Would-be entrepreneurs looking to acquire a business in Northern California might have come across an ad for a Dickey’s Barbecue Pit in Napa on the website BizBuySell.
“You could own the taste of Legit. Texas Barbecue in Napa, CA,” the ad said. No experience was necessary. “You don’t have to be a barbecue expert, we train you!” the ad said. The owner, the ad said, was retiring. The price: $50,000.
This was all news to Gwen Bassett, the owner of the restaurant.
Bassett, according to her attorney, Robert Zarco, did not approve the ad. She certainly didn’t approve of the price tag, given that she is some $700,000 in debt on the restaurant. Bassett only found out about the ad when she was told about it by one of her fellow franchisees. Dickey’s initially priced the restaurant at $200,000, her attorney said, which was low enough. It was then lowered to $50,000. The ad hasn’t been taken down despite her complaints.
Zarco said he’d never heard of such a situation before, calling it “unlawful and brazen.” “It’s actually incredulous that this behavior can happen in America,” he said.
Jeff Gruber, Dickey’s SVP of franchise relations, said in an interview he didn’t know anything about the ad or who put it up. When informed that the listing agent on the ad is a Dickey’s employee, he denied anyone would do so without permission. “There is no situation where Dickey’s would ever place an ad without a franchisee being somewhat involved,” he said. “We can’t sell a store we don’t own.”
When told that Bassett said she was not involved in the listing and didn’t want it up, he called it an “oversight.”
The ad highlights ongoing issues between Dallas-based Dickey’s and its franchisees. The system has struggled in recent years with disgruntled franchisees, who complain about price restrictions, high costs of food and equipment, and construction-cost overruns on new restaurants.
Take a look at the ads
Here are screenshots of the ads Dickey's published from the website BizBuySell.com. The first is for Gwen Bassett's Napa, Calif. location. | BizBuySell.com.
Fast growth, contentious history
Nearly 10% of Dickey’s 485 restaurants, 44 in all, are listed for sale on the BizBuySell website, more than half of which are on the market for $100,000 or less. Dickey’s operators filed 43 comments, all of which are complaints about the franchise system, with the U.S. Federal Trade Commission. “Worst experience I ever had,” Vandad Shemirani, an operator out of Eastvale, Calif., said in one FTC comment.
Gruber called the allegations “unfortunate” and said that these operators chose to go public with their complaints rather than deal with issues internally.
“I’m disappointed in the way it has come to the attention of journalists like yourself,” Gruber said. “Every business move Dickey’s makes has the franchisees’ best interests in mind. Sometimes we are met with resistance. Rather than work internally, they instead go through a media publication. That’s unfortunate.”
“We remain dedicated to work with our franchisees,” he added.
Dickey’s traces its history to 1941, when Travis Dickey opened a barbecue restaurant in Dallas. The company started franchising in the 1990s. But it took off coming out of the last recession.
The chain’s unit count soared, from 115 restaurants in 2010 to 567 by 2017. Yet by 2018, the chain was terminating franchisees and closing units even as other franchisees continued to open restaurants. Franchisees at the time complained about their inability to generate a profit.
Dickey’s has shrunk by 82 restaurants since its 2017 peak. System sales over that period have declined 16%, according to Restaurant Business sister company Technomic. Average unit volumes have declined 5% in that same time.
Franchisees have a high failure rate on government-backed loans. Between 2009 and 2019, 41 of 246 U.S. Small Business Administration (SBA) loans approved in the Dickey’s system were recorded as “charge-offs,” meaning the loan failed, according to data provided by U.S. Sen. Catherine Cortez Masto (D-Nev). That’s a 17% failure rate. Another 27 Dickey’s franchisees defaulted on their SBA loans between 2020 and 2022, according to the website Vettedbiz.com.
One of the biggest complaints from franchisees is the cost of their stores. The cost of opening a traditional Dickey’s location ranges from $335,266 to $465,112, according to the company’s most recent franchise disclosure document.
That wasn’t the case for Danny Unsworth, however. He decided to buy into the brand coming out of the pandemic, hoping for a business he could ultimately pass onto his children. The cost he was quoted was $435,000.
By the time his store opened near Kent State University in Ohio, he said, the cost topped $900,000, including an $813,000 SBA loan and $125,000 in his own cash. “I opened in the middle of January and closed in April,” he said in an interview. “I had no choice but to shut it down.”
Such stories abound. Bassett’s costs, for instance, came to $750,000. Scott Creason, an operator out of Washington, D.C., told the FTC that he was initially told an inline, strip-mall unit there would cost just $110,000.
His first true construction estimate came to $640,000, including $100,000 in charges from Dickey’s itself. He and his business partner stopped construction, ate $40,000 in sunk costs and bought two existing stores instead. “How could a company that regularly builds stores not know the cost?” he asked.
Underestimated build-out costs can be a “recipe for failure,” the Pit Owners Association, an independent group of Dickey’s franchisees, said in its comment with the FTC. Excess costs on build-outs are supposed to be reflected in the estimate of franchisees’ initial investment.
When costs exceed that estimate, it can lessen the chance that an operator will be able to service the debt with revenue generated by that location.
Gruber in an interview blamed the problem, in part, on inflation. Supply chain challenges in recent years have driven up construction and equipment costs. “In the last couple of years, we were at the mercy of supply chain and building material costs during the pandemic,” Gruber said.
He also blamed the franchisees. “Sometimes projects end up overbudget,” he said. “Any time that happens, it’s voluntary on the franchisee side and not dictated by corporate.”
Franchisees, he said, put in extra equipment such as bars. “We had some people say they wanted to build flagship restaurants,” Gruber said. “We’re not opposed to franchisees building out over and above.” Did Dickey’s tell franchisees of the risks? “To the extent we’re aware of them, sure,” he said.
Multiple franchisees we spoke with, however, said anything included in their build-out came at the recommendations of corporate.
In 2019, for instance, Bassett’s store added a “beer wall,” the first in California to add one from the self-serve beer company iPourIt, at a recommendation from the company.
Unsworth’s location had a bar. “They built it into the whole deal,” he said. “Everything in my store was because they wanted to design it as such.”
High costs, low prices
Franchisees are also balking at Dickey’s price controls. Gruber said the company has tiered pricing levels based on regions and local costs, featuring a ceiling for the restaurants’ price points. He said it is based on a competitive analysis. “We know what the food costs are,” he said. “If the model is being run right and [cost of goods sold] are being managed appropriately, they can make a profit.”
He said the company took this action in response to franchisees charging abnormally high prices to avoid selling certain items, such as $20 for chicken sandwiches or $40 for baked potatoes. “So we looked at it,” Gruber said. “It’s completely legal. We put that methodology in place. We’re confident that profitability is still protected even with those constraints.”
Franchisees, however, argue that these price constraints have damaged their profitability, particularly when they have loans. And franchisees are required to participate in marketing promotions discounting prices.
Zarco said price controls take away the independence of franchisees, making many franchises unfeasible. “The business model was failing, putting franchisees in a financial environment that made it economically unviable,” he said. “The economic viability of the business was eviscerated.”
The brand would also cap prices on third-party delivery. Franchisees pay the fees charged by third-party delivery services, which can range from 20% to 30% per order, and the company mandates participation. But operators’ prices are capped at 11%, according to the Pit Owners Association (POA). Dickey’s will also run promotions on delivery orders, which operators say squeezes margins further.
Indeed, as we worked on this story, we were hit with a Facebook ad for 20% off delivery through the company’s app. There’s no limit. “They can order $1,000 of food and get a $200 discount,” Greg Cox, a franchisee in Lewisville, Tex., wrote in an FTC comment. “That’s below my costs.”
Another franchisee, Harpinder Chauhan, included examples of orders at his Florida Dickey’s from Uber Eats and the discounts that came with them. In one, the store received just $2.49 for a two-meat plate with sliced and chopped brisket, normally priced at $17.49, following a $15 discount. Discounts also cut the revenue Chauhan’s store received from an order for four pulled pork sandwiches from $35.96 to $13.82.
The price increases and marketing promotions have come as operators have faced historically high inflation on food and labor. And they have little control over their ability to deal with it. Dickey’s controls the supply chain, which has also led to increased costs for food and equipment, franchisees say. “The result is a cost-of-goods-sold that exceeds what is acceptable for a restaurant to make a profit,” the POA said in its letter.
Some franchisees also say they’ve been hit with other costs. Franchisees who opened their restaurant in 2019, such as Bassett, spent money on a new point-of-sale system from NCR. The next year, they were asked to replace it with a different system from Spark.
The company has added some methods for operators to generate extra revenue, such as virtual brands like its chicken-wing concept Wing Boss and Big Deal Burger. But franchisees pay extra fees to operate those brands. In addition, Dickey’s was sued in July by a Houston restaurant, The Wing Boss, in a trademark dispute over the virtual wing brand.
Franchisees are given financial projections for their restaurants, in which they make $909,277 the first year, increasing to $1.1 million in revenue by the third year. The projections, which operators are supposed to share with lenders, project net profit of $238,651 the first year and up to $288,853 by the third year.
Yet Dickey’s does not make a financial performance representation on its FDD. Operators we spoke with say they haven’t come close to those projections. According to Technomic estimates, Dickey’s average unit volumes last year were $700,000.
Selling the stores
Bassett’s wasn’t the only store Dickey’s put on the market. A search on the BizBuySell website found several examples of ads posted by Dickey’s employees, all of which featured the same photo of beef brisket on a cutting board. There are no financials, such as revenue or earnings, that are commonly found on ads posted by franchisees or brokers.
In each case, the listed price is below $175,000. Most are priced at $50,000 or below, with one location in Round Rock, Texas, priced at just $15,000. The ads provide reasons for the sale, such as “retiring” or “downsizing.”
Gruber explained that the company’s portfolio management team works with franchisees on purchasing or selling restaurants along with lease negotiations. “I’ve seen them do a lot of good,” Gruber said. “These listings you’re referencing are examples of that and completely transparent and collaborative.”
“The claim that Dickey’s ‘sells’ franchisee locations without permission is simply not supported by fact,” he added.
Bassett, he said, was “an absentee owner” who “did not fit the owner-operator model that is a prerequisite of our business structure.” He called her “uncooperative and difficult to work with,” adding that “we did everything we could to try to help her.”
He also said Bassett’s store was terminated, and indeed the company has turned off its point-of-sale system, third-party delivery and digital orders. But she said she has not received an official termination notice.
It’s not as if Bassett would not sell. But she has heavy debt from the initial SBA loan and an economic injury disaster loan (EIDL) received during the pandemic. During an initial meeting with a prospective buyer, that buyer wanted to pay $200,000. Bassett later learned he got that price from the BizBuySell ad.
Bassett contacted David Allen, Dickey’s director of finance and operations, who is the listing agent on the ad, and said she is not selling the restaurant for $200,000. He didn’t respond. Later, she said, the price was lowered to $50,000.
As the people who take out the loans and purchase the equipment, franchisees are the ones who control whether to put a restaurant up for sale, and they set the asking price.
While Bassett acknowledged she told Dickey’s she would potentially be interested in selling her store, she was not told about any ad, did not approve any ad and was not told about any potential price. Any authorization should have been written, Zarco said.
“Never in my 38-year legal career representing franchisees have I ever heard or witnessed such unlawful and brazen conduct as the listing for sale of an independent franchisee’s business and for an unjustifiably low price established by the franchisor, without first consulting or receiving written authorization and permission from that franchisee,” he said.
There are two other problems that Zarco noted with the ad. Bassett is not “retiring.” That could increase Bassett’s personal liability in a sale. “The franchisor is putting the franchisee in a vulnerable position of making a misrepresentation that indirectly reflects the value of the business,” Zarco said.
And it could hurt the incoming franchisee. Multiple franchisees in FTC comments referred to Dickey’s churning through franchised locations. “I am concerned about the tactic of flipping stores to new owners, knowing that the store is a failing store,” Patrick Harder, an owner of two stores in Ohio, wrote to the FTC. “The practice is harmful to the new owner, who is often unaware of the financial struggles of the previous owner, and it is also damaging to the franchise system as a whole.”
For Bassett, the damage may have already been done. With the price lowered to $50,000, she could have a hard time convincing any buyer to pay a higher price. Her choice at this point is to keep operating, rebrand and hope a buyer would be interested in a barbecue restaurant under a new name.
In the meantime, the ad for her restaurant remained up as of Wednesday morning.