Explanation

The FDD does not indicate a high rate of turnover among franchisees. Item 20 shows no terminations, non-renewals, or other cessations for franchised outlets in the past three years. However, it is worth noting that two company-operated restaurants closed in 2024. While not direct franchisee turnover, this could reflect operational challenges in the broader system. The franchised system is very young, so turnover data is limited.

Potential Mitigations

• Speaking with current and former franchisees from the list in Item 20 is essential to gather firsthand accounts of their experiences and satisfaction levels.
• In discussions with the franchisor, it would be prudent to inquire about the reasons for the company-owned store closures to understand any potential systemic issues.
• Your business advisor can help you analyze the growth and closure rates of both franchised and company-owned units to assess overall system health.

Explanation

The risk of excessively rapid growth outpacing the franchisor's support capabilities was not identified. The data in Item 20 shows that the franchise system is growing at a slow and measured pace, with only four franchised outlets in operation at the end of 2024. This suggests the franchisor is not currently overextending its resources. Rapid growth can strain a franchisor's ability to provide adequate site selection, training, and operational support to its franchisees.

Potential Mitigations

• It is still beneficial to discuss the franchisor's future growth plans and how they intend to scale their support systems with your business advisor.
• Asking current franchisees about the quality and timeliness of the support they receive can provide valuable insight into the franchisor's current capabilities.
• Your accountant can review the franchisor's financial statements in Item 21 to assess whether they are investing in infrastructure to support future growth.

Explanation

This specific risk was not identified in the FDD Package. The Grimaldi's concept, focused on coal-fired brick-oven pizza, has a history dating back to its affiliate's operations and is a well-established restaurant category. While restaurant trends can change, the core offering is not based on a new or fleeting fad. A fad business presents a risk because its popularity may be short-lived, potentially leading to a decline in sales after the initial trend subsides, even though your contractual obligations remain.

Potential Mitigations

• It is always wise to have a business advisor help you research the long-term consumer demand and competitive landscape for this style of restaurant in your specific market.
• Asking the franchisor about their plans for menu innovation and concept evolution can provide insight into their long-term strategy.
• An analysis with your accountant of the business's resilience to economic shifts can help gauge its sustainability.

Explanation

This risk was not identified in the FDD Package. The executive team detailed in Item 2 appears to have considerable experience within the Grimaldi's system and the restaurant industry. For example, the CEO has been with the affiliate company since 2002. Inexperienced management can be a significant risk, as it may lead to poor strategic decisions, inadequate franchisee support, and underdeveloped operational systems, potentially harming the entire franchise network.

Potential Mitigations

• Confirming the management team's reputation and track record by speaking with current franchisees is a valuable due diligence step.
• Your business advisor can help you assess how the management team's specific experience aligns with the support you will need as a franchisee.
• In discussions with the franchisor, you might inquire about their strategic vision and how their experience informs their plans for the system's future.

Explanation

This risk was not identified in the FDD package. Item 1 does not indicate that the franchisor is owned by a private equity firm. Private equity ownership can sometimes introduce risks related to a focus on short-term returns, which might lead to reduced support, increased fees, or a quick sale of the franchise system. The priorities of a financial owner may not always align with the long-term health of the brand and its franchisees.

Potential Mitigations

• It is always a good practice for your attorney to verify the full ownership structure of the franchisor entity.
• A business advisor can help you research the reputation of any parent company or major investor in the franchise space.
• Understanding the franchisor's assignment rights in the Franchise Agreement is crucial, as a future sale could change the ownership structure.

Explanation

This risk was not identified as an issue. Item 1 clearly discloses the parent and affiliate structure, including CBOP, JMC, CBOP Global, and Retail. The franchisor, CBOP, is a subsidiary of its affiliate, Coal Brick Oven Pizzeria, Inc. ('CBOP Parent'), and the franchisor's financials are provided. The relationship and roles are described. A failure to disclose a parent company or its financials (when required) can obscure the true financial backing and stability of the franchisor, which is a major risk.

Potential Mitigations

• Your accountant should review the financials of all disclosed entities to understand the complete financial picture of the system.
• Your attorney should analyze any guarantees or support agreements between the franchisor and its parent or affiliates.
• Clarifying the specific support obligations of the parent company versus the franchisor entity is a key step in due diligence.

Explanation

This risk was not identified in the FDD package. Item 1 does not disclose any predecessors for CBOP Domestic, Inc. In situations involving predecessors, a failure to fully disclose their history, including any past litigation, bankruptcies, or high franchisee failure rates, can hide significant problems that may have been inherited by the current franchisor. A clean and transparent history is crucial for assessing the long-term stability and integrity of the franchise system.

Potential Mitigations

• Your attorney should always confirm the corporate history detailed in Item 1 to ensure no predecessor information has been omitted.
• In cases with predecessors, a business advisor would recommend researching the predecessor's public reputation and history.
• Asking long-term franchisees about their experience under any previous ownership can provide valuable historical context.

Explanation

This specific risk was not identified. Item 3 discloses no litigation against the franchisor. While Item 4 discloses an affiliate bankruptcy, it is presented as a strategic filing related to a lease dispute by a solvent entity and does not constitute a pattern of franchisee-initiated litigation alleging fraud or misrepresentation. A pattern of such litigation can be a major red flag, suggesting systemic issues with the franchisor's business practices, support, or disclosure integrity.

Potential Mitigations

• It is always a good practice to have your attorney conduct an independent search for litigation involving the franchisor or its principals that may not have been required to be disclosed.
• Talking to current and former franchisees can reveal disputes that did not escalate to formal litigation but still indicate potential problems.
• A business advisor can help you assess the nature of any disclosed litigation to understand its potential impact on the franchise system.