Explanation

Based on the data in Item 20, the franchisee turnover rate appears relatively low. For 2024, approximately 2.2% of the initial 1,170 franchised outlets ceased operations, were not renewed, or were reacquired. While any franchisee exit warrants investigation, these figures do not immediately suggest a high level of systemic distress. However, you should still investigate the reasons for the 14 outlets that 'Ceased Operations for Other Reasons'.

Potential Mitigations

• Speaking with former franchisees listed in Item 20 is essential to understand their reasons for leaving the system; your business advisor can help prepare questions.
• Your accountant can help you analyze the turnover data over the three-year period to identify any concerning trends.
• Asking the franchisor for more context on the 'Ceased Operations' category could provide valuable insight.

Explanation

This risk was not identified. The system shows steady, not excessively rapid, growth over the past three years according to Item 20. Rapid growth can sometimes strain a franchisor's ability to provide adequate support to all its franchisees. It is important to ensure a franchisor has the infrastructure and personnel to manage its expansion effectively without diminishing the quality of service provided to its franchise network.

Potential Mitigations

• Your business advisor can help assess whether the franchisor's support staff and infrastructure are scaling appropriately with its growth.
• It is wise to discuss the quality and timeliness of franchisor support with both new and established franchisees.
• An accountant should review the franchisor’s financial statements to determine if they are investing sufficiently in support systems.

Explanation

This risk was not identified. The Firehouse Subs system was founded in 1994 and began franchising in 2004, indicating a long operational history. The brand is part of Restaurant Brands International, a large, experienced global franchisor. An unproven system can carry higher risks, such as a lack of brand recognition and underdeveloped operational procedures, but that does not appear to be the case here.

Potential Mitigations

• A business advisor can help you research the brand's history and its performance under the current parent company.
• When speaking with existing franchisees, inquire about their experiences with the system's maturity and brand recognition.
• Your accountant should review the financial statements to confirm the stability of the established system.

Explanation

This risk was not identified. The business is a submarine sandwich restaurant, a well-established and long-standing segment of the quick-service restaurant industry. While market trends can change, this concept is not based on a recent or niche fad. Investing in a fad business carries the risk that consumer interest may decline, potentially leaving you with a failing business and long-term contractual obligations.

Potential Mitigations

• A business advisor can help you analyze the long-term sustainability of the submarine sandwich market in your specific area.
• Discuss the franchisor’s strategies for innovation and menu development with existing franchisees.
• It is prudent to have your accountant help you create financial projections that account for potential market shifts and competition.

Explanation

The management team disclosed in Item 2 appears to have extensive experience in the restaurant and franchising industries, many with long tenures at parent company RBI or its other major brands like Burger King and Popeyes. Lack of management experience in franchising can be a significant risk, as it may lead to inadequate support, weak systems, and poor strategic decisions. That does not appear to be a primary concern here.

Potential Mitigations

• You should still review the backgrounds of key executives in Item 2 with your business advisor to assess their direct relevance to this brand.
• In discussions with current franchisees, inquire about their direct experiences with the management team's competence and support.
• An attorney can help you understand the roles and responsibilities of the key personnel as described in the FDD.

Explanation

This risk was not identified. Item 1 discloses that Firehouse Restaurant Group, Inc. (now FRG, LLC) was the predecessor. The document appears to provide relevant information regarding this entity. When a franchisor has predecessors, it is important to scrutinize their history for issues like litigation, bankruptcy, or high franchisee turnover, as these can indicate unresolved systemic problems that may have been inherited by the current franchisor.

Potential Mitigations

• Your attorney can help you investigate the public records and history of any disclosed predecessor entities for potential red flags.
• Asking long-term franchisees about their experiences under the predecessor company can provide valuable historical context.
• A business advisor can assist in researching news archives or online forums for franchisee complaints related to the predecessor.