Case 3: Cousins Maine Lobster company

Sabin Lomac and Jim Tselikis launched Cousins Maine Lobster as a food truck in
southern California. Would you purchase a franchise from this fast-growing franchisor?

Some of the fondest memories that cousins Jim Tselikis and Sabin Lomac have of their
childhood days near Port-land, Maine, are family picnics that featured fresh, locally caught
lobster and lobster rolls. Eventually, both Tselikis and Lomac moved away, Tselikis to
Boston and Lomac to Los Angeles.

In 2011, Tselikis flew to the West Coast to visit his cousin, and over drinks one evening, the
two began reminiscing about the wonderful fresh lobster meals they had enjoyed as kids.
They also noted the popularity of food trucks and decided to pool their resources to launch
a side business, Cousins Maine Lobster, that would serve lobster flown in from Maine in
the form of lobster rolls (chunks of lobster meat served on splittop rolls topped with
butter), lobster tacos, lobster bisque, and clam chowder.

They in-vested $20,000 of their own money, bought a food truck, and began outfitting it as
a rolling lobster wagon. In April 2012, on their first day in business, Tselikis and Lomac saw
a line of customers that wrapped around the block. Business was so brisk that they ran out of
food, and they knew that they were on to a business with real potential. Within six months,
they quit their jobs to run the business as a full-time venture. Local media coverage led to
an appearance on ABC’s Shark Tank, where the cousins pitched their idea to the sharks
and endured intense questioning. During the eight weeks leading up to the show, Tselikis
and Lomac practiced their elevator pitch, reviewed their company’s financials to come up
with a value for the business, and rehearsed answers to the questions they thought the
sharks might ask. At the end of their segment, Barbara Corcoran agreed to invest $55,000
in return for 15 percent of the company (which established a value of $367,667 for Cousins
Maine Lobster).

Corcoran proved to be a valuable investor, helping Tselikis and Lomac land appearances
on national television shows, including The Today Show, Good Morning America, Master
Chef, and others, and helping them realize that franchising would be the ideal way to
expand their business. Although Tselikis and Lomac had never envisioned franchising
when they started Cousins Maine Lobster, they began working with the Franchise
Development Group to create the Franchise Disclosure Document that the Federal Trade
Commission requires every franchisor to provide to prospective franchisees. Because they
had been operating their food trucks, which now numbered four, for only a year, they
spent many long days developing training manuals and courses for franchisees.

They were still learning about pay-roll, insurance, and maintaining quality control and
were busy opening an e-commerce division focused on shipping lobster and other seafood
products directly to customers across the country. Once their Franchise Disclosure
Document was completed, Tselikis and Lomac made a follow-up appearance on Shark
Tank, where they announced that they were selling Cousins Maine Lobster franchises.

Their appearance garnered more than 1,000 inquiries from would-be franchisees, and the
flood of applications continues. Franchise Development Group conducts the initial
screening of the applications, before Tselikis and Lomac interview the remaining
applicants either by phone or Skype. They make the final decision about awarding
franchises only after meeting candidates in person at one of the company’s discovery days
in Los Angeles.

Every potential franchisee spends time in one of the company-owned food trucks, and
Tselikis and Lomac have learned to include the chef’s opinions in their final decisions
about awarding franchises, pointing out that they are almost always right about which
candidates will be successful. Currently, the company, which generates $20 million in
annual sales, has 20 food trucks in 13 cities across the United States, with more on the way,
including some in international markets. Cousins Maine Lobster estimates that
franchisees’ total investment ranges from $143,000 to $345,000.

Franchisees pay an upfront franchise fee of $38,500, an ongoing royalty fee of 8 percent of
their gross sales, and a 2 percent advertising fee. Looking back, Tselikis and Lomac say
that although their journey into franchising has presented a steep learning curve and that
relinquishing control to franchisees can be disconcerting, they are extremely satisfied with
the path they have taken and the results so far.

Questions 1. Suppose that your best friend is considering purchasing a franchise such as
Cousins Maine Lobster. What advice would you give him or her about the right way to go
about purchasing a franchise?

2. What advantages do entrepreneurs who purchase a franchise get? What disadvantages

do they encounter?

3. Cousins Maine Lobster wants to expand its franchise internationally. How popular is
franchising as an “ex-port” to other nations? What steps should Tselikis and Lomac take to
cultivate a successful international franchise operation?
Case 3: Cousins Maine Lobster https://www.cousinsmainelobster.com/

Related Chapters:
 Chapter 8: Franchising and the Entrepreneur
 Chapter 16: Global Aspects of Entrepreneurship

1. Suppose that your best friend is considering purchasing a franchise such as Cousins
Maine Lobster. What advice would you give him or her about the right way to go about
purchasing a franchise? (Chapter 8, LO 4) (AACSB: Reflective thinking)
The friend should be advised to follow certain steps before deciding on purchasing a franchise
such as Cousins Maine Lobster. The steps include:
 Evaluating oneself. The would-be franchise has to evaluate his/her own traits, goals,
experience, likes, dislikes, risk orientation, income requirements, time and family
commitments, and other characteristics.
 Research the market. Before deciding on a franchise, the friend should research the
market in which he/she plans to open the franchise. Key areas include the macro and
the competitive environments in the area.
 Consider the franchise options. Before selecting the particular franchisor, the friend
should consider the franchising options available. Instead of settling on the first
available franchise, one should consider all the options.
 Obtain a copy of the Franchisor’s Franchise Disclosure Document. The FDD is an
important tool in one’s search for the right franchise.
 Talk to existing franchisees. While the FDD is an important document, it should be
supplemented by visits to franchise owners to get an understanding of their
experiences.
 Ask the franchisor relevant questions. Reading the FDD and talking to franchisees
should lead to the friend asking the franchisor questions about the franchise
relationship. Such questions should be aimed at clarifying any ambiguous areas.
 As the final step, the friend should make the choice of the franchise to own.
2. What advantages do entrepreneurs who purchase a franchise get? What
disadvantages do they encounter? (Chapter 8, LO 2A and 2B) (AACSB: Reflective
thinking)
The benefits of owning a franchise are the following:
 A multitude of options
 A business system
 Management training and support
 Brand-name appeal
 Standardized quality of goods and services
 National advertising programs and marketing assistance
 Financial assistance
 Proven products, processes, and business formats
 Centralized buying power
 Site selection and territorial protection
 Greater chance of success
However, there are also disadvantages associated with franchising, such as:
 Franchise fees and ongoing royalties
 Strict adherence to standardized operations
 Restrictions on purchasing and prices
 Limited product line
 Contract terms involving termination, sale or buyback
 Unsatisfactory training programs
 Market saturation
 Less freedom
3. What is the Franchise Disclosure Document? How can it help prospective
franchisees evaluate the various franchise operations in which they are considering
investing? (Chapter 8, LO 3) (AACSB: Reflective thinking)
The Franchise Disclosure Document (FDD) is a document that every franchisor is required by
law to give prospective franchisees before any offer or sale of a franchise. It outlines 23
important pieces of information about the franchisor and the franchise.
The FDD helps prospective franchisees because since it is a disclosure document, all the relevant
facts about the franchise can be obtained prior to making a decision. For example, it has
information about the initial and ongoing franchise fees as well as the investment required to
open a franchise.
4. Cousins Maine Lobster wants to expand its franchise internationally. How popular
is franchising as an “export” to other nations? What steps should Tselikis and Lomac take
to cultivate a successful international franchise operation? (Chapter 8, LO 5 and Chapter
16, LO 1) (AACSB: Application of knowledge)
One of the major trends in franchising is the internationalization of American franchising
systems. Franchising American businesses like Cousins Maine Lobster has become a major
export industry as evidenced by the increasing number of international franchisees of companies
such as McDonald’s, KFC, Pizza Hut, Taco Bell, and Subway.
Tselikis and Lomac should be careful in attempting to create an international franchise operation
for Cousins Maine Lobster. They should examine if adaptation is required for foreign markets.
Adaption areas include business format as well as products because these may not suit foreign
markets.