Explanation

This risk was not identified. The audited financial statements for Caribou Coffee Company, Inc. (CCDC) and its subsidiaries show consistent profitability, with a net income of $57.7 million in fiscal year 2024. The franchisor's parent company also provides a performance guarantee, which adds a layer of financial backing. No indicators of financial instability, such as a going concern note or negative net worth, were found in the provided documents.

Potential Mitigations

• An accountant should still review the complete financial statements, including all footnotes, to confirm the system's financial health and trends.
• It is wise to have your attorney review the terms of the parent company guarantee to understand its scope and any limitations.
• Discuss the franchisor's financial condition and future investment plans with your business advisor and existing franchisees.

Explanation

This risk was not identified. Analysis of the data in Item 20 for the past two full years (2023-2024) indicates a relatively low franchisee turnover rate, calculated at approximately 6-7% annually. This rate does not suggest systemic problems, widespread franchisee dissatisfaction, or a lack of profitability within the system. The franchisor also discloses that no franchisees have signed confidentiality clauses that would restrict them from discussing their experiences, which is a positive factor for due diligence.

Potential Mitigations

• Your business advisor should help you contact a diverse sample of current and former franchisees from the lists in Item 20 to discuss their experiences.
• It is prudent to ask the franchisor about the specific reasons for the terminations and non-renewals that did occur.
• An accountant can help you compare these turnover rates to available industry benchmarks for a broader context.

Explanation

This risk was not identified. The data in Item 20 shows that the number of franchised outlets has grown at a very modest and controlled pace over the last three years. For instance, the net change in franchised units was +2 in 2023 and +5 in 2024. This does not indicate overly rapid expansion that might strain the franchisor's ability to provide adequate franchisee support.

Potential Mitigations

• A discussion with your business advisor about the franchisor's future growth plans can help you understand the potential pace of future expansion.
• It is beneficial to ask current franchisees about the quality and timeliness of the support they receive from the franchisor.
• Your accountant can review the franchisor's financials in Item 21 to confirm they have the resources to support their stated growth plans.

Explanation

This risk was not identified. CCDC began franchising in 2006 and has a substantial operating history with over 150 franchised units and over 300 company-owned units. The business concept itself dates back to 1992. The system is well-established and cannot be categorized as new or unproven. Financial statements are audited and show significant operations.

Potential Mitigations

• A business advisor can help you review the system's history and its evolution over time to understand its market position.
• Speaking with long-term franchisees can provide valuable insight into the system's stability and development.
• Your accountant can analyze the provided financial statements to confirm the maturity and scale of the business operations.

Explanation

This risk was not identified. The core business is operating retail coffee shops, a well-established and enduring market. Caribou Coffee as a brand has been in operation since 1992, demonstrating long-term consumer demand rather than being a business based on a fleeting trend or fad. The franchisor's long history provides evidence of sustained market relevance.

Potential Mitigations

• A business advisor can help you conduct independent market research to confirm the long-term demand for this type of business in your specific area.
• It is still prudent to evaluate the brand's plans for innovation and adaptation to evolving consumer tastes.
• Discuss the competitive landscape with your business advisor to assess how the brand maintains its market share against competitors.

Explanation

This risk was not identified. Item 2 of the FDD lists the key management personnel, who appear to have significant executive experience at major corporations such as Target and General Mills. This suggests a professional and experienced leadership team is in place to manage the franchise system, reducing the risks associated with inexperienced management.

Potential Mitigations

• A business advisor can help you further research the professional backgrounds of the key executives listed in Item 2.
• It is a good practice to ask current franchisees about their direct experiences and the quality of support from the management team.
• When meeting the franchisor, prepare questions for the management team regarding their vision and strategy for the system.

Explanation

This risk was not identified. FDD Item 1 clearly discloses the parent companies in the corporate structure, up to JAB Holding Company. Furthermore, Item 21 references and Exhibit G provides the audited consolidated financial statements for the parent, Caribou Coffee Company, Inc., as well as a performance guarantee from that parent. The necessary information about the parent entity appears to be properly disclosed.

Potential Mitigations

• Your accountant should review the provided parent company financial statements and the terms of the guarantee.
• It is still beneficial to ask your attorney to confirm the corporate structure and the legal entity you are contracting with.
• When speaking with the franchisor, you can ask for an organizational chart to better visualize the corporate relationships.

Explanation

This risk was not identified. While Item 1 discloses the existence of predecessors, Items 3 and 4 do not indicate any history of significant litigation or bankruptcy involving them. The disclosure appears to provide the required historical context without revealing negative information that would suggest inherited systemic problems.

Potential Mitigations

• A thorough review of the entire FDD with your attorney is important to ensure no other historical issues are subtly mentioned.
• When speaking with long-term franchisees, asking about their experience under any previous ownership can provide valuable context.
• A business advisor can assist you in performing independent online searches for news or articles related to the franchisor's predecessors.

Explanation

This risk was not identified. Item 3 of the FDD states, 'No litigation is required to be disclosed in this Item.' While the financial statement footnotes mention some litigation involving affiliate brands, there is no disclosed pattern of litigation brought by franchisees against Caribou Coffee Development Company, Inc. (CCDC) alleging fraud, misrepresentation, or other systemic issues. The lack of such disclosed litigation is a positive indicator.

Potential Mitigations

• Your attorney should confirm that no other sections of the FDD or its exhibits allude to undisclosed litigation or disputes.
• It is good practice to ask current franchisees if they are aware of any significant disputes within the system, even if not formally litigated.
• A business advisor can help you conduct independent searches for news reports or online discussions of potential franchisee disputes.