Kiwi Kraze accused of misleading customers

November 21, 2013 22 Comments »
Kiwi Kraze accused of misleading customers
Kelly Samuel // GAZETTE

A franchisee is suing the London-based frozen yogurt chain, claiming the product was not always fat-free as advertised. The company says it immediately fixed the problem. An exclusive Gazette investigation by Aaron Zaltzman and Jesica Hurst.


04b_graphic-kiwi-MikeLaine

Mike Laine // GAZETTE

Kiwi Kraze, a popular frozen yogurt chain that has recently expanded throughout Ontario, advertises itself as fresh, delicious and healthy. On its website, the London-based chain proudly describes its yogurt as “an all-Canadian proprietary blend, [that] is fat free.”

However, recent allegations have come to light that this fat-free branding may not always have been accurate, and for over a year of its operations, the North London corporate flagship store served products labelled as fat-free that actually contained fat.

These allegations come from Tom Stinson, the owner and operator of the Kiwi Kraze franchise located in Mississauga, and Karyn Butt, the store manager. When their location opened in September 2012, most of the products they received for sale contained fat, even though, they claim, they were sold on the idea of the franchise serving fat-free products.

On July 10, 2013, Stinson initiated a civil lawsuit that alleged, among other things, that the North London Kiwi Kraze store knowingly served yogurt that contained fat, while advertising itself as being fat-free. Stinson is seeking damages in the amount of $530,000 because the system he bought into was based on a product that was fat-free, which was not the product he ended up serving.

These allegations have not been proven in court.

Stinson’s statement of claim alleges that Mark Wiebe, the sole officer, director and shareholder of Kiwi Kraze Holdings Ltd. and Ari Psihopedas, described as the “directing mind” of Kiwi Kraze’s franchise operations, served fat-free yogurt for only a short period time of the store’s early existence. The lawsuit claims that “Until late 2012, the Kiwi Kraze frozen yogurt products contained between three and eight per cent fat; yet, the claimed fat-free makeup of the products was at the heart of the franchise concept.”

The claim states that Wiebe and Psihopedas switched to a fat-free product supplier sometime in fall 2012, over a year after opening the North London store, in order to comply with their fat-free branding. Stinson and Butt claim that Wiebe and Psihopedas misrepresented their product to them, as well as to Kiwi Kraze customers.

Stinson declined to speak on the record, deferring communication for this story to Butt.

Wiebe and Psihopedas, however, deny any wrongdoing on their part, and claim that they themselves were the victims of misrepresentation. In a statement of defence they filed on October 9, 2013 in response to the lawsuit, they allege that their product supplier represented the products they were ordering as fat-free, which they subsequently learned was not true. In the statement of defence, Wiebe and Psihopedas “plead that some of the yogurt it sold was fat-free while some of the yogurt was not.” They claim that as soon as they discovered the nutritional information of the products they were ordering, they immediately switched to a provider that could supply fat-free products.

The first Kiwi Kraze store opened on May 26, 2011 at 595 Fanshawe Park Road, just west of Masonville Place. However, the idea for the store began not in London, but in Idaho Falls, Idaho, where the first Kiwi Loco store opened in 2009.

In the statement of defence, Wiebe states he and his wife were interested in becoming franchisees, but the owners were not interested in expanding to Canada. According to Wiebe, they suggested he begin his own franchise system, which would grow into Kiwi Kraze.

When they first opened, Kiwi Kraze ordered their products from a dairy supplier called Foothills Creamery, through the Yogurt Distribution Company, an Ontario-based distribution company.

According to Sam Haider, CEO of the Yogurt Distribution Company, the first products delivered to the North London store were fat-free.

“Based on Mark’s requirements we did a private label for him, [which] means that it’s a custom mix that is exclusive to Kiwi Kraze [...] that is made with his requirements,” Haider said in an interview. “He wanted a non-fat mix that was labelled as ‘Kiwi Kraze’ with his brand. And that’s what we did.”

“His flavour tags above that tell [customers] what the flavour is — strawberry, blueberry, cheesecake or whatever — they all said ‘non-fat’” –Karyn Butt, manager of Mississauga franchise

There is disagreement over the extent to which Kiwi Kraze products were advertised as fat-free at the time. Psihopedas said, “some of the products were advertised as fat-free,” and in the statement of defence, filed by him and Wiebe, it states “it was never represented to [Stinson] that Kiwi Kraze only sells fat-free frozen yogurt,” and that it offered different products “including fat-free and sugar-free products.”

However, Karyn Butt, the manager of the Mississauga franchise, said there was no ambiguity about how the yogurt was advertised. Butt said the product, with the exception of the no sugar added flavours, was “always” advertised as fat-free.

“His flavour tags above that tell [customers] what the flavour is — strawberry, blueberry, cheesecake or whatever — they all said ‘non-fat,’” she said in an interview.

According to Butt and another franchisee that wished to remain anonymous, the North London Kiwi Kraze store was advertised this way from the time it opened until the time of publication.

After serving the private label yogurt mix from Foothills Creamery in the North London location for the first few months, in the summer of 2011 Kiwi Kraze had to switch to ordering off-the-shelf products that contained fat, according to Haider.

“[Kiwi Kraze] was growing [...] and because of [Wiebe’s] growth, we were not able to promise him further private labels,” Haider said. “We told him that we would only be able to send him our regular mix.”

According an invoice dated August 24, 2011 obtained by The Gazette, the new products being delivered to the store were: Miss Sharon’s Chocolate Yogurt Mix, Miss Sharon’s Fat Free Country Vanilla, Soft Serve (Tart) Yogurt Mix and Miss Sharon’s 3.3 Yogurt Mix. With the exception of the Fat Free Country Vanilla, all contain fat.

According to Foothills Creamery, the fat content of these products is, respectively: 5g of fat per 100ml, 0g of fat per 100ml, 6g of fat per 125ml and 5g of fat per 100ml.

According to Haider, Wiebe wanted to place another order for private label products, but the production took too much time to set up. Because of this, Haider said he offered to provide Wiebe with other products that were already being produced by Foothills Creamery — the off-the-shelf products — until Wiebe figured out “the way forward.

It was at that point that Haider told Wiebe which Foothills Creamery products he could provide him with.

“I explained to him what our Foothills Creamery products were, gave him the information on the products available, and when he placed the order he got it,” he said. “He was aware of what the products [were] — I don’t know if he was aware of any particular nutritional information.”

“[We were] told by the supplier that every item Kiwi Kraze marketed as fat-free was fat-free.” –Mark Wiebe, Kiwi Kraze founder

However, Haider explained the nutritional information is not only available on the Yogurt Distribution Company’s online portal, but the ingredients are also available on the boxes of the containers.

According to Wiebe, however, the products that were delivered to the North London location were misrepresented.

“We were given labels that indicated the products were fat-free,” Wiebe said in an interview. Psihopedas claimed what Kiwi Kraze was given was not what they thought they were buying.

“[We were] told by the supplier that every item Kiwi Kraze marketed as fat-free was fat-free,” Wiebe stated to The Gazette.

Haider countered, in an interview with The Gazette, that the products could not have been misrepresented because each box is labelled. He said he believes this situation was about neglect, as Kiwi Kraze was going through “tremendous growth” at the time.

“Everyone and their brother was asking [Wiebe] for a franchise and he had lineups and a very good season,” he said. “I would say in all fairness this would be considered a misunderstanding or confusion, or not having the foresight to check things.”

However, Butt does not think Wiebe was lacking in knowledge about the products he was ordering.

“He couldn’t have not seen the labels previously [...] there was no possible way, it being that big on the box, on the jug,” she said. “We’ve all gone to buy milk from the grocery store. We all know how to read that label, the same way that we knew the minute [those products] dropped on our doorstep.”

“They were not misrepresented.”

The Kiwi Kraze franchise owner who requested to be kept anonymous also claimed the nutritional information had been available to Wiebe since they first met him.

“I couldn’t tell you what happened before we met him, but when we met him they were receiving the same product and it’s labelled on the product,” the franchisee said. “When they receive [the product], it is labelled on the jug of yogurt itself that it contains fat.”

Other franchise owners The Gazette contacted were either unwilling to comment or did not respond to requests for comment.

Allegedly during this time, Kiwi Kraze continued to advertise the product as fat-free.

On May 11, 2012, a customer by the name of Miguel Kenedy posted on the “Kiwi Kraze – N. London” Facebook page, saying, “I tried Kiwi Kraze Yogurt and it was realy great but when we analised it we found to contain high milk fat. The same ingredients as ice cream. Is it intentionelly or are you pulling wool ove the public [sic].” The Kiwi Kraze account responded, saying, “Obviously a mistake has been made because our product is fat free as advertised.”

The North London store continued to serve these products until sometime in the fall of 2012, although no sources could confirm the exact date.

According to the statement of claim, Stinson and Butt received the Foothills Creamery products on September 24, 2012 — three days before the Mississauga store was scheduled to open — and immediately discovered that many of them contained fat. Stinson demanded an explanation from Wiebe and Psihopedas, who he claims in turn told him they had been unaware of the fat content of the products. Butt, however, said she didn’t believe them.

“We had to change manufacturers immediately. Right when we became aware of it, we changed it” –Ari Psihopedas, “directing mind” of Kiwi Kraze franchise operations

An invoice for the Mississauga store dated September 24, 2012, which The Gazette has obtained, lists the same products that had been delivered to the North London store a year earlier.

Stinson also alleges in the statement of claim they were instructed to remove the labels from product containers “to avoid damaging the Kiwi Kraze brand.” Wiebe and Psihopedas deny giving any such instruction.

It was shortly after the Mississauga franchise opened that Kiwi Kraze corporate decided to switch product suppliers, and began ordering from another dairy supplier, Coppa Di Gelato, which provided Kiwi Kraze with fat-free yogurt, according to the statements from both parties. With the exception of ordering no sugar added products, Kiwi Kraze had stopped ordering from Foothills Creamery through the Yogurt Distribution Company.

Psihopedas said the switch was made as soon as he and Wiebe discovered the nutritional value of the Foothills Creamery products they had been ordering.

“We had to change manufacturers immediately,” Psihopedas explained. “Right when we became aware of it, we changed it.”

Butt, however, does not believe that claim.

She cites an instruction sheet, which The Gazette has obtained, that Butt said was sent to her and other franchisees by Kiwi Kraze corporate. The sheet explains how to mix various yogurt bases with flavourings. Of the 77 mixes, 69 of them used either the 3.3, Soft Serve or Chocolate yogurt base, all of which contained fat.

Psihopedas said the reason Kiwi Kraze selected Coppa Di Gelato was because of its superior nutritional value. He explained the new product, which was delivered to all franchises opened after the Mississauga location — starting with a machine in Saugeen-Maitland Hall, a residence at Western, on October 1, 2012 — “is beyond the best on the market right now, with how we put it together.”

“As soon as all this happened, we cleared it up,” Psihopedas explained. “[We] got the best product available, and that’s all that Western has seen, and all the other stores.”

“We’re very proud of our product, and we’re very proud of our manufacturer,” he said.

The opening of the franchise in Mississauga was quickly followed by several others. In October 2012, the Kiwi Kraze dispensary was installed in Saugeen-Maitland Hall, and by the beginning of December three more franchises would open in Kanata, Vaughan and South London. There are now 13 franchises operating in Ontario, with three more opening soon, according to the Kiwi Kraze website. However, only the North London and Mississauga locations are alleged to have served yogurt containing fat that had been advertised as fat-free.

Invoices from Kiwi Kraze - Click to enlarge

Invoices and other documentation from Kiwi Kraze (Click to enlarge) — Mike Laine // GAZETTE

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Timeline of events (Click to enlarge) — Naira Ahmed // GAZETTE

 

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