SNOHOMISH — The locally based company credited with launching the meal-assembly industry six years ago is now the target of a $30 million lawsuit filed on behalf of 15 franchisees in several states.
The lawsuit claims that Dream Dinners Inc. misrepresented the profit potential of its stores to attract new franchisees and did not give them all the information required by federal and state franchise laws.
Michael Garner, the attorney representing the franchisees, said prospective owners were given a presentation that promised stores could generate annual revenue of $360,000 and an annual profit of at least $75,000.
Stephanie Allen, Dream Dinners’ co-founder and co-owner, called the lawsuit a “hiccup.”
“It’s part of the normal course of doing business. If you’re a substantial franchise opportunity, you’re going to get sued,” she said.
Attempts to reach several of the disgruntled franchisees for comment were unsuccessful.
Allen noted that Dream Dinners has scores of successful franchise owners other than the 15 who are suing, including Valerie Bass of San Diego.
“We could not be happier,” said Bass, who owns two Dream Dinners stores. Both ranked among the top 10 highest-selling Dream Dinners stores nationwide last year.
Bass said she opened her first location in November 2005.
“It took off so fast, that within a year, we opened the (second) one,” she said.
Bass said her stores have achieved the performance numbers mentioned in the lawsuit, so they aren’t unrealistic. She said Dream Dinners’ corporate office also has been supportive throughout the past three years.
Andy Potter, who tracks the industry with his Meal Assembly Network Web site, said the lawsuit comes at a time when rapid expansion of meal assembly stores has given way to falling sales and closed locations.
“It is a national issue. You could chalk it up to a lot of things. A lot of industries are being clobbered right now, and a lot of people still see this as a luxury,” Potter said.
It was 2002 when Stephanie Allen and Tina Kuna opened their first Dream Dinners location. The idea of providing a well-stocked kitchen where customers could prepare a dozen meals in a couple of hours, take them home and freeze them for healthy, fast-made dinners caught on.
The Snohomish duo franchised their idea. The company now has 204 franchised stores open nationwide and at least 15 more in the works. It remains the largest of more than 20 such U.S. chains that have at least 10 stores.
But the explosive growth has slowed considerably. Potter said the number of meal-assembly stores that have closed have outstripped the number that have opened since the year began. While Dream Dinners’ corporate royalties grew by nearly 19 percent last year, fees from new stores were down and expenses were up, according to documents filed with the state of Washington. The company made more than $7.5 million in revenue during 2007, but lost just shy of $651,000. That contrasts with a profit of $131,506 for the head office in 2006.
The company’s franchise disclosure documents also list total assets of $2.9 million and liabilities and debt exceeding $3.4 million.
Allen acknowledged last year’s loss, but said the business is not in trouble.
In Overland Park, Kan., Dan Day and his wife, Jana, have owned a Dream Dinners franchise for 2 1/2 years. In six of the past eight months, their sales are up, he said. The Dream Dinners store has survived an onslaught of competitors, most of whom have now closed.
Day’s family used to own a Burger King franchise, so he’s well-versed in the risks and rewards of buying into a franchise.
“There’s nothing there that guarantees any type of success,” he said. “The biggest mistake most franchise owners make is just opening the doors and expecting everybody to just find them.”
The Washington Franchise Investment Protection Act requires franchisors to give extensive information and financial statements to franchisees. It’s designed to prevent franchisors from pressuring franchisees from signing anything under pressure without full disclosure, said franchise attorney Peggy Hughes of Montgomery Purdue Blankinship &Austin PLLC in Seattle. Other states have similar laws.
The lawsuit, first filed in New York and refiled recently in Snohomish County, alleges that Dream Dinners franchisees weren’t given all the disclosures required by law. The original New York suit asked for at least $30 million in damages and legal fees. The locally filed suit doesn’t mention a specific amount.
Based on a quick review of the lawsuit’s complaint, Hughes said the charges made against Dream Dinners are serious.
“They’ve made some fairly significant allegations under the franchise act,” Hughes said. “It will be interesting to watch.”
Reporter Eric Fetters: 425-339-3453 or fetters@heraldnet.com.
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