MTY Discloses Kickback Scheme
Updated June 6, 2021
Kickbacks are “commercial bribes” that are harmful to franchisees—causing operators to pay “artificially high” prices. Franchisors use them to increase revenues. The U.S. Legislature has acknowledge that kickbacks create a “windfall to the franchisor at the franchisees’ expense”. The U.S. Inspector General’s Office also acknowledged the financial devastation suffered by Cold Stone and Quiznos franchisees—two franchise companies that perhaps rank as the most criticized companies for excessive kickbacks linked to store closures.
For years, MTY Food Group, has been engaged in a kickback scheme that continuously raises the total dollar amount of kickbacks on its franchise owners year-after-year. This has led to an exceptionally high overall franchise failure rate of 9.3% through 2019 and a store closure rate of 11.1% through 2020. Thus, a larger dollar amount of kickbacks are forced on a shrinking number of franchise owners. This in turn increases the dollar amount of kickbacks each franchisee is forced to pay each year.
For example, MTY’s largest two brands are Cold Stone and Papa Murphy’s. MTY disclosed an average increase of $1.4 million each year in kickbacks totaling $87.5 million from 2017–2020 (PDF pgs. 62, 66, 59 and 54) on a declining number of U.S. franchisees. MTY reported kickbacks in other brands as well. For example, MTY more than doubled Papa Murphy’s 2019 kickbacks from $781,545 (PDF pg. 48) to more than $1.6 million in 2020 (PDF pg. 44). The company also increased Taco Time’s 2019 kickbacks from $23 million (PDF pg. 59) to more than $24 million in 2020 (PDF pg. 52).