Explanation

This risk was not identified in the FDD package. The data in Item 20 indicates that the franchise system is shrinking, not undergoing rapid growth. Rapid growth can strain a franchisor's ability to provide adequate support, so its absence here is notable, though the reasons for the system's contraction present a different, more significant set of risks.

Potential Mitigations

• During due diligence, it's still wise to have your business advisor help you assess the franchisor's capacity to support its existing franchisees effectively.
• An accountant should review the franchisor's allocation of resources to support services versus expansion.
• Discussions with franchisees can confirm if the current level of support feels adequate for the system's size, a process your attorney can guide.

Explanation

This risk was not identified in the FDD package. Applebee's is a mature brand with a long operational history dating back decades. The franchise system is well-established and not considered new or unproven. The risks associated with this franchise stem from its maturity and recent performance trends rather than a lack of history.

Potential Mitigations

• When evaluating any franchise, a business advisor can help you assess the brand's current market position and long-term viability, even for established systems.
• An accountant should still review the financial statements for several years to understand recent performance trends.
• Speaking with long-term franchisees about the system's evolution can provide valuable insight, and your attorney can help facilitate these conversations.

Explanation

This risk was not identified in the FDD package. The Applebee's concept operates in the casual dining segment of the restaurant industry, which is a long-established and mature market. The business is not based on a recent or fleeting trend, and therefore is not considered a fad.

Potential Mitigations

• For any business investment, you should work with a business advisor to research the long-term consumer demand and competitive landscape for its industry.
• An accountant can help you model the financial impact of potential shifts in consumer preferences over the life of the investment.
• In discussions with current franchisees, ask about how they have adapted to market changes over time.

Explanation

This risk was not identified in the FDD package. Item 2 of the FDD lists the franchisor's management team, which includes executives with extensive backgrounds at major corporations in the restaurant, franchise, and hospitality sectors, such as Dine Brands, McDonald's, and Realogy. The management team appears to be highly experienced.

Potential Mitigations

• When reviewing any FDD, it is a good practice to have your business advisor help research the background and track record of the key management personnel listed in Item 2.
• Your attorney can help you frame questions for the franchisor about management stability and strategic vision.
• Franchisee interviews can provide firsthand insight into their perception of the management team's competence and support.

Explanation

This risk was not identified in the FDD package. Item 1 indicates the ultimate parent company is Dine Brands Global, Inc., which is a publicly traded company listed on the New York Stock Exchange. The franchisor is not owned by a private equity firm.

Potential Mitigations

• It is always prudent to have your attorney investigate the ownership structure of a franchisor, as changes in ownership can impact the system.
• A business advisor can help you research the track record of any parent company, public or private, with its other brands.
• Understanding the ownership structure helps assess whether the focus is on long-term brand health or short-term returns, a topic for discussion with your accountant.

Explanation

This risk was not identified in the FDD package. Item 1 of the FDD clearly identifies the franchisor's parent company, Dine Brands Global, Inc. Furthermore, Exhibit A includes the parent company's audited consolidated financial statements, providing financial transparency at the parent level.

Potential Mitigations

• A franchise attorney should always verify that the FDD properly discloses all parent and affiliate companies as required by law.
• If a parent company guarantees the franchisor's performance, your accountant should insist on reviewing the parent's financial statements.
• Understanding the full corporate structure is a key part of due diligence your business advisor can assist with.

Explanation

Item 1 describes a complex corporate history with several predecessor entities involved in franchising the Applebee's brand. While the history is disclosed, its complexity can make it difficult to trace the complete operational and legal history of the system. However, the primary risks appear to stem from the current entity's performance rather than from specific undisclosed issues with predecessors.

Potential Mitigations

• A franchise attorney should review the predecessor and affiliate disclosures in Item 1 to ensure they are complete and to understand their implications.
• Speaking with long-tenured franchisees can provide valuable historical context about their experiences under any previous ownership structures.
• Your business advisor can help you focus on the current franchisor's performance and stability, as these are the most relevant factors for your investment.