Explanation

This risk of franchisor financial instability was not identified. FDD Item 21 provides audited financial statements for the guarantor, Sunoco LP (Sunoco), a large publicly traded entity. The financials show significant revenues, assets, and net income, with an unqualified audit opinion. This is important because a financially stable franchisor is better equipped to provide ongoing support, invest in the brand, and meet its obligations to you, ensuring the long-term health of the system.

Potential Mitigations

• Having an accountant review the consolidated financial statements, including footnotes on debt and acquisitions, can provide a deeper understanding of the guarantor's financial position.
• It is wise to discuss the nature and strength of the parent company's Guaranty of Performance with your attorney.
• A business advisor can help you research the public performance and market reputation of Sunoco LP.

Explanation

This risk was not identified in the provided data. Item 20 tables show a very low turnover rate for the underlying APLUS store franchises. More importantly, Exhibit F reveals there are currently no Area Representatives in the system. While this means there is no turnover to analyze for your specific franchise type, it highlights the newness of the program. Analyzing turnover is crucial because high rates can signal systemic problems like unprofitability or poor franchisor support.

Potential Mitigations

• Given the lack of Area Representative history, it is vital to speak with APLUS store franchisees to gauge satisfaction with Sunoco's support systems.
• A business advisor should help you question the franchisor about why the Area Representative program has no current participants and its goals for the program's future.
• Discuss the implications of being one of the first Area Representatives in a new program with your attorney.

Explanation

This risk is not present. The data in Item 20 indicates the underlying APLUS franchise system has been stable or slightly shrinking, not growing rapidly. Furthermore, the Area Representative program itself has no current franchisees. Rapid growth can be a risk because it may strain a franchisor's ability to provide adequate support. The lack of growth here presents a different set of considerations about the program's market acceptance and future prospects.

Potential Mitigations

• Engaging a business advisor to question the franchisor about their growth strategy and the resources allocated to support new Area Representatives is prudent.
• Your accountant can help you model the financial implications if the APLUS system does not grow as you might expect.
• Discuss the business plan and market strategy for the Area Representative program with the franchisor to understand their commitment.

Explanation

This risk is not present. The underlying business is convenience stores and gasoline retailing, which is a mature and established industry, not a fad. A fad business carries the risk of declining consumer interest over time, which could jeopardize your long-term investment. The stability of the convenience store market suggests this is not a primary concern here, though standard market competition remains a factor.

Potential Mitigations

• A business advisor can help you analyze the long-term trends and competitive landscape for convenience stores in your specific territory.
• Discuss the franchisor's strategies for keeping the APLUS brand modern and competitive with your marketing advisor.
• Your accountant can help you assess the financial resilience of this type of business against economic fluctuations.

Explanation

This specific risk is not present, as the franchisor is part of a large, publicly traded energy partnership structure, not a typical private equity firm. However, it is important to understand the ownership structure because the parent entity's strategic goals can influence the franchise system. In this case, the parent, Sunoco LP, is a long-established player in the energy sector, which may suggest a focus on long-term operational stability rather than short-term financial engineering.

Potential Mitigations

• A business advisor can help you research the public reports and strategy of the parent company, Sunoco LP.
• Your attorney should review the assignment clauses in the agreement to understand what happens if the franchisor is sold.
• Speaking with APLUS franchisees can provide insight into how the parent company's ownership has impacted the system.

Explanation

This risk was not identified. Item 1 clearly discloses the parent company, Sunoco LP, and other affiliates. Furthermore, Item 21 includes the parent's audited financial statements and a Guaranty of Performance. Proper disclosure of a parent company is crucial when the franchisor is a subsidiary, as the parent's financial strength and stability are often critical to the health of the entire franchise system. The provided disclosure appears to be complete in this regard.

Potential Mitigations

• An accountant should review the parent company's financials to assess its health and ability to support the franchisor.
• The strength and enforceability of the parent's Guaranty of Performance should be reviewed by your attorney.
• It's wise to ask your attorney to verify the corporate structure and the relationship between the franchisor and its parent.

Explanation

This risk was not identified, as the FDD explicitly states in Item 1 that the franchisor has no predecessors. A predecessor is a company from which the franchisor acquired the business, and their history (including litigation or bankruptcy) must be disclosed. Since there is no predecessor, you are dealing directly with the history of Sunoco Retail LLC and its parent, which are disclosed in the document.

Potential Mitigations

• Your attorney can verify the corporate history to confirm the "no predecessor" statement is accurate.
• Focus due diligence on the disclosed history of the current franchisor and its management in Items 2, 3, and 4.
• A business advisor can help research the public reputation and history of the Sunoco and APLUS brands.

Explanation

This risk was not identified. Item 3 discloses two litigation cases, neither of which suggests a pattern of franchisee-initiated claims for fraud or misrepresentation. One case involves the franchisor enforcing its indemnification rights, and the other is a routine dispute over a security deposit that was resolved. A pattern of litigation against a franchisor can be a significant red flag, indicating potential issues with the system or the franchisor's practices, but that does not appear to be the case here.

Potential Mitigations

• Your attorney should always review the details of any disclosed litigation to understand the nature of the disputes.
• It is good practice to perform independent online searches for any additional litigation or complaints involving the franchisor.
• Discuss the franchisor's relationship with its APLUS store franchisees during your due diligence calls.