This place turned out to be a money pit.
A national barbecue chain is being taken to court by numerous franchisees for allegedly misleading them with claims of sweet profits that turned out to be all smoke and mirrors — and several New York based investors say they are among those who got their nest eggs roasted.
“It was the worst financial decision I ever made,” said Scott Raifer, of his decision to buy a Dickey’s Barbecue Pit franchise and open it in Freeport, Long Island.
Raifer said he is now $500,000 in debt and facing foreclosure on his home after taking out a Small Business Administration loan to open the eatery in December 2020 during the COVID-19 pandemic.
It closed in June 2022 — less than two years later.
“I was under the incorrect assumption that we were in business together — if I did well, they did well,” said Raifer, 58, of Plainview. “I learned that if they did well, it was at the franchisee’s expense.”
Raifer said he felt pressured by the company to get the location “up and running” quickly. An estimate from a Dickey’s-preferred construction vendor, he said, was “triple the price” of what he ultimately paid after hiring his own contractors.
“I spent half a million dollars building the place,” said Raifer, who is not part of the lawsuit and has not brought legal action against the company citing lack of resources.
Raifer said the $16,000 smoker he bought from a Dickey’s-approved vendor repeatedly malfunctioned. When he emailed the company for guidance in January 2021, he said he was reprimanded for including senior executives on the message.
“When I told them that I wanted to sell, they said most of their stores sell for $25,000,” Raifer said.
He said he reached a breaking point when Dickey’s headquarters took over his online menu and kept items listed after he had run out, creating confusion for delivery drivers and online customers — a claim the company denies.
“I ended up closing and walking away,” Raifer said. “Now I owe all this money and I’m losing my house.”
Jerry Stephan, another former franchisee, opened a 2,150-square-foot Dickey’s location in Centereach, Long Island, in September 2020. A 2018 article on Dickey’s corporate website announced that Stephan planned to “bring 21 locations to New York state.”
After paying approximately $20,000 to buy into the franchise, Stephan, a construction contractor, said Dickey’s later backed out of the store development deal without explanation.
“They got amnesia and said they weren’t allowed to set up the agreement we had legally, so they circumvented that,” Stephan said. “I was going to build and get a piece of all the other stores. I was planning on that for retirement.”
Stephan, who previously owned Long Island’s first Quiznos sandwich shop, said the requirement to buy from Dickey’s approved vendors and pay marketing fees — which he said yielded little actual promotion — cut into his bottom line.
“I bought stuff through their distributor that was much cheaper elsewhere,” he said. “Their franchise agreement is ironclad. They’ve got you by the horns.”
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Stephan considered legal action but instead sold his location for “half” of what he believed it was worth.
“If franchisees budget $500,000 and it costs $800,000 to open, they rack up credit card debt, take second mortgages, and are destined to fail by the time they open,” said Keith Miller, a franchise advocacy consultant.
Dozens of Dickey’s franchisee’s nationwide have filed lawsuits and complaints to the Federal Trade Commission stating the company made false or misleading statements or omitted facts in a prospectus and franchise registration application materials.
Some “pit owners” say they fell so far into debt they closed their shops in less than a year and others owe creditors as much as $1,000,000, according to the New York Times.
On July 24, the Securities Commissioner within the Maryland Attorney General’s office ruled that Dickey’s made an improper disclosure by not including contact information for past franchisees on Financial Disclosure Documents in 80 cases. The ruling was separate from the suit.
Former franchisees said they were required to pay monthly royalties of 5% and marketing fees of 4% — amounts experts say are on the high end of industry standards. Dickey’s said they charge a “standard 6 percent for royalties and 3% for marketing.”
“Royalties and marketing fees take a nice chunk of your profit,” said Jason Kaplan, CEO of JK Consulting, which advises restaurant owners worldwide. “The issue becomes making the numbers work without that money.”
Raifer, Stephan, and other former operators said they hope speaking out will bring more transparency to the franchise industry.
Dickey’s CEO Laura Rea Dickey said Stephan was released from his development deal after failing to meet “benchmarks” at his store that would have allowed him to “move beyond being an owner-operator of his own locations.”
She also mentioned that Raifer’s store had received poor online customer feedback and low scores in company audits.
Dickey’s said it does not collect commissions from the sale of equipment or goods to franchisees.
Not all franchisees are unhappy.
Gary Mulligan, who owns a Dickey’s location in Whiting, New Jersey, said he invested $700,000 in his store and is satisfied with the partnership.
“Dickey’s is very responsive to me,” Mulligan said. “I feel like they’re family.”
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