Explanation

This risk was not identified. The FDD does not show a growth rate that appears to be outpacing the franchisor's support capabilities. However, rapid growth in any franchise system can strain resources. A franchisor focused heavily on selling new franchises might allocate fewer resources to supporting existing franchisees, potentially leading to inadequate training, site selection assistance, or operational support. This can negatively impact the performance and satisfaction of the entire franchisee network.

Potential Mitigations

• Your business advisor can help you analyze the ratio of support staff to the number of outlets to gauge the franchisor's support capacity.
• Investigating the franchisor's plans for scaling its support infrastructure to match any future growth is a prudent step to take with your attorney.
• Speaking with both new and established franchisees about the current quality and responsiveness of franchisor support provides valuable insight.

Explanation

This risk was not identified. Arby's is a well-established brand with a long operational history, and the franchisor has been offering franchises since 2015, with its predecessor having done so for many years prior. An unproven system, however, poses significant risks, as it may lack a refined business model, established brand recognition, or adequate support structures. Franchisees in new systems may face higher uncertainty regarding profitability and long-term viability.

Potential Mitigations

• For any franchise, a thorough review of the management team's experience in both the specific industry and in franchising is vital.
• Consulting with an accountant to scrutinize the franchisor's financial statements for signs of stability and sufficient capitalization is always recommended.
• Your attorney can help you understand any risks associated with a new or rapidly changing business model.

Explanation

This risk was not identified. The fast-food restaurant industry, particularly one focused on sandwiches, is a mature and established market segment rather than a fleeting trend. A fad-based business carries the risk that its popularity may decline quickly, potentially leaving franchisees with an obsolete concept and a long-term contractual obligation. Assessing the long-term consumer demand for a product or service is a critical piece of due diligence for any franchise investment.

Potential Mitigations

• A business advisor can help you research the long-term market trends and consumer demand for the franchise's core products or services.
• Examining the franchisor's history of innovation and adaptation, as disclosed in Item 11, is a useful exercise.
• It is wise to consider the business's resilience to economic downturns and changing consumer tastes with your financial advisor.

Explanation

This risk was not identified. The management team disclosed in Item 2 appears to have extensive experience within the restaurant and franchise industries, with many executives holding senior roles at parent company Inspire Brands or its other large affiliated brands. Inexperienced management can be a significant risk, as it may lead to poor strategic decisions, underdeveloped operational systems, and inadequate support for franchisees, thereby increasing the potential for business failure.

Potential Mitigations

• A business advisor can help you independently research the backgrounds of the key executives listed in Item 2.
• Engaging with current franchisees to inquire about their direct experiences with the management team's competence and support is a critical due diligence step.
• An accountant can analyze the company's financial performance under the current management team to look for signs of stability and growth.

Explanation

This risk was not identified. The FDD discloses parent companies, including Arby's Restaurant Group, Inc. (ARG), and provides ARG's audited financial statements in Exhibit B. Failure to disclose a parent company or its financials when required can obscure significant risks. If a franchisor is a thinly capitalized subsidiary, the financial health of the parent becomes critical to understanding the true stability and support capacity of the franchise system.

Potential Mitigations

• Your attorney should always verify the corporate structure disclosed in Item 1 to ensure all relevant parent and affiliate entities are identified.
• If a parent company provides guarantees or is a key supplier, it is essential to have an accountant review its financial statements.
• Ensuring that any provided parent financials are audited and conform to GAAP is a task for your accountant.

Explanation

This risk was not identified. The FDD properly discloses Arby's Restaurant Group, Inc. as the predecessor and provides relevant information, including its litigation history. When a franchisor has acquired a system, it is important to scrutinize the predecessor's history for issues like litigation, bankruptcy, or high franchisee turnover. These past problems can sometimes carry over and affect the health of the current franchise system, indicating potential inherited challenges.

Potential Mitigations

• Your attorney should carefully review all information related to predecessors in Items 1, 3, and 4 of the FDD.
• Speaking with long-term franchisees who operated under the predecessor can provide valuable historical context.
• A business advisor can help you research the predecessor's public track record for any additional insights.