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All of the pleasure, none of the guilt? There's a new face at TCBY Enterprises Inc., but lawsuits persist.

In late 1989, Michigan franchisee Steve Sherwood warned TCBY Enterprises Inc. that it was heading for trouble.

Now, the Little Rock-based yogurt giant, which is struggling to come back from a $12 million decline in profits in 1991, is paying consultants to tell it the same thing.

When Walter Perry, a 60-year-old retiree from a Minneapolis law firm, read an article describing TCBY's rise from one store in 1981 to 1,200 in 1988, he wanted in on the success.

New stores literally were opening by the day. Annual sales were more than $200 million.

Perry confidently mortgaged his house and invested all his savings in two stores in 1989. But the $900 per day TCBY told Perry he could expect in revenues was more like $275.

Perry says he worked 70 hours per week and did not pay himself or his wife. Still, he claims, he lost $440,000 in the 18 months after opening his first store.

After losing his house and filing for bankruptcy, Perry filed a lawsuit against TCBY.

And he's not the only franchisee to do so.

Even more damaging could be a class-action lawsuit that shareholders filed against TCBY executives in August 1990. Anyone who bought stock between Oct. 16, 1989, and Aug. 27, 1990, is a co-plaintiff in that case.

In his petition to the court, Little Rock attorney Ted Skokos, who represents the shareholders, said, "The company had an obligation to tell the truth. But the public was given the impression ... that TCBY was in better shaper than it really was."

Skokos asserted that TCBY stock traded at artificially inflated prices. When that was revealed, the stock plunged.

A trial is scheduled for June.

Meanwhile, the company is taking new steps to keep franchisees happy.

Last month, TCBY hired Charles Cocotas as president and chief executive officer of its franchising subsidiary, TCBY Systems Inc. Through TCBY systems, franchisees are to receive marketing, training and administrative support.

Cocotas has more than 20 years of experience in the restaurant industry, most recently as president and chief operating officer of the Massachusetts-based Boston Chicken restaurant chain.

He earlier worked as senior vice president and COO of the 1,400-unit Church's Fried Chicken chain of San Antonio.

At TCBY, Cocotas will be responsible for 1,650 stores and 150 non-traditional locations such as airports and highway tollbooths. Cocotas is not yet at the TCBY Tower in downtown Little Rock. And company spokesmen says he will not grant interviews until later this month.

Analysts wonder how Cocotas will get along with the company's chairman and chief executive officer, Frank Hickingbotham.

Hickingbotham has a reputation for not delegating authority. Most decisions must first be approved by the chairman.

Hickingbotham also has a history of putting friends and family members in key positions for which they might not be qualified. Hartsell Wingfield was the company's first franchisee, and Hickingbotham eventually rewarded him by making Wingfield president of TCBY Systems.

Wingfield now heads TCBY's development division. Since the company says it is focusing on increasing same-store sales rather than opening new stores, Wingfield's move isn't viewed as a promotion.

Before Wingfield can concentrate on expanding the company, TCBY must settle the lawsuits and win back franchisee trust.

Cocotas has a big job to do. TCBY grew from that one store in 1981 to more than 1,800 stores by mid-1990. Since then, more than 200 stores have closed and earnings have plummeted.

"For many franchisees, it's just a matter of time," Chicago franchisee Mike Evans told Restaurant Business magazine. "They're running out of money."

Yogurt Alternatives

Walter Perry says TCBY executives pressured him into starting a second store. Those executives, Perry claims, said he wouldn't receive help with his original store unless he expanded.

He believes TCBY simply was interested in collecting as many $25,000 franchise start-up fees as possible.

When Perry complained to the company regarding a concept that is based on upscale locations that carry only small-ticket items, his inspection ratings from TCBY declined for the first time.

Franchisees aren't the only ones having problems these days. Hickingbotham has seen the worth of his 37.7 percent stake in the company, at one time worth $220 million, fall by $140 million.

There is not a solid financial reporting structure in place to let TCBY officials in Little Rock know how franchisees nationwide are doing. If Cocotas can establish one and learn which franchisees are having success and why, Hickingbotham may eventually see the value of his stock increase.

But TCBY needs more than restructuring.

In the past, franchisees have requested they be allowed to add items to their menus. The corporation hasn't allowed it.

When major fast-food chains with more marketing savvy such as McDonald's began making yogurt part of their menus, the smaller Little Rock company couldn't keep up.

It wasn't until after last year's busy Christmas season that TCBY added Mrs. Field's cookies. Thus far, the impact of the addition has been negligible.

Cocotas must develop a department that truly lends support to franchisees. And he must communicate.

Secrecy angered shareholders when the stock fell, but it doesn't seem the company has learned its lesson.

For instance, Daniel Brackeen, the former president of TCBY subsidiary Americana Foods Inc., the yogurt supplier, resigned without TCBY informing shareholders. Brackeen was one of the company's highest-paid employees and a member of the TCBY board.

But the company still knows how to spread the sugar in annual reports.

"TCBY virtually created the frozen yogurt retail segment," reads one report.

It neglects to say TCBY hasn't kept up, although the numbers buried in the back of the annual report tell that story quite well.

TCBY still has name identity, but analysts say its stock isn't going to sell until the lawsuits are settled.

Even then, Cocotas will have to work some magic.

It has yet to be determined if TCBY has any of the guilt.

But it's very clear that executives in that gleaming tower on Capitol Avenue no longer have any of the pleasure.
COPYRIGHT 1992 Journal Publishing, Inc.
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Copyright 1992 Gale, Cengage Learning. All rights reserved.

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Title Annotation:Charles Cocotas appointed president and CEO of TCBY Systems Inc.
Author:Rengers, Carrie
Publication:Arkansas Business
Date:Mar 2, 1992
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