Ben & Jerry’s Bitter Crunch

Rainforest Crunch. Cherry Garcia. Peace Pops. Perhaps no other consumer brand's image is so entwined with hippie-inspired idealism and social causes as Ben & Jerry's. Among the ice-cream maker's crusades: saving the endangered family farm by supporting farmers' cooperatives and fair-trade initiatives. The message is unmistakable: by buying pints and cones, consumers are helping Ben & Jerry's stick up for the little guy.

But when it comes to its own "little guy," Ben & Jerry's may not be quite so generous, to hear an increasingly embittered group of the company's shop owners tell it. In interviews with two dozen current and former franchisees, some of these mom-and-pop entrepreneurs say the company misled them into investing their life savings in stores that were doomed to failure, and did little to help them stay afloat. They tell of ice-cream shipments weighing less than what they paid for and delays in restocking popular flavors. They say big buyers like Costco and Wal-Mart were given comparable wholesale prices by Ben & Jerry's, undercutting individual scoop shops. They claim headquarters didn't market their stores adequately or provide business advice, as a national franchise is typically expected to do. Ben & Jerry's says the complaints are either exaggerated or just plain wrong, and don't represent the experience of most of its franchisees.

Opening your own business—even a branch of a well-established brand—is always risky. That's something many would-be owners forget as they imagine the gilded pot at the end of the golden arches. "We want success for all of our franchisees," says Debra Heintz, director of retail operations for Ben & Jerry's. "Unfortunately, not all will succeed."

Alan Sherman and his wife, Shannon, are among the unsuccessful ones. The couple opened their shop in Blacksburg, Va., in 2004. They say they built their business plan based on information in a 2004 Ben & Jerry's franchising circular, a disclosure document sent to prospective new owners. The circular stated that the average Ben & Jerry's store would bring in $364,892 in gross sales. But the Shermans soon realized their shop wouldn't ring up nearly that amount. They say they've already lost a half-million dollars, and will likely lose thousands more as they continue pumping cash into the business to avoid defaulting on loans. "We feel we've been abandoned," he says. They say they plan to sue.

Ben & Jerry's is already fighting a suit filed by one California franchisee, Mehrdad Porghavami, who alleges the company's financial projections were false and misleading (Ben & Jerry's has sued him for allegedly breaching his franchising agreements). Bekki Ramsey and her husband, Aaron Richardson, who shuttered their shop outside Phoenix this year, blame Ben & Jerry's for not differentiating in the circular between average sales for neighborhood stores like theirs, and for higher-volume locations such as casinos and airports. "We opened the worst type of store in the worst region Ben & Jerry's had," says Ramsey, noting that she's lost $220,000 of her elderly parents' retirement savings. Company officials say they stand by the average-sales claims they've published in the past. But they also acknowledge removing the figure from their most recent franchising notice, a decision Heintz says she made after talking to franchisees and realizing they were confused by it.

Leaving shop owners with a sour taste in their mouths hardly jibes with the peace-and-love vibe the company's founders created. Ex-hippies Ben Cohen and Jerry Greenfield opened their first shop in Burlington, Vt., in 1978, making a point of using milk and cream from local farmers. By 1988, their company had committed to donating 7.5 percent of its pretax profits to philanthropic causes like protecting the environment, fighting AIDS and battling sweatshops. But in 2000, the pair, who declined to comment for this story, cashed in, selling to consumer-products giant Unilever.

Disgruntled franchisees say not long after, the trouble started as Unilever began rapidly expanding its newly acquired brand. Chief executive Walt Freese says that when the expansion started in 2003, the market for ice-cream shops looked strong. Between 2003 and 2006, the number of stores Ben & Jerry's competes with tripled. Other brands, including Cold Stone Creamery and Marble Slab, flooded the marketplace. But overall ice-cream sales remained relatively flat. Last year 38 of Ben & Jerry's 456 North American shops, or about 8 percent, closed their doors. That compares with 71 Cold Stone Creamery shops that shut down, or about 5 percent of the total.

Many Ben & Jerry's franchisees have no complaints, and say that a vocal minority of unsuccessful owners are attacking the company for their own failures.

Meantime, Ben & Jerry's officials say they are taking measures to help struggling shop owners stay in business by waiving royalty fees, helping to renegotiate store leases and increasing marketing support. "It is Ben & Jerry's ethic," CEO Freese says, "how we believe in treating each other." Lesson to "socially conscious" companies: charity begins at home.