Summertime Sell

By Todd D. Maddocks

Water is an interesting commodity. When you consider the profit margins, and the fact that you're selling something that can be readily had for free, selling bottled water might be considered the perfect business. And if you add a little flavoring and some fruit, then freeze the water until it's slushy, you also have the ingredients for a pretty sound seasonal business. Just take it from Rita's Water Ice.

A Rita's Water Ice franchise is a retail frozen-dessert shop offering Italian ices, cones, shakes, frozen custard, gelati (a combination of ice and custard) and soft pretzels.

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Rita's was started during the hot Pennsylvania summer of '84 by the Tumolo family. Today, Robert (whose ex-wife the franchise is named after) and John Tumolo still operate the company with the help of a staff of 30. Rita's touts itself as the largest Italian-ice chain in the country, with more than 230 stores in nine states. Those locations stretch along the East Coast, with more than half the chain's stores in Pennsylvania, and go as far west as Ohio.

This is a seasonal business, and many of the stores, other than those in Florida, are open only from mid-March through October. (As weather is obviously a factor, you may want to look elsewhere for a business opportunity if you live in the Snow Belt.) Operating a seasonal business can be a mixed blessing, because, on one hand, you can take some time off during the winter months; on the other, the rent continues and your employees are, perhaps literally, left out in the cold each year. Furthermore, my experience in negotiating tenant leases has been that the better centers don't want a dark storefront at any time, so finding real estate could be an issue. An ideal Rita's is 800 square feet with a walk-up window, which makes the real-estate issue even more complex.

The Rita's franchise offering is relatively standard fare, but the royalty provision is a bit unusual, as it's based on what Rita's estimates your sales should be according to the amount of prepared Rita's mix you've purchased. Rita's earnings claims, stated in Item 19 of its Uniform Franchise Offering Circular, indicate that stores open for at least one year post average sales of $175,006. Stores open for at least five full seasons have average sales of $192,597. Rita's management has disclosed that sales levels reported by franchisees were typically lower than the estimates used to calculate the figures in Item 19, so you should closely scrutinize the basis for these earnings claims. An important note: In each instance, more than half the chain reported sales that were below average.

As a franchisee, you're required to use Rita's proprietary mixes for your products. Mix sales accounted for 65 percent of Rita's total revenue in 2000. You're granted a protected territory, but it only extends from one-tenth of a mile to 1 mile, unless you're in a smaller market, where the territory could be as large as a 2.5-mile radius around your store. Your territorial protection doesn't extend to many alternate sources of distribution, as Rita's reserves the right to sell its product in grocery stores, vending machines, etc. That may pose a problem in the future, but Rita's has yet to expand in that direction. Still, a savvy franchise candidate would try to gain greater protection in this regard.

Todd D. Maddocks is a franchise attorney, small-business consultant and founder of Franchisedecision.com.