Explanation

This risk was not identified in the FDD package. Rapid, uncontrolled growth can strain a franchisor's ability to provide adequate support to new and existing franchisees. Analyzing Item 20 data for sudden spikes in outlet numbers against the franchisor's resources disclosed in Item 21 is a key due diligence step. The data for Donatos LLC shows stable to slightly negative growth in recent years, so this specific risk does not appear to be present.

Potential Mitigations

• Your accountant should review the franchisor's financial statements in Item 21 to assess if they have the capital and staff to support their stated growth plans.
• A business advisor can help you evaluate if the support infrastructure seems robust enough for the number of franchisees.
• Questioning current franchisees about the quality and timeliness of support is a practical way to gauge if the franchisor is overextended.

Explanation

This risk was not identified in the FDD package. Donatos LLC has a very long operating history, founded in 1963 and franchising since the early 1990s. The management team described in Item 2 also shows significant experience in the restaurant and franchise industries. Therefore, the risks associated with a new or unproven system do not appear to apply here.

Potential Mitigations

• Even with an established system, a business advisor should help you investigate the brand's relevance and competitiveness in your specific market.
• Consulting with an attorney to understand any recent changes in ownership or management can reveal shifts in strategy.
• An accountant can analyze financial trends to ensure the established system is not in a period of decline.

Explanation

This risk was not identified in the FDD package. A business model based on a short-term trend can be risky. The pizza restaurant industry, however, is well-established with a long history of consumer demand. Donatos LLC has operated for over 60 years, indicating a sustainable business concept rather than a fad. Therefore, this risk does not appear to be present.

Potential Mitigations

• A business advisor can help you analyze the long-term consumer demand for this specific type of restaurant in your local area.
• Reviewing the franchisor's history of innovation in Item 11 with your business advisor can provide insight into their ability to adapt to changing tastes.
• An accountant can help assess the financial stability of the business model over its long history.

Explanation

This risk was not identified in the FDD package. Item 2 shows that the key executives and leadership at Donatos LLC have extensive experience in the restaurant industry and in franchising, many with long tenures at Donatos or other major franchise brands. This suggests that the management team is not inexperienced and should possess the knowledge to manage the franchise system effectively.

Potential Mitigations

• A business advisor should still help you evaluate the backgrounds of the operational support team members you will interact with directly.
• It is always prudent to ask current franchisees about their direct experiences with the management team's competence and support.
• Your attorney can investigate if there have been any recent, significant changes in key management that could alter the support dynamic.

Explanation

This risk was not identified in the FDD package. Item 1 indicates that Donatos LLC is a family-controlled business, previously having been owned by McDonald's Corporation but bought back by the founding family in 2003. There is no disclosure of current ownership by a private equity firm. Therefore, the specific risks associated with a PE firm's potentially short-term investment horizon do not appear to be present.

Potential Mitigations

• Your attorney can help you verify the current ownership structure through public records to confirm the information in Item 1.
• Even without PE ownership, it is wise to discuss the franchisor's long-term vision and commitment to the brand with your business advisor.
• An accountant should review the financial statements for any large loans or debt covenants that could mimic the pressures of a PE-backed company.

Explanation

The franchisor, Donatos LLC, is owned by its parent company, Destiny Investment Holdings, LLC. The FDD includes consolidated financial statements that combine the results of Donatos LLC and its affiliates, which are entities consolidated due to variable interest entity (VIE) rules. This provides financial transparency into the consolidated group. Therefore, the risk of non-disclosure of a parent company's financials does not appear to be present.

Potential Mitigations

• Your accountant should carefully review the consolidation notes in the financial statements to understand which entities are included and why.
• An attorney can help you understand the nature of the relationship and any guarantees between the parent and the franchisor.
• It is advisable to have a financial professional assess the overall health of the consolidated entity, not just the franchisor subsidiary.

Explanation

This risk was not identified in the FDD package. Item 1 discloses a clear history of the company, including its founding, its operation under predecessor Donatos Pizza, Inc., its acquisition by McDonald's affiliate DPC, and its reacquisition and conversion to the current Donatos Pizzeria, LLC. This appears to be a transparent account of the company's lineage, so the risk of hidden or problematic predecessor history seems low.

Potential Mitigations

• Even with clear disclosure, your attorney can review the history for any potential inherited liabilities or issues.
• A business advisor can help research the public reputation of the brand during its different ownership phases.
• Talking to long-term franchisees who have operated under different ownership structures can provide valuable historical context.