Explanation

The risk of high franchisee turnover was not identified, as Chopt Creative Salad Company Franchising, LLC (“Chopt Franchising”) is a new franchise system with only one operational franchisee as of the end of 2024. While this means there is no history of negative turnover, it also means there is very little track record of franchisee success or satisfaction to evaluate. High turnover can be a major red flag indicating systemic problems.

Potential Mitigations

• Since there is a very small franchisee pool, speaking with the single franchisee listed in Exhibit D is critical; your attorney can help prepare questions.
• A business advisor can help you assess the inherent risks of joining a new system with an unproven franchisee support track record.
• Your accountant should review the franchisor's growth plans in Item 20 to understand how they project the system will evolve.

Explanation

This risk was not identified in the FDD package. The Item 20 data shows very slow franchise growth to date. Rapid expansion can sometimes strain a franchisor's resources, potentially leading to a decline in the quality and availability of franchisee support. Systems that grow too fast may struggle to provide adequate training, site selection assistance, and operational guidance to all new units, impacting franchisee performance and satisfaction.

Potential Mitigations

• In discussions with the franchisor, your business advisor can help you inquire about their future growth plans and the corresponding strategy for scaling support staff and infrastructure.
• An accountant can help you analyze the franchisor's financial statements for signs of investment in support systems relative to their expansion goals.
• It is wise to ask your attorney about any contractual commitments the franchisor makes regarding support levels as the system grows.

Explanation

This risk was not explicitly identified. However, the business operates in the competitive fast-casual food industry, which can be subject to changing consumer tastes. A business model heavily reliant on a specific, narrow trend can face long-term viability challenges if that trend fades. A prospective franchisee should consider if the concept has broad, lasting appeal or if it caters to a niche market that could be temporary, as franchise agreements are long-term commitments.

Potential Mitigations

• Engage a business advisor to research the long-term market trends for this specific food concept versus short-term fads.
• Evaluate the franchisor's history of menu innovation and adaptation to changing consumer preferences with your business advisor.
• An accountant can help you model the financial impact of potential downturns in consumer demand.

Explanation

This risk was not identified in the FDD package. Item 1 indicates the franchisor is a subsidiary of Founders Table Restaurant Group, LLC, but does not state this parent is a private equity firm. When a franchisor is owned by a PE firm, there can be a risk that decisions are driven by short-term financial targets, which may not align with the long-term health of franchisees. This can sometimes lead to increased fees or reduced support.

Potential Mitigations

• A business advisor can help you research the ownership structure of the parent company for any ties to private equity.
• It is prudent for your attorney to review the franchise agreement for clauses that might be common in PE-backed systems, like aggressive fee structures.
• An accountant should always review the franchisor's financial stability, regardless of ownership structure.

Explanation

The FDD discloses that Chopt Franchising is a direct subsidiary of Founders Table Franchising, LLC (FTF), and an indirect subsidiary of Founders Table Restaurant Group, LLC. The FDD properly includes the audited consolidated financial statements for the direct parent, FTF, and a Guarantee of Performance from FTF. Therefore, the risk of non-disclosure is not present.

Potential Mitigations

• Your attorney should carefully review the Guarantee of Performance to understand its terms and limitations.
• It is important that your accountant analyze the provided parent company financials to assess the overall financial health of the entity backing the franchisor.
• Engage your business advisor to understand the full corporate structure and how it might impact your franchise.

Explanation

This risk was not identified in the FDD package. The franchisor entity is new and does not list any predecessors in Item 1. When a franchisor acquires a system from a predecessor, it's important to review the predecessor's history for issues like litigation, bankruptcy, or high franchisee turnover, as these can indicate underlying problems that may have been inherited by the current franchisor. In this case, there is no such history to analyze.

Potential Mitigations

• Your attorney should always confirm the predecessor history disclosed in Item 1 of any FDD.
• In cases with a predecessor, it would be wise to ask your business advisor to research the predecessor's reputation and track record.
• If a predecessor existed, an accountant would help analyze any historical financial data or franchisee turnover rates provided.

Explanation

This risk was not identified. Item 3 discloses one past class action lawsuit against affiliates related to a different restaurant concept (Dos Toros) for deceptive marketing claims, which has been settled. While this involves an affiliate, it does not represent a pattern of franchisee-initiated litigation against the Chopt Franchising entity itself concerning its franchise offer. No other material litigation is disclosed.

Potential Mitigations

• A thorough review of any disclosed litigation in Item 3 with your attorney is crucial to understand its potential implications.
• It is prudent to ask a business advisor to research any public information available about the disclosed lawsuits.
• Your attorney can help you ask the franchisor for more context on any legal actions involving their affiliates.