A bitter pill - Former franchisees find GNC's practices hard to swallow

By Sarah Skidmore

Times-Union business writer

Turn wellness into wealth, the General Nutrition Centers' franchising brochure says.

The idea spoke to Richard Kolenda of Jacksonville. He was looking for a franchise that would reflect his lifestyle. The retired U.S. Air Force major with an affinity for health and fitness invested his life savings in a GNC store at Hodges and Atlantic boulevards in April 1994. GNC closed his store Dec. 9, 1999.

These dates roll off Kolenda's tongue with accuracy and speed. He spends every day playing them over and over in his head.

Kolenda is one of several local disenchanted GNC former franchisees. Their sore feelings and often bruised bank accounts reflect many once-eager franchisees' experiences in franchising.

Kolenda is in the midst of a lawsuit against GNC, saying its practices are illegal. His case is one of 14 current lawsuits nationwide against the company. There have been 28 in the past 10 years, according to GNC.

Kolenda filed his case in Pennsylvania, the home state of the franchisor. Many successful companies, like McDonalds or Pizza Hut, regularly face franchisee lawsuits, experts say.

GNC maintains the terms of its franchise agreement are legal and it does everything it can to help franchisees succeed. One company representative said he was surprised when Kolenda filed a lawsuit.

Some say while these types of disagreements and lawsuits are common, GNC is the industry leader of poor franchising tactics.

"GNC is on the cutting edge. If you want to see where the problems are going to be with franchising, follow GNC," said Robert Purvin of the American Association of Franchisees & Dealers and author of the book,The Franchise Fraud.

There are 29 GNC stores in Jacksonville, 16 of which are franchised. Kolenda and other former GNC franchisees say the company limited their ability to succeed by doing the following:

Encroachment: Placing other GNC stores near their stores to lure away business.

Promotions: The franchisees say the company's "buy one, get one free" promotion is always happening and this is a form of perpetual promotion, which is illegal according to the Federal Trade Commission. Additionally, GNC imposed sale days and discount clubs on franchisees.

Pricing: Prices of products at the corporate stores are lower than the price at franchises, which lures customers away. Additionally, the franchisees said they do not get adequate portions of Internet sales and the deeply discounted Internet prices hurt their business.

Severe limitations: The company placed impossible expectations and imposed severe penalties when these expectations were not met.

Lack of company support: Instead of the "continued support" they were promised by the company, they said their phone calls went unreturned, support services were lacking and the company acted as opposition rather than support.

"The problems really started when I started raising my hand and asking questions," Kolenda said. Every time he registered a complaint about a company process, he either didn't see a response or the company told him "If you don't like it, get out."

After he began complaining, he noticed his store location was not listed on the Web site or in the store referral telephone system. He says this was another tool GNC used to take business away from him.

As he began to question the policies, many of which he thought were illegal, company inspections of his store took longer, and any error, no matter how minor, was pounced upon by the inspectors.

"It's a very well-designed scam. That is not what they show you when they sell you the biz," he said.

Eventually, Kolenda could not meet his obligations to the company, and it took his store.

But GNC representatives say these sorts of claims are untrue and that the multiple lawsuits pending against the company represent legal action by less than 1 percent of the company's total franchisees.

"We have everything to lose if we undermine the franchisees," said Mike Myers, president of GNC.

Myers said the franchises account for a significant portion of the company's sales. His colleague, Russ Cooper, senior vice president and general manager of GNC franchises reiterated Myers' feelings.

"It is absolutely ludicrous to say we would do anything to drive down sales," Cooper said.

Both Myers and Cooper said the most successful franchisees are the ones who follow the franchise plan; this is what makes the franchise successful.

"We like to have eagles in our system, but all of our eagles fly in formation," Cooper said regarding Kolenda. "I was surprised he would question the systems we had in place which made us so successful."

But Purvin said GNC makes it nearly impossible for the franchisees to stay in formation.

"The contract typically is so controlling, in many ways a franchisee has less control than an employee does," Purvin said.

Andre and Bernard Baran were sad to see their relationship with GNC go sour. The brothers operated a store in Port Orange that they sold back to GNC. The brothers, who left accounting and chemistry fields to go into business, said they thought this was the business they would retire on. Unfortunately, they said, as the years progressed, GNC took an "antagonistic" approach to them. And now they operate an independent vitamin and supplement store in Ocala.

"We actually felt worse than an employee," Bernard said. "It was like they were always trying to get into your pocket."

In addition to the typical complaints, it was the little things that really added up for the brothers. Like being charged $230 for a rack to hold a product that was required, a rack for which they now would pay around $10 in their independently run vitamin store. Or having the company remove their phone number from the phone book without their consent.

"Towards the end, it was miserable, the thought of them calling us or coming by filled you with dread," Bernard said. "There was no question in our minds, they'd done things to try and force us out of business."

Ron Tacinelli knew what he was getting into. He opened several stores in Jacksonville and surrounding areas. But he knew of GNC's tactics, he worked for corporate prior to opening his store.

"I thought I would be untouchable because I was on the inside and I helped build that company," Tacinelli said.

But in the end, he was wrong. He said he wasn't immune to company tactics to get franchisees' money and force them out of business.

"I did to people what they did to me," Tacinelli said. "They are good at what they do."

Because of his franchising difficulties, Tacinelli said he lost his home and is facing serious financial hardship.

Current GNC franchisee Fernando Barrios operates three stores for the company and has worked with GNC since 1989. As a franchise representative on the National Advisory Council, a council designated to discuss franchisee issues with corporate, Barrios said he has heard many complaints over the years.

"But what happens is when you sign a franchise agreement, you sign into a set of terms," Barrios said.

He said these complaints are not entirely surprising but the company is "generally pretty open to listening. They have their own agenda, obviously, but the last thing they want is unhappy people."

And according to Purvin, these ex-franchisees' experiences are not unique.

While franchising has the opportunity for success, there is also a great opportunity for failure. The entrepreneur can invest his or her capital and build a retail site with a safe opportunity to succeed, because of the brand identity of a proven franchisor. But franchising appeals to people with varying levels of business acumen, Purvin said. Many of these individuals enter into franchise agreements blindly.

According to Purvin, "In most instances it is neither safe, nor secure, nor a business ownership."