I Heart Mac & Cheese Franchise Has Major Ongoing Litigation (2023)
Written by: Parth Parth
Last Updated by
María Fernández Amato: January 26, 2023
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I Heart Mac & Cheese is a fast-casual restaurant chain that specializes in customizable macaroni & cheese dishes. The company was founded in 2016 by husband and wife team Michael Blum and Ashley Blum, with the goal of offering delicious, high-quality comfort food to customers. The first I Heart Mac and Cheese location opened in Fort Lauderdale, Florida, and the company has since expanded to multiple locations across the United States.
Contents
How Is I Heart Mac & Cheese Franchise Positioned in the Food and Beverage Industry?
The Food and Beverage industry in the USA accounts for 13% of all manufacturing employment in the country. Around 14.6 million people get employed in this industry. Food franchises make up 36% of the total franchise establishments in the USA and it is expected to create 1.6 million more jobs by 2027. The annual growth rate in the industry is around 2% and the EBITDA multiplier is around 3x.
How Much Is a I Heart Mac & Cheese Franchise?
The initial I Heart Mac & Cheese Franchise Fee is $35,000. You have to pay this upfront fee when opening a I Heart Mac and Cheese franchise.
I Heart Mac & Cheese Franchise Cost
The estimated total investment necessary to begin the operation of an I Heart Mac & Cheese Franchise ranges from $277,500 – $756,300. The following costs are part of the upfront costs included in the initial investment for an I Heart Mac & Cheese. Many of these are one-time fees that are needed to launch the franchise. Review the chart below to see how much it costs to buy an I Heart Mac & Cheese franchise in 2022.
Estimated Initial Investment
| Type of Expenditure | Amount | To Whom Payment Is to Be Made | |
|---|---|---|---|
| Low | High | ||
| Franchise Fee | $35,000 | $35,000 | Us |
| Real Estate/Rent | $4,000 | $7,000 | Landlord |
| Utility Deposits | $1,000 | $2,000 | Third Parties |
| Leasehold Improvements / Build Out / Permits | $90,000 | $500,000 | Landlord/Contractor/Licensing Authorities |
| Architecture Expenses | $7,600 | $14,000 | Architect |
| Insurance | $2,500 | $6,000 | Insurance Company or Broker |
| Office Equipment and Supplies | $500 | $2,500 | Third Party Suppliers |
| Pre-Opening Training Expenses | $1,000 | $3,000 | Third Party Vendors |
| Signage | $5,000 | $8,000 | Third Party Suppliers |
| Furniture, Fixtures and Equipment; POS | $70,000 | $102,000 | Third Party Suppliers |
| Initial Inventory | $5,000 | $5,000 | Approved Suppliers |
| Grand Opening Advertising | $12,000 | $12,000 | Third Party Vendors |
| Business Licenses | $500 | $1,000 | Licensing Authority |
| Grand Opening Supplies | $4,300 | $4,300 | Us |
| Legal & Accounting | $4,000 | $4,000 | Attorney, Accountant |
| Dues and Subscriptions | $100 | $500 | Third Parties |
| Audio/Visual/Security System | $25,000 | $30,000 | Approved Suppliers |
| Additional Funds | $19,000 | $20,000 | You Determine |
| Total | $277,500 | $756,300 | |
Ongoing Fees
Royalty: 5% of Gross Sales of your Franchised Business with a weekly minimum of $175
Brand Fund: 3% of Gross Sales of your Franchised Business with a weekly minimum of $100
Local Marketing: At least 1% of Gross Sales of your Franchised Business over the preceding calendar month
Regional Advertising Cooperating: 1% of Gross Sales of your Franchised Business
I Heart Mac & Cheese Franchise Troubles
I Heart Mac & Cheese is a fast-casual restaurant chain that has signed up 100 franchisees across the United States, but many of these locations have not opened or have closed. Some franchisees have struggled to secure financing, and at least two operators have filed for personal bankruptcy and have filed a lawsuit against the company. I Heart Mac & Cheese has also sued one of its franchisees after she spoke out against the company to other operators. Former operators have reported that the company has given rosy projections of sales and profitability and understated buildout costs.
The CEO of I Heart Mac and Cheese, Stephen Giordanella, has denied these allegations or declined to comment on specific concerns, citing ongoing litigation. He has said that the company’s system is easy to operate, but that some franchisees have failed due to their inability to operate the business effectively.
“It’s a mentality,” said Adam Wasch, an attorney with the Florida law firm Wasch Raines who represents one of the I Heart franchisees suing the brand. “They sell to anyone that has enough to pay the franchise fee and see where the chips fall.”
Both quotes are from this article by Restaurant Business Online.
"When I bought the franchise, I expected systems and processes in place, and that they were profitable. Turns out they weren’t", said former franchise Genevieve Prieto.
How Many I Heart Mac & Cheese Units Have Opened and Closed?
| Outlet Type | Year | Outlets at the Start of the Year | Outlets at the End of the Year | Net Change |
|---|---|---|---|---|
| Franchised | 2019 | 2 | 7 | +5 |
| 2020 | 7 | 9 | +2 | |
| 2021 | 9 | 18 | +9 | |
| Company/Affiliate Owned | 2019 | 7 | 3 | -4 |
| 2020 | 3 | 5 | +2 | |
| 2021 | 5 | 2 | -3 | |
| Total Outlets | 2019 | 9 | 10 | +1 |
| 2020 | 10 | 14 | +4 | |
| 2021 | 14 | 20 | +6 |
The company has seen some slower growth, growing from 9 to 20 locations from 2019 to 2021. However, the company currently has sold 118 franchise locations that have not opened. All of this is in addition to 6 of the franchises either being terminated or being reacquired by the franchisor in the last three years, which represents around 33% of the company’s locations being churned – a rate that is way higher than the industry benchmarks.
I Heart Mac & Cheese Ongoing Litigation
The company has faced several lawsuits from former franchisees. These lawsuits have included allegations of fraud, negligent misrepresentation, violation of state consumer protection laws, breach of contract, and rescission of asset purchase agreements.
- Melissa Beth Krokson, Bentley Krokson, and BMD Mac & Cheese, LLC (Krokson) sued Mac & Cheese Franchise Operations, LLC (MACFO) for fraud, negligent misrepresentation, violation of state consumer protection laws, and declaratory judgment. Krokson claimed that they were misled by MACFO when they bought two franchises and did not open either of them. MACFO denied the allegations. The case was settled on March 9, 2021, with MACFO agreeing to refund Krokson a portion of the initial fees paid.
- G5 Services, LLC (G5), a former franchisee of Mac & Cheese Franchise Operations, LLC, sued Mac & Cheese Franchise Group, LLC, Mac & Cheese Athens, GA, LLC, Mac & Cheese Franchise Operations, LLC, Stephen Giordanella, Joseph Amodio, Delia Valles, and Giordanella Holdings, LLC (Defendants). G5 claimed that the Defendants violated state consumer protection laws and the Florida Franchise Act, and that they breached their contract and committed fraud. The Defendants denied the allegations. Giordanella Holdings, LLC has been released from all claims. The case is still ongoing.
- RQ Management, LLC (RQ), a franchisee of Mac & Cheese Franchise Operations, LLC (MACFO), sued MACFO, Stephen Giordanella, Michael Blum, and Marci Rubin for fraud, violation of state franchise and consumer protection laws, and negligent misrepresentation. RQ sought damages and rescission. The defendants denied the allegations. The case was dismissed on August 24, 2021, with MACFO agreeing to refund RQ a portion of the initial franchise fee.
Conclusion
I Heart Mac & Cheese is a fast-casual restaurant chain that has faced a number of challenges and controversies, including lawsuits from former franchisees and a high rate of franchise location churn. Despite this, the company has continued to sign up new franchisees and has sold 118 locations that have not yet opened.
While the CEO of I Heart Mac and Cheese has denied allegations of wrongdoing, many former franchisees have reported feeling misled by the company and have had negative experiences with it. It is important for potential franchisees to thoroughly research any company they are considering investing in, and to be aware of any red flags or warning signs.
While this may be the business for you, make sure also to check out other companies offered on Vetted Biz and in the Food and Beverage industry.
