MTY CLAIMS IT’S IN THE RESTAURANT BUSINESS, BUT IT DERIVED 82% OF ITS 2020 EARNINGS FROM KICKBACKS. MTY IS IN THE KICKBACK BUSINESS.
KICKBACKS ARE A PART OF AN ELABORATE SCHEME THAT HAS ADDED $214 MILLION TO THE WEALTH OF CHAIRMAN STANLEY MA.
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Warning: MTY Sells Unprofitable Franchises; Investors Risk Bankruptcy and a Loss of Savings
Updated February 18, 2022
MTY wants you to believe its franchise network is growing when it’s not, that buying an MTY franchise is “like finding a winning lottery ticket” when it isn’t, and that its industry recognition is based on actual performance, when it’s actually based on MTY’s fake data submissions. This is intentionally misleading information designed to give MTY’s franchise opportunities the appearance of success and thereby trick new investors into buying unprofitable franchises despite their high failure rate. MTY has been accused of selling franchises on the basis of false and misleading statements before (see Item 3, PDF pg. 20).
After these and other false statements were brought to MTY’s attention in the form of whistleblower allegations, MTY made additional false statements to cover-up its unprofitable franchises, collapsing franchise network and the company’s declining financial condition due to its kickback scheme. However, a Forbes article later exposed that the company was again attempting to mislead investors.
This is all a part of an elaborate scheme led by Chairman Stanley Ma, MTY’s largest and “most important shareholder”, to drive MTY’s stock price up. This has added as much as $214 million to Ma’s already substantial personal fortune during the pandemic alone. Stanley Ma’s financial gamesmanship, however, is not without consequence. In short, it tests the limits of each franchise owners’ ability and willingness to pay kickbacks from business earnings and personal savings. Those kickbacks are then used by MTY to plug gaps in the company’s declining finances. After having invested their life savings, some franchisees go to the very end and land in financial ruin.
In ten years, kickbacks caused Quiznos’ franchise network to collapse from 4,700 locations to fewer than 400 locations. There were obviously excellent—hardworking franchisees with exceptional sales among the more than 4,300 closures, however, kickbacks give the franchisor unilateral control of the franchisee’s financial fate.
Kickbacks are also causing the collapse of MTY’s franchise network. MTY’s closures have increased each of the past five years totaling 2,594 through 2020. In addition to its closures, MTY CEO Eric Lefebvre admits many other franchises are struggling and that “getting our franchisees to renew is certainly a challenge”. Lefebvre also admits that MTY’s closures are due to a lack of profitability among its franchisees. As closures increase and earnings have fallen 15% per year over each of the past five years, MTY has become more reliant on kickbacks such that kickbacks, not restaurant services, accounted for 82% of the company’s earnings in 2020. That burden has caused MTY’s franchise network to collapse.
It’s been two years since MTY first committed to resolving the worsening issue, yet Lefebvre says there is no timeline for correcting the matter. MTY’s decline is substantial, and the company’s future is in serious trouble. Even the State of Maryland has implemented special provisions due to the company’s “financial condition”.
MTY speaks of closures in unemotional ways and as simple statistical data points. However, these closures cause catastrophic and sometime lifelong financial, emotional and relationship damage to the franchisees.
Most franchise owners are simply hardworking families who have invested their life savings to create an opportunity for their family and to serve their community. However, when these establishments fail, in addition to the loss of the $500,000, $700,000 even $1 million+ initial investment, the owner is often left to deal with protracted litigation, collections, bankruptcy, home foreclosure, divorce, estrangement from family and friends, etc. Due largely to kickbacks, franchisees should beware they risk far more than their initial investment.
When a franchise closes, many of these franchisees and their families lose their entire life savings, suffer community embarrassment and are forced to start over while providing for minor children. MTY has stringent financial requirements for franchisees, therefore, these investors came to the company as financially successful individuals and are left broken—largely due to the financial interest of one man: Stanley Ma.
Finally, following MTY’s whistleblower announcement two years ago, Lefebvre said he would address MTY’s franchisee profitability issue (here, here, here and here). Yet, closures and franchisee profitability have only worsened. The company continues to assess an increasing volume of kickbacks on a shrinking number of franchises, which causes already struggling franchises to shoulder an even larger burden until they eventually close. The solution is to end the kickbacks. However, MTY is unwilling to do so because the company’s stock will undoubtedly nosedive, making Stanley Ma far less wealthy.
Franchise investors should therefore take the position that MTY cannot make its franchises profitable. In response, barring some other exit strategy, current franchisees should immediately look to close their stores until Stanley Ma terminates his multi-million-dollar money grab scheme. Franchisees that lost money as a result of the scheme should consider hiring an attorney to investigate the prospects of suing MTY to recover their losses. (We are happy to assist your attorney from an information and evidentiary standpoint at no cost.)
If MTY franchisees won’t renew and are willing to walk away from as much as a $1 million+ investment after ten years of operation, what more is there to say? Potential franchisees cannot hope to do better and should therefore look to invest with companies that do not present the profitability issues that plague MTY.