Generation Next Franchise Brands Inc. (fka VEND)

[gdogg1000]

Be cautious of this stock!

I am very familiar with this industry. I purchased vend in September for $1.04 and sold it for $1.50. I figured I'd play the short-term game. I have worked in this industry for over 10 years and have owned 5 different yogurt businesses. I have visited the previous Yocream factory in Portland Oregon which was purchased by Dannon. I converted my yogurt businesses to a different concept, hence, the yogurt industry is currently contracting. The primary reason was due to over-saturation with too many yogurt shops being built. Even the Yocream/Dannon factory store located by the Portland International airport closed.

I have looked into investing in these machines, however, have held back due to high-pressure sales tactics and wishy-washy promises by the sales staff. Here are the problems:

Problem 1:
Just like the earnings call, they tried to sell me on the potential of colleges, universities, hospitals, malls, etc. The problem with this projection is that many of these malls, universities, and shopping centers all have yogurt shops. Even many large hospitals already have yogurt concepts. Many of those shops have exclusivities in their leases. When I challenged the salesperson on this, they moved on to other (less attractive) options like office buildings. Needless, I have to pay them a relocation fee every time I move the machine (ouch). I simply couldn't trust their pitch.

Problem 2:
Another problem is that the model isn't necessarily proven yet. The test market locations used the ultra-high-end-fancy robotic arms. The frozen yogurt industry shrunk in 2017 by more than 10%. I data they tried to sell me on was on the fancy test market machines. Nothing is proven yet.

Problem 3:
Cost of the machine and overall franchise agreement - The cost of these machines is extreme. Not only that, the company double ends the agreement with royalties (12%) and according to the earnings call they are getting vendor rebates. If you remember the lesson of Quizno's who imploded, this is a bad scenario for franchisee's https://www.bluemaumau.org/story/2013/12/06/quiznos-restructures-again-chain-implodes.

Problem 4: Health department issues. Many cities having strict health codes requiring a dedicated commissary for story and cleaning. Some require the commissary to be on-site. This will hurt unsuspecting franchisees who don't do their homework in their local city.

Summary - I'm going to wait and see. Maybe liquidate a few machines. There are several dozen yogurt liquidation businesses that have popped up picking off the meat of closed yogurt stores.