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How much does Dunn Brothers Coffee cost?
Initial Investment Range
$455,600 to $798,960
Franchise Fee
$40,000
The franchise is the right to develop a Dunn Brothers Coffee branded shop that sells coffee that is roasted daily using state-of-the-art micro-roasting techniques and fresh bakery items such as breads, pastries, breakfast and lunch sandwiches, wraps, desserts, other similar food and beverages and related products that franchisor may designate from time to time.
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Dunn Brothers Coffee May 17, 2025 FDD Risk Analysis
Free FDD Library AI Analysis Date: August 19, 2025
DISCLAIMER: Not Legal Advice - For Informational Purposes Only. Consult With Qualified Franchise Professionals.
Franchisor Stability Risks
Start HereDisclosure of Franchisor's Financial Instability
High Risk
Explanation
Dunn Bros Franchising, LLC's (Dunn Bros) audited financials show a history of net losses, negative working capital, and very low equity relative to liabilities. The FDD explicitly states in its 'Special Risks' section that this financial condition 'calls into question the Franchisor's financial ability to provide services and support to you.' This weakness has led some states to require fee deferrals, indicating a significant risk to the franchisor's stability and ability to support its franchisees.
Potential Mitigations
- A franchise accountant must conduct a deep analysis of the audited financial statements and footnotes to assess the company's viability.
- In discussions with the franchisor, your business advisor should help you probe for details on their plans to improve financial stability and fund support services.
- Consulting your attorney regarding the protections offered by state-mandated fee deferrals or financial assurance requirements is essential.
High Franchisee Turnover
High Risk
Explanation
The FDD's Item 20 tables reveal a consistently high rate of franchisee churn. Over the last three years, the number of franchised shops has declined from 58 to 44. The annual churn rate from terminations, non-renewals, and other cessations has been approximately 10-12%. This level of turnover is a significant red flag, suggesting potential systemic issues with profitability, franchisee satisfaction, or the overall business model that you might face.
Potential Mitigations
- It is critical to contact a significant number of former franchisees listed in Exhibit D to understand their reasons for leaving the system.
- Your accountant should analyze the turnover data trends over the past three years to assess the stability of the franchisee base.
- A frank discussion with the franchisor about the causes of this high turnover is warranted, with questions prepared by your attorney.
Rapid System Growth
Low Risk
Explanation
This risk was not identified in the FDD package. The data in Item 20 shows a net decrease in the number of franchised units over the past three years, not rapid growth. A franchisor expanding too quickly can strain its ability to provide adequate support to new and existing franchisees, but that does not appear to be the case here.
Potential Mitigations
- When evaluating any franchise, your accountant should compare the rate of unit growth in Item 20 with the franchisor's financial capacity in Item 21.
- A business advisor can help assess if a franchisor's support infrastructure seems capable of handling its expansion plans.
- Asking existing franchisees about the quality and timeliness of support during periods of growth is a key due diligence step your attorney can guide.
New/Unproven Franchise System
Medium Risk
Explanation
The current franchisor entity was formed in June 2022 and has a history of financial losses. While the Dunn Bros brand is long-established, this new ownership entity has never directly operated a shop itself. This combination presents a risk, as the entity managing the system is relatively new and financially weak, even though its management has prior industry experience. This could impact the quality and consistency of support.
Potential Mitigations
- Your attorney should carefully review the transfer documents from the predecessor to understand what assets and obligations were assumed.
- Engaging a business advisor to assess the management team's experience in turning around systems with high turnover is recommended.
- Discuss the new entity's strategy for stabilizing the system with both the franchisor and existing franchisees.
Possible Fad Business
Low Risk
Explanation
This risk was not identified. The business is a coffee shop featuring fresh bakery items, which is a well-established and enduring business category rather than a short-term fad. The concept does not appear to rely on a novel or fleeting trend for its customer appeal, suggesting a more stable market demand.
Potential Mitigations
- A business advisor can help you independently research the long-term market demand for any franchise concept's core products or services.
- Evaluating a franchisor's commitment to research and development can provide insight into their plans for long-term relevance.
- Your financial advisor can help assess a business model's resilience to changing consumer tastes and economic conditions.
Inexperienced Management
Low Risk
Explanation
This risk was not identified in the FDD. Item 2 shows that the key executives have significant prior experience in the restaurant industry and with other franchise brands, such as MOOYAH and Rusty Taco. Although the franchisor entity itself is new, the management team appears to be seasoned in franchise management.
Potential Mitigations
- A business advisor can help you thoroughly vet the backgrounds of the key management personnel listed in Item 2 of any FDD.
- It's beneficial to ask existing franchisees about their direct experiences and the quality of support received from the management team.
- Your attorney can help you understand the difference between industry experience and franchise management experience when evaluating a team.
Private Equity Ownership
Medium Risk
Explanation
Item 1 discloses a multi-layered ownership structure leading up to Gala Family, LP. Item 2 notes that the Chairman and CEO, Anand Gala, is also a Managing Partner at Gala Capital Partners. This structure suggests ownership by a private equity or investment firm. Such ownership can create pressure to prioritize short-term investor returns over the long-term health of the system or individual franchisee profitability.
Potential Mitigations
- It would be wise to research the track record of Gala Capital Partners with other franchise or consumer brands with the help of a business advisor.
- Asking long-term franchisees about any changes in system philosophy, support, or fee structures since the acquisition is critical.
- Your attorney should review the Franchise Agreement for any terms that make it easier for the system to be sold again.
Non-Disclosure of Parent Company
Low Risk
Explanation
This risk was not identified. The FDD in Item 1 provides a clear description of the parent companies, and the franchisor itself provides its own audited financial statements in Item 21. There is no indication that a required parent company's financial information has been withheld.
Potential Mitigations
- Your attorney should always verify that if a parent company guarantees the franchisor's performance, that parent's financials are also included in Item 21.
- If a franchisor is a new or thinly capitalized subsidiary, an accountant should assess whether the lack of parent financials creates undue risk.
- Always ask your attorney to confirm the corporate structure and ensure all relevant entities are properly disclosed.
Predecessor History Issues
Medium Risk
Explanation
Item 1 identifies a predecessor entity from which Dunn Bros acquired the franchise system in 2022. The high franchisee turnover disclosed in Item 20 began before the acquisition and has continued since. This suggests the current franchisor may have inherited systemic issues that have not yet been resolved, and the negative trends are not solely a recent development. The history of the system, not just the current owner, is a relevant risk factor.
Potential Mitigations
- Asking long-term franchisees who operated under the predecessor about the system's historical challenges can provide valuable context.
- Your attorney should help you ask the franchisor what specific changes they have implemented to address the issues inherited from the predecessor.
- A business advisor can help you assess if the new management's plan seems adequate to overcome these historical problems.
Pattern of Litigation
Low Risk
Explanation
This risk was not identified in the FDD package. Item 3 explicitly states, 'No litigation is required to be disclosed in this Item.' The absence of reported litigation, particularly claims of fraud or misrepresentation from other franchisees, is a positive indicator for a prospective franchisee.
Potential Mitigations
- Your attorney should always carefully review Item 3 of any FDD for patterns of litigation, especially cases brought by franchisees.
- Consider asking your attorney if independent searches for litigation involving the franchisor or its principals are warranted.
- It is a useful due diligence step to ask current franchisees if they are aware of any disputes, even those not rising to the level of disclosed litigation.
Disclosure & Representation Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Financial & Fee Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Legal & Contract Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Territory & Competition Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Regulatory & Compliance Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Franchisor Support Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Operational Control Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Term & Exit Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Miscellaneous Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems