Explanation

The franchisor, Sunoco Retail LLC (Sunoco), is backed by a guaranty from its parent company, Sunoco LP. The provided audited financial statements for Sunoco LP show it is a large entity with significant assets and positive net income over the last three years. This strong financial backing suggests the franchisor has the resources to support the franchise system, reducing the risk of financial instability.

Potential Mitigations

• An accountant should review the parent company's financial statements, including all footnotes and the auditor's report, to confirm its financial strength and ability to support the franchisor.
• It's wise to discuss the legal and practical implications of the parent company's guaranty with your franchise attorney.
• A business advisor can help you assess how the franchisor's financial stability impacts its capacity for ongoing support and system development.

Explanation

Item 20 data indicates low franchisee turnover. Over the past three years, the system experienced a total of eight terminations and no non-renewals or franchisor reacquisitions out of a base of approximately 250 franchised units. This low rate of turnover may suggest a stable and potentially satisfied franchisee base, which is a positive indicator for the health of the franchise system.

Potential Mitigations

• You should still contact a diverse sample of current and former franchisees from the list in Exhibit C to discuss their experiences.
• An accountant can help you analyze the three-year trend data in Item 20 to confirm the system's stability.
• Discussing the reasons for the few terminations that did occur with the franchisor can provide additional insight.

Explanation

This risk was not identified in the FDD package. The data in Item 20 shows a stable to slightly declining number of total outlets over the last three years, which does not suggest excessively rapid growth that might strain support systems. Assessing a franchisor's capacity to support its growth is important, as over-expansion can lead to diluted support for all franchisees.

Potential Mitigations

• It is always prudent to ask the franchisor about their future growth plans and the corresponding strategy for scaling franchisee support.
• Your business advisor can help evaluate the franchisor's management infrastructure relative to its system size.
• A review of the franchisor's financial statements with an accountant can provide insight into their investment in support services.

Explanation

This risk was not identified in the FDD package. Sunoco has been offering APLUS franchises since 1993, and its parent company is a large, established entity. Its management team, as detailed in Item 2, possesses significant industry experience. A new or unproven system can carry higher risks due to the lack of a track record, minimal brand recognition, and potentially underdeveloped support systems.

Potential Mitigations

• When evaluating any franchise, a business advisor can help you assess the depth and relevance of the management team's experience in both the industry and in franchising.
• Even with an established system, speaking with franchisees who have joined at different times can provide a balanced view of the system's evolution and support.
• An attorney should always review the complete FDD package for any signs of recent, material changes in ownership or strategy.

Explanation

This risk was not identified in the FDD package. The convenience store and gas station industry is a mature and established market, not typically associated with short-term fads. A business based on a fad carries the risk that consumer interest will decline, potentially leaving you with a worthless business even though you are still bound by the franchise agreement.

Potential Mitigations

• When considering any franchise opportunity, it's beneficial to conduct independent market research with a business advisor to assess long-term consumer demand.
• Evaluating a business concept's resilience to economic shifts and changing consumer tastes is a critical step in due diligence.
• Your financial advisor can help you assess the long-term viability of the business model before you invest.

Explanation

This risk was not identified in the FDD package. Item 2 shows that the key executives at Sunoco and its parent company have extensive experience, often spanning decades, within the fuel and convenience store industry. Inexperienced management can be a significant risk, potentially leading to poor strategic decisions and inadequate support for franchisees, even in an established system.

Potential Mitigations

• A business advisor can help you review the backgrounds of the franchisor's key operations and support personnel listed in Item 2.
• Engaging with current franchisees can provide direct feedback on the management team's competence and responsiveness.
• An attorney can help investigate if there has been recent, significant turnover in the franchisor's management team.

Explanation

This risk was not identified in the FDD package. Item 1 indicates the parent company is Sunoco LP, a publicly-traded master limited partnership, not a private equity firm. Private equity ownership can sometimes lead to a focus on short-term returns, which may not always align with the long-term health of franchisees' businesses. This could manifest as reduced support or increased fees to maximize profits before a sale.

Potential Mitigations

• In any franchise review, it is important to understand the ownership structure with the help of your attorney.
• A business advisor can help you research the ownership entity's history and reputation with other brands, if applicable.
• Examining the franchisor's right to assign the agreement in Item 17 with your attorney is crucial regardless of ownership structure.

Explanation

This risk was not identified in the FDD package. The franchisor, Sunoco Retail LLC, clearly discloses its parent company, Sunoco LP, in Item 1. Furthermore, it provides the audited financial statements for Sunoco LP, which acts as the guarantor for the franchisor's performance, in Exhibit H. Failing to disclose a parent company or its financials when required can obscure the true financial stability and backing of the franchise system.

Potential Mitigations

• An accountant should always verify that the financial statements provided are for the correct entity and meet all disclosure requirements.
• When a parent company is involved, your attorney should confirm the nature and enforceability of any performance guarantees offered.
• Understanding the complete corporate structure is a key piece of due diligence a business advisor can assist with.

Explanation

This risk was not identified in the FDD package. Item 1 clearly states that Sunoco Retail LLC was formed in 2015 but notes that it or its affiliates have operated a similar business for over 30 years and have been offering APLUS franchises since May 1993. The document does not indicate any predecessors from which assets were acquired. Predecessor history, when applicable, is important for understanding potential inherited issues.

Potential Mitigations

• Your attorney should always carefully review Item 1 for any mention of predecessors and their operating history.
• If predecessors are disclosed, speaking with long-term franchisees about their experience under previous ownership is a valuable due diligence step.
• A business advisor can assist in researching the history of a brand, especially if it has undergone recent ownership changes.

Explanation

Item 3 discloses one pending lawsuit where Sunoco is the plaintiff against a franchisee regarding a breach of contract and indemnity claim. It also lists one completed matter where Sunoco was a defendant over a security deposit, which was resolved. The FDD does not show a pattern of litigation initiated by franchisees alleging fraud or misrepresentation. Such a pattern would be a significant concern, suggesting potential systemic issues with the franchisor's practices.

Potential Mitigations

• A franchise attorney can provide valuable context for the types of litigation disclosed in Item 3.
• Speaking with current and former franchisees can offer perspective on the franchisor's general approach to resolving disputes.
• It is prudent to have your attorney review any disclosed litigation to understand its potential relevance to your own investment.