has achieved $1 million in gross annual revenues and that was only in recent years.

If Teriyaki Madness is so Profitable, Why Aren’t They Opening Company Stores?

Intrepid Franchise Shopper wrote:

It seemed obvious to me that the founders were unable (incapable?) of building a solid financial future by owning and managing Teriyaki Madness restaurants, otherwise, wouldn’t they own more stores?  The amount of profits available to the three founders from one strong earnings store and one weaker store would probably be less than $60,000 each, by my calculations. But, the founders had begun to create some slick branding and are now looking to franchising for the financial future, apparently not income from “lucrative,” company-owned Teriyaki Madness stores. They seem to be saying by their history and their business model “We can’t make a strong financial living from owning and managing the Teriyaki Madness brand we are building, but maybe others can, so let’s make our money from franchising…but we don’t know anything about franchising, so we will turn over full day-to-day control of our company to an outsider, Michael Haith–make him CEO, and we will submit to his leadership so we can make millions of dollars from the success of others.”

Of course this is just my opinion… I could be wrong.

Teriyaki Madness Doesn’t  Like Too Many Questions

Franchise Shopper wrote:

I put together a simple list I entitled “Concerns” and sent it to Mr. Edwards for discussion purposes.

Here is a brief sketch of the concerns I listed for Mr. Edwards:

1.  Why did the founders hire Michael Haith to be the company’s CEO (particularly since Mr Haith is a principal in two or three other companies)?

2.  Pls tell me what you know about Franchise Sherpas & their two clients: Maui Wowi & Doc Popcorn.

3.  Why don’t the founders open more company-owned stores?

We were set to have a call yesterday morning.  I started by asking why Mr. Haith did not join the conference call last week. Mr. Edwards stated, “Mr. Haith does not work with franchisees.”  I was very surprised and pressed to understand more.  At that point, Mr. Edwards curtly replied, “You are too corporate for Teriyaki Madness.  You are not a good fit.”  And the call ended abruptly.

My belief is that I have a stronger investment-underwriting background than the typical prospective franchisee.  I asked too many delving questions.  I quoted UnhappyFranchisee.Com and a few other references as the basis for some of my “concerns.”

 

Franchise Shopper’s Advice:  Investigate Before Investing

Franchise Shopper wrote:

The Teriyaki Madness’ franchise salesman’s  response to immediately disqualify me should be a warning to others.

I guess my message to a prospective investor in a Teriyaki Madness franchise would be to do your homework.  Ask questions about management (one was a young banker, the two other cousins were in the “IT” business).  Ask about Michael Haith’s background and the background of his other companies.  Ask about Mr. Haith’s job description and ask to speak with him about his vision for the company.  Ask for and insist on seeing the financial information on the founders’ three stores.  Inquire why the one store failed (this store represents one-third of the founders’ entire restaurant experience. Ask why only one of three stores has reached the company-goal of $1 million in annual gross revenue.

.

Ask why the founders have not opened another founder-owned store over the past six+ years…if the Teriyaki Madness brand has so much potential….   Look at detailed income statements.  Compare those numbers with a franchisee store which pays royalty fees, marketing fees and other required costs so that you have the whole picture.

Question everything with a skeptic’s eye.  Good luck!

Also read:

TERIYAKI MADNESS Franchise Warning

TERIYAKI MADNESS Franchise Disclosure Document (FDD), CA Impoundment Order

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Tags: Teriyaki Madness, Teriyaki Madness franchise, Teriyaki Madness franchise complaints, Teriyaki Madness franchise warning, Rod Arreola, Michael Haith, Franchise Sherpas