Explanation

This risk was not identified in the FDD package. The Garner brand is very new, with no outlets having yet terminated, non-renewed, or otherwise ceased operations. High franchisee turnover is a critical red flag in established systems, as it can indicate widespread franchisee dissatisfaction, lack of profitability, or a flawed business model. It is essential to monitor this data in future FDDs as the system matures.

Potential Mitigations

• It is wise to ask your attorney to review the extensive litigation history in Item 3 for the franchisor's other brands, as it may indicate how they handle franchisee relationships.
• A business advisor can help you assess the overall health of the parent company's various franchise systems.
• Continue to monitor FDD updates for this brand in future years to track turnover rates.

Explanation

This specific risk was not identified in the FDD package. Whether a business concept is a temporary fad or has long-term viability is a critical judgment for any investor. A business tied to a fleeting trend can leave a franchisee with a worthless investment and long-term liabilities once consumer interest fades. Evaluating the sustainability of the core consumer demand for the product or service is a key part of due diligence.

Potential Mitigations

• Assess the long-term market demand for the product or service independently with your business advisor.
• Evaluate the franchisor's plans for innovation and adaptation by reviewing disclosures in Item 1 and Item 11.
• A financial advisor can help you consider the sustainability of the business model beyond current trends.

Explanation

The management team of the franchisor and its parent company, InterContinental Hotels Group PLC, appears to have extensive experience in the hotel and franchising industries, as detailed in Item 2. This is a positive factor. Inexperienced management in other franchises can lead to poor strategic decisions, inadequate franchisee support, and an unproven operational playbook, increasing the risk for franchisees.

Potential Mitigations

• A business advisor can help you review the biographies in Item 2 to confirm that management's experience is relevant to this specific hotel market segment.
• It is still advisable to ask existing franchisees about their direct experiences with the management team's competence and support.
• Your attorney can help you understand the management structure and how decisions affecting franchisees are made.

Explanation

This risk was not identified in the FDD package. The franchisor, Holiday Hospitality Franchising, LLC, is part of InterContinental Hotels Group PLC, a publicly traded company, not a private equity firm. When a franchisor is owned by a private equity firm, there may be a focus on short-term returns, which can sometimes lead to decisions that benefit investors over the long-term health of the franchise system.

Potential Mitigations

• Your business advisor can help you research the ownership structure of any franchisor to understand its strategic priorities.
• If a franchisor is PE-owned, it's wise to ask your attorney to review transfer clauses in the franchise agreement for potential sale of the system.
• In any ownership situation, talking to existing franchisees provides insight into the franchisor's long-term commitment.

Explanation

The FDD clearly discloses the parent company, Six Continents Hotels, Inc. (SCH), and provides its audited financial statements in Exhibit F2, which act as a guarantee for the franchisor's obligations. This transparency is a positive factor. In some cases, franchisors might not disclose parent companies or their financials, obscuring the true financial strength and backing of the franchise system, which would be a significant risk.

Potential Mitigations

• It is still crucial for your accountant to review the financial statements of both the franchisor and the parent company to understand their relationship.
• Your franchise attorney should analyze the terms of the parent guarantee to confirm the extent of the backing it provides.
• A business advisor can help you assess the overall stability of the entire corporate structure.

Explanation

This risk was not identified in the FDD package. Item 1 indicates that Holiday Hospitality Franchising, LLC has been in business since 1989, though under different names, and its predecessors in the hotel industry date back to 1953. The Garner brand itself is new, but there is no undisclosed predecessor history that would obscure past issues with the system's management or lineage.

Potential Mitigations

• Your attorney should always review the predecessor information in Items 1, 3, and 4 of any FDD.
• If a system was recently acquired from a predecessor, researching the predecessor's public track record is a good practice for your business advisor.
• Always ask long-term franchisees about their experience under any prior ownership, if applicable.