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WorldWide Papas/Papa John's

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Fraud

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WorldWide Papas/Papa John's
Russia
spb.ru
My husband and I invested our hard earned money in a Papa John's Russian franchisee 5 years agao. By this time the franchisee was to have over 20 restaurants. There are only 4 restaurants still and the franchisee keeps raising money (millions of dollars) but not building restaurants! Where is all the money going? We don't get answers to any of our questions!! Papa John's is supporting this group that has taken our money and not put it to use as promised. When I have tried to contact Papa John's now they won't talk to me and say that these guys are current franchisees and that's it. What kind of company is Papa John's? Why would they support this group? Makes you wonder. There is a real story here and not a good one I think.

Sincerely,
Two Honest Investors
Complaint comments Comments (17) Complaint country Russia Complaint category Bad Business Partners

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N  17th of Nov, 2010 by    +1 Votes
Why are you not dealing with the entity in which you have the investment ie. the franchisee. There are legal issues in the parent company providing you information about a franchisee even if you are an investor. Have your franchisee provide a release to the Franchisor to provide you with whatever they have in their files. Papa John's is acting correctly. Who sold you the investment? Call that person. Who did you write your check to? Contact them. After those steps if you cannot get anywhere you need to hire me to intervene.
N  17th of Nov, 2010 by    0 Votes
We have tried for 4 years to deal with the franchisee but to no avail. We hired a law firm and have spent thousands of dollars to try to get information but are getting no where. Now we are told that to file a lawsuit against the franchisee it will cost us about $100, 000 and probably these guys have no assets for us to get anyway (the money is gone). I hear you about the legal issues and the franchisor. We do hope truth and honesty will prevail. Can you help with this?
N  17th of Nov, 2010 by    0 Votes
The investment agreement is governed by US law. Loss is one thing (risk v reward) but taking people's money and not putting it to agreed use is another thing and no clause in an agreement can protect those who illegally took our money and used it to fund personal expenses. The issue you raise, ie no guarantee of return of investment, does not absolve fraud such as the one that seems to have occured in this case.
N  17th of Nov, 2010 by    0 Votes
Who at Papa John's directed you to this investment? How much did you invest?
N  17th of Nov, 2010 by    0 Votes
We invested over $100k. No one at Papa John's directed us to this investment. However I cannot understand why Papa John's would continue to deal with a fracnhisee group such as this knowing what I know about this group's comportment etc.
N  17th of Nov, 2010 by    0 Votes
Like you Papa John's may not have predicted what this group was up to. They are bound by both Territorial and Franchise Agreements. You are looking to Papa John's to solve your investment issue when they have had nothing to do with it. Do not waste your time expecting them to do anything. It will not happen. Your recourse is with the person who sold you the investment. If taxes go up next year, it may be a good time to write it off. Unfortunately you need some gains to offset the loss or you will be limited to the amount of write off annually. I have been in the food franchising business both domestic and international for 35 years. I would write it off and move on. The food business is cruel.
N  17th of Nov, 2010 by    0 Votes
I would think that Papa John's and this franchisee are both bound by convenants of good faith and fair dealing. This has not been the case with this franchisee group. Forget about cruel- how about having parties behave in compliance with the law? Why should we live in a law based society like the US and have our money stolen and our only recourse is to as you say "write it off"? Why should any upstanding corporation deal with the likes of Bernie Madoff of the food industry? I expect all corporations to be in compliance with the law and deal with law abiding parties in their agreements. Would you order pizza from a company that supports and has contractual obligations with people who take other people's money? What about the reputation of Papa John's and how we consumers perceive this reputation? What if you learned McDonald's had franchisees in your area that conducted themselves like this group? Would you still buy the food? If they are not honest about investor money most likely they would not be honest about other things and probably service/quality would be off, unreliable etc. We are consumers buy into brands that are trustworthy and honest, at least I do.
N  17th of Nov, 2010 by    0 Votes
How can the franchisee be living up to its franchise commitments if franchisee books are not right (how can a franchisor calculate its % based on inaccurate books), it is in breach of covenants in the agreeement nor is franchisee living up to development commitments (to build more restaurants) for example? I have worked for a franchisor as legal counsel and if franchisee was in breach like this notices are sent out and the agreement gets terminated per US franchise law. What is going on here then? Why would this type of behavior be condoned?
N  17th of Nov, 2010 by    0 Votes
I can tell by your response that you understand your investment is probably worthless. Franchisors offer the opportunity for people to be in business for themselves, but cannot and do not guarantee success. Throughout the industry there are thousands of franchisees who for whatever reason do not succeed. There is a 95% failure rate in the restaurant industry and the Pizza sector is one of the highest due to the low cost of entry. If you must blame someone, look to whoever advised you to invest in a restaurant opportunity and specifically an offshore franchisee without I presume any experience. I do not know of any investment advisor that would stamp his or her approval on this type of investment. I would attempt to find a way to make the best of the loss carryforward that you are going to experience. Not knowing your financial situation it is impossible to give any suggestions. Although I like the Papa John's product, most have failed in this area due to pricing. The parent company has had financial difficulties as well. You are experiencing what thousands of others have experienced in food service related investments. Remember you did the "due dilligence" and you signed the check. Please do not take this as an attack on you. Many of us have made investments that did not payoff. I lost $500 thousand on my investment in a Damon's franchisee. I beat myself up and then went on with my life.
N  17th of Nov, 2010 by    0 Votes
My husband and I invested in a project which could have succeeded especially with what we thought of as a top drawer brand like Papa John's in a developing market like Russia. Other pizza brands are doing very well indeed in this market. However no project could succeed in any market where management is not doing its job. I do not care what industry it is- food or otherwise- but brands that put themselves out in the marketplace as top drawer normally do business with top drawer franchisees pure and simple and enforce their agreements. Part of our due diligence was the expectation, reasonable one I think, that a well known brand like Papa John's would hold its franchisee's feet to the fire in terms of performance. This has not happened. Indeed the CEO of Papa John's claim to fame in a recent 2007 said that he developed the Russian market and wants to expand it- how can this be the case? This is not at all about pricing but about business expectatons, commitments and legality and integrity I might add. A brand lives and dies by its integrity in the end regardless of whether it is having financial problems.
N  17th of Nov, 2010 by    0 Votes
PS If our investment is worthless than what does this say about the 4 restaurants in Russia we allegedly own that continue to carry the Papa John's logo? What company would continue to puts its brand on worthless restaurants as this would devalue the brand? Normally franchisors scrupulously defend the value of their brand and its related intellectual property. I know that Pizza Hut and Sbarros are doing this in Russia and are doing well there as I understand.
N  17th of Nov, 2010 by    0 Votes
"How are your relations with franchisees?

I'm now going through a phase where I encourage people to criticize openly the things we've been doing. For example, we did an awful lot of marketing partnerships in 2005. We may have overdone it. They were not totally aligned with the brand, so we have stopped a couple of them. When nearly 80 percent of the system is franchised, you need a positive relationship with your franchisees. I ask their opinion, and I don't think that doing so is weak management - that's strong management."

Above is quote from new CEO Travis of Papa John's from Forbes 2007. Papa John's should be welcoming and researching my comments therefore.
N  17th of Nov, 2010 by    0 Votes
To Mary Jane: Business partners are here in the USA NOT in Russia. Restaurants are in Russia.
N  17th of Nov, 2010 by    0 Votes
Your experience is the reason why many Franchisors require the Franchisee to be fully funded by personal monies and loan guarantees. Your suggestion that the Franchisor has an obligation to a minority shareholder of a Franchisee is beyond the scope of any agreement that I have ever seen and I have reviewed thousands. Every Franchisor has unhappy Franchisees for whatever the reasons. I have never met anyone who lost money on an investment that was happy about it. Your working experience in the Franchise and Legal fields should have led you away from this investment. My experience should have led me away from my investment. We all make mistakes; learn from them and get on with our business.
N  17th of Nov, 2010 by    0 Votes
You are missing the point I think. We bought into a brand that is not upholding its own obligations. We as owners can represent the company's interest.
N  17th of Nov, 2010 by    0 Votes
Your legal and franchise experience should have made you aware that you bought a minority interest in a Franchisee of a Franchisor. Your buying into a brand is a mental fixation that is embraced by the hope of success and someone's good sales pitch. You do not own the brand but hopefully you own some brick and motar or equipment somewhere in Russia. I am sure there are many Franchisees who are making money and living up to all their comitments. You misinterpet what is meant by "marketing partnerships". He was speaking to the retail sales end of the business not the equity end. Absentee ownership is a disaster waiting to happen. Shame on Papa John's and shame on you for not knowing better. Unfortunately you are accurate that it will cost $100, 000 to litigate your claim which leaves you with nothing. How do you calculate that you would be in a better position if Papa John's revoked your partner's Franchise Agreement? If your investment is an LLC you must be getting a Schedule K and reporting annual losses. Same with Subchapter S and Partnerships. If your invested as a shareholder in a "C" Corporation, your back to a write off of your stock per sec. 1251 of the code. Having been both a Franchisor and Franchisee I feel most accurate in telling you that you are without recourse in this investment. It may be bitter, but swollow it.
N  23rd of Nov, 2010 by    0 Votes
You wonder where you're money is going?

Imagine the movie Married to the Mob with Russian subtitles.

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