Explanation

This risk was not identified in the FDD package. Item 20 data for the last three years shows a small, growing system with relatively low turnover. There were no terminations or non-renewals disclosed. However, high franchisee turnover can be a major red flag in other systems, indicating potential issues with profitability, franchisor support, or the business model itself. Continuous monitoring of these tables in future FDDs would be prudent.

Potential Mitigations

• As a standard practice, having your accountant analyze the franchisee turnover tables in Item 20 for any negative trends is a key part of due diligence.
• Your attorney can help you formulate questions for current and former franchisees to understand their satisfaction and reasons for leaving, if any.
• A business advisor can help you compare the system's churn rate to available industry benchmarks to assess its relative stability.

Explanation

This risk was not identified. The original Antioch Pizza Shop concept has been in operation since 1977, and the current ownership group has been operating locations since 2008 and franchising since 2016. The system is established and not considered new or unproven. For other opportunities, investing in a new system carries higher risk due to the lack of a track record, which may affect brand recognition, operational smoothness, and franchisor stability.

Potential Mitigations

• For any franchise, a business advisor can help you conduct thorough due diligence on the management team's experience in both the industry and in franchising.
• It is always wise to speak with the earliest-joining franchisees to understand the evolution of the system and the support provided.
• Your accountant should always review the franchisor’s financial statements to assess capitalization and long-term viability.

Explanation

The business is a fast-casual pizza restaurant, a well-established and competitive market segment, not a fad. However, the FDD notes the market is highly competitive. Success will depend on operational execution and local marketing rather than a fleeting trend. The core product has demonstrated long-term consumer demand since 1977. For other franchises, investing in a concept based on a short-term trend can be risky, as your long-term obligations continue even if demand fades.

Potential Mitigations

• A business advisor can help you research the local competitive landscape for pizza restaurants to assess market saturation and positioning.
• Developing a robust local marketing plan with a marketing professional is crucial for standing out in a competitive, non-fad industry.
• With your accountant, create financial projections that realistically account for a highly competitive environment.

Explanation

This risk was not identified in the FDD package. Item 2 indicates that the key principals, Karen and Arthur Wicklein, have been involved with the Antioch Pizza Shop brand since 2008 and have been franchising since 2015. This suggests a reasonable level of experience in both the specific business and in franchising. In other opportunities, inexperienced management can pose a significant risk, potentially leading to inadequate support, weak systems, and poor strategic decisions.

Potential Mitigations

• A business advisor can help you thoroughly vet the management team's background and specific experience in managing a franchise system.
• It is always prudent to speak with existing franchisees about their direct experiences with the quality and responsiveness of management's support.
• Your attorney can help you understand the contractual obligations for support outlined in the Franchise Agreement.

Explanation

This risk was not identified in the FDD package. Item 1 indicates the franchisor is a privately held corporation and does not mention ownership by a private equity firm. This type of ownership can sometimes introduce risks related to prioritizing short-term investor returns over the long-term health of the system. Prospective franchisees in other systems should research the track record of any private equity owner and speak with franchisees about changes since their acquisition.

Potential Mitigations

• If a franchisor is owned by a private equity firm, a business advisor can help research the firm's history with other franchise brands.
• It's important to ask your attorney to review the assignment clause in the Franchise Agreement to understand what happens if the brand is sold.
• Discussing any changes in fees, support, or culture post-acquisition with existing franchisees is a critical due diligence step.

Explanation

This risk does not appear to be present. The franchisor, Wix, is the primary entity, and there is no mention of a parent company structure where the parent's financials would be necessary for a full risk assessment. The FDD provides audited financial statements for Wix itself. When evaluating other franchises, it is crucial to ensure that if a thinly capitalized subsidiary is the franchisor, the financials of the more substantial parent company are also provided.

Potential Mitigations

• Your attorney can help verify the franchisor's corporate structure and identify any undisclosed parent companies or significant affiliates.
• If a parent company guarantees the franchisor's obligations, your accountant should insist on reviewing their financial statements.
• Ensure that any provided parent company financials are audited and meet the same standards required of the franchisor, with guidance from your accountant.

Explanation

This risk was not identified in the FDD package. Wix has no predecessors disclosed in Item 1. The document notes that an affiliate, Wix Pizza, Inc., purchased the assets of the original business in 2008, but Wix Franchise, Inc. is the franchising entity. In other franchise reviews, it is important to scrutinize the history of any predecessors for past issues like litigation or bankruptcy, which could indicate unresolved systemic problems.

Potential Mitigations

• Your attorney should always carefully review Item 1, 3, and 4 for any mention of predecessors and their legal or bankruptcy history.
• When a franchisor has a predecessor, it can be useful to have a business advisor help research the predecessor's public track record.
• Speaking with long-term franchisees who operated under a predecessor can provide invaluable historical context.

Explanation

This risk was not identified. Item 3 of the FDD states that no litigation is required to be disclosed. This is a positive sign, as a pattern of lawsuits, especially those initiated by franchisees alleging fraud or misrepresentation, can be a major red flag indicating systemic problems. However, the absence of disclosed litigation does not guarantee a dispute-free system, as some legal actions may not meet the criteria for disclosure.

Potential Mitigations

• It is wise to have your attorney conduct a public records search for litigation involving the franchisor, as not all cases may be disclosable in Item 3.
• Asking current and former franchisees about their experiences and any disputes, whether formal or informal, is a key part of due diligence.
• Your attorney can help you understand what types of litigation require disclosure in Item 3.