Explanation

This risk was not identified in the FDD. The data provided in Item 20 for the last three years shows very rapid growth but does not indicate a high rate of franchisee terminations, non-renewals, or other cessations of business. Low turnover can be a positive sign of franchisee satisfaction and system health, although the system's newness means long-term trends are not yet established. High turnover would be a significant red flag suggesting potential systemic problems.

Potential Mitigations

• Even with low reported turnover, you should contact current and former franchisees from the list in Exhibit D to discuss their experiences.
• An accountant can help you analyze the Item 20 tables to calculate the precise turnover rates for yourself.
• Your attorney can help you frame questions for the franchisor regarding the circumstances of any units that did transfer or were reacquired.

Explanation

This specific risk was not identified. Item 2 of the FDD indicates that the key executives of the franchisor and its parent company have prior executive-level experience in business, finance, and other franchise systems. The Director of Training also has several years of direct, store-level operational experience with the 7 Brew brand. In franchising, experienced leadership can be crucial for providing effective support, training, and strategic direction to franchisees.

Potential Mitigations

• It is still advisable to discuss the management team's accessibility and effectiveness with current franchisees.
• A business advisor can help you research the professional backgrounds of the key personnel listed in Item 2.
• Prepare questions for the franchisor about the management team's vision and strategy for the system's future.

Explanation

This risk was not identified in the FDD. Item 1 clearly discloses the franchisor's parent companies, Brew Culture, LLC and Blondie Holdings, LLC, as well as its affiliation with investment funds managed by affiliates of Blackstone Inc. Failing to disclose a parent company can be a significant issue, as it may obscure the ultimate financial stability and control structure of the franchise system. The disclosures provided appear to meet legal requirements.

Potential Mitigations

• Your attorney can verify the corporate structure disclosed in Item 1 through public record searches.
• An accountant should review the financial statements of any parent company that guarantees the franchisor's obligations.
• Always ensure that you understand the complete ownership structure before investing, with help from your business advisor.

Explanation

This risk was not identified. The FDD states in Item 1 that the franchisor, Brew Culture Franchise, LLC, has no predecessors. While the parent company acquired the 7 Brew brand in 2020, the franchising entity itself is new. In cases where a franchisor has a predecessor, it is important to scrutinize that entity's history for issues like litigation, bankruptcy, or high franchisee turnover, as those problems could be inherited by the new franchisor.

Potential Mitigations

• Your attorney can help you understand the legal definition of a 'predecessor' to confirm the FDD's statement.
• Speaking with long-term employees or the earliest franchisees can sometimes provide history about the brand before the current franchisor was formed.
• A business advisor can assist you in researching the history of the brand and its prior owners, if any.

Explanation

This risk was not identified, as Item 3 states, "No litigation is required to be disclosed in this Item." A clean litigation history is a positive indicator. A pattern of lawsuits, especially actions brought by franchisees alleging fraud, misrepresentation, or breach of contract, would be a significant red flag. Similarly, a high number of lawsuits initiated by the franchisor against its franchisees could suggest an overly aggressive or litigious culture.

Potential Mitigations

• An attorney can perform independent searches for litigation that may not have met the specific disclosure requirements for Item 3.
• Asking current and former franchisees about their experiences with disputes, whether formal or informal, is a valuable part of due diligence.
• Understanding the dispute resolution process outlined in the Franchise Agreement is critical, and your attorney should review these clauses.