Explanation

This risk was not identified in the FDD package. The business model, operating retail coffee shops, is a well-established and long-standing industry, not a temporary fad. However, it's always important to assess whether a specific brand's take on a concept has long-term appeal. A business tied to a fleeting trend could face declining sales once consumer interest wanes, even though your contractual obligations to pay fees would continue for the entire franchise term.

Potential Mitigations

• A business advisor can help you research the long-term consumer demand for the specific products and atmosphere offered by this brand.
• It is useful to evaluate the franchisor's plans for innovation and adaptation to stay relevant in a competitive market.
• Consulting with your financial advisor is important to consider the business's resilience to shifts in consumer tastes and economic cycles.

Explanation

This risk was not identified in the FDD package. Item 2 indicates that the key executives at RAF have extensive prior experience in the restaurant and franchise industries at established companies like The Wendy's Company and Black Rifle Coffee. This level of relevant experience can be a positive factor, suggesting the leadership team understands the complexities of managing a franchise system. Inexperienced management can be a significant risk, leading to poor support and strategic errors.

Potential Mitigations

• When speaking with current franchisees, it's still a good practice to inquire about their direct experiences with the management team's competence and support.
• A business advisor can help you verify the backgrounds of key executives and assess how their experience aligns with the brand's goals.
• Your attorney can help formulate questions for the franchisor about the management team's specific roles and their vision for the company.

Explanation

This risk was not identified in the FDD package. Item 1 describes the franchisor's parent as Royal Aloha Coffee Company, LLC and does not indicate ownership by a private equity firm. When a PE firm owns a franchisor, there can be a risk that its focus on short-term returns may lead to decisions, such as cutting support or increasing fees, that might not align with the long-term health of franchisees' businesses.

Potential Mitigations

• It is always prudent to have your attorney review the ownership structure disclosed in Item 1 to understand who controls the franchise system.
• A business advisor can help you research the reputation and track record of any parent company or major investors.
• Asking current franchisees about any recent changes in ownership and the impact on the system can provide valuable context.

Explanation

This risk was not identified in the FDD package. Item 1 discloses the parent company, Royal Aloha Coffee Company, LLC, and the audited financial statements in Exhibit G are presented on a consolidated basis, which includes the franchisor and its subsidiary. Furthermore, the parent's role in providing funding is disclosed in the financial statement notes. The disclosure regarding the parent entity appears to be adequate and transparent.

Potential Mitigations

• An accountant should always review the consolidated financial statements to understand the relationship and financial flows between the franchisor and its parent.
• Your attorney can confirm that the disclosures in Item 1 and Item 21 meet all legal requirements regarding parent and affiliate companies.
• Asking the franchisor to clarify the operational and financial relationship with its parent can provide additional clarity.

Explanation

This risk was not identified for the current franchisor. Although Item 3 discloses litigation involving the system's predecessor, there are no disclosed lawsuits against the current franchisor, Royal Aloha Franchise Company, LLC. A pattern of litigation, particularly franchisee-initiated lawsuits alleging fraud or misrepresentation against the current franchisor, is generally a significant red flag about the health of the franchise relationship. The absence of such litigation against RAF is a positive indicator in this regard.

Potential Mitigations

• Your attorney should still perform an independent search for any recent litigation involving the franchisor that may not yet be in the FDD.
• When speaking with franchisees, it is good practice to ask about the general state of relations with the franchisor and any common disputes.
• A business advisor can help you evaluate the predecessor litigation in the context of the current management's practices.