Explanation

This risk was not identified in the FDD Package. Item 20 data on franchisee exits (terminations, non-renewals, and other cessations) over the last three years does not indicate a high turnover rate relative to the system's size. High turnover can be a significant red flag, potentially signaling systemic issues such as franchisee unprofitability, inadequate support, or overly aggressive contract enforcement. Continuous monitoring of this data in future FDDs is prudent.

Potential Mitigations

• It is still advisable to contact a random sample of current and former franchisees from the lists in the FDD to discuss their experiences and satisfaction with the system.
• Your business advisor can help you analyze the provided Item 20 data to calculate annual turnover percentages for your own records.
• An attorney can help you understand your rights and the franchisor's obligations if system health appears to decline in the future.

Explanation

This risk was not identified in the FDD Package. The franchisee and outlet growth rates detailed in Item 20 appear to be moderate and accelerating in a controlled manner. Explosive growth can strain a franchisor's resources, potentially leading to a decline in the quality of support, training, and site selection assistance for new franchisees. While Bonchon is growing, the pace does not currently suggest that its support infrastructure is being outstripped.

Potential Mitigations

• Engaging a business advisor to review the franchisor's growth plans in relation to its support staff and infrastructure is still a useful exercise.
• In your discussions with current franchisees, you should ask about their perception of the quality and timeliness of the support they receive.
• Your accountant can review the franchisor's financial statements to assess if they are allocating sufficient resources to support system growth.

Explanation

This risk was not identified in the FDD Package. Bonchon has been franchising since 2011 and, as per Item 20, has over 140 franchised outlets in operation. This indicates a well-established system with a significant operational history, rather than a new or unproven concept. Therefore, the risks associated with an emerging brand, such as lack of brand recognition or underdeveloped support systems, appear to be lower.

Potential Mitigations

• It is still valuable to have your attorney and business advisor review the entire FDD for any signs of recent, destabilizing changes despite its age.
• Discussing the system's evolution and maturity with long-tenured franchisees can provide valuable historical context.
• An accountant can verify that the franchisor's financial stability aligns with that of a mature system.

Explanation

This risk was not identified in the FDD Package. The business model is centered on Korean-style fried chicken, a food category that has demonstrated sustained consumer demand and is part of a broader trend in international cuisine, rather than a short-lived fad. The franchisor has been in operation for over a decade, suggesting a degree of market resilience and long-term viability. The core product offering does not appear to be dependent on a fleeting trend.

Potential Mitigations

• A business advisor can help you conduct independent market research to assess the long-term consumer demand for this style of food in your specific area.
• Discuss the franchisor's strategy for product innovation and menu development to ensure the brand remains relevant over time.
• It is wise to have your accountant help you develop financial projections that account for potential shifts in consumer tastes.

Explanation

This risk was not identified in the FDD Package. The executive biographies provided in Item 2 indicate that the key management personnel have prior, relevant experience in the restaurant and franchise industries. For example, executives have held senior roles at other established brands like Jersey Mike's, On The Border, and Salata. This level of experience suggests the leadership team is familiar with managing a franchise system and supporting franchisees.

Potential Mitigations

• A business advisor can help you further research the backgrounds and track records of the key executives mentioned in Item 2.
• When speaking with current franchisees, you should inquire about their direct experiences with the management team's competence and responsiveness.
• Your attorney can review the FDD for any recent, significant turnover in key management positions which could indicate instability.

Explanation

This risk was not identified in the FDD Package. Item 1 clearly discloses the franchisor's parent companies up to the ultimate owner, VIG Private Equity Fund III. While the FDD only provides financial statements for the franchisor entity (Bonchon Franchise LLC), it does not appear that the parent company's financials are required for disclosure under FTC rules, as the franchisor itself meets financial requirements and no parent guarantee seems necessary.

Potential Mitigations

• Your attorney can confirm that the disclosure of parent companies in Item 1 is compliant with franchise regulations.
• An accountant should review the provided franchisor financials to ensure they are not dependent on financial support from a parent entity that is not disclosed.
• Inquire with the franchisor about the role the parent companies play in the operation and support of the franchise system.

Explanation

This risk was not identified in the FDD Package. Item 1 provides a history of the franchisor's predecessor, Bonchon Restaurant Company. There are no disclosed issues such as bankruptcy or significant litigation associated with the predecessor in Items 3 and 4. The information appears to provide a clear lineage of the brand without raising red flags about inherited problems or a troubled past that could affect the current system.

Potential Mitigations

• Your attorney should still review the predecessor information in the FDD to ensure it appears complete and compliant.
• It is useful to ask long-tenured franchisees about their experiences under any previous ownership or corporate structure.
• A business advisor can assist in conducting public records searches for information on the predecessor company if there are any concerns.

Explanation

This risk was not identified in the FDD Package. Item 3 discloses one concluded lawsuit initiated by the franchisor against a former franchisee for trademark infringement, which is a normal enforcement action. It also discloses a regulatory consent order with one state regarding a past clerical issue with an accountant, which resulted in no fines. There is no disclosed pattern of litigation where franchisees are suing the franchisor for fraud, misrepresentation, or similar claims, which would be a major red flag.

Potential Mitigations

• Your attorney should still review the details of the disclosed litigation and regulatory action to understand their potential implications.
• It is good practice to ask current and former franchisees about their experiences with disputes and the franchisor's approach to conflict resolution.
• A business advisor can help you search for any undisclosed litigation involving the franchisor or its principals.