Explanation

This risk was not identified. The data in Item 20 does not indicate high franchisee turnover. The number of franchised outlets has grown over the past three years, with no terminations and only one non-renewal. In franchising, high turnover can be a red flag for systemic problems or lack of profitability, so low turnover is a positive indicator. You should still perform your own due diligence.

Potential Mitigations

• It is still valuable to have your attorney review the definitions of "transfer" and "termination" in Item 20 to understand how outlet changes are categorized.
• A discussion with your business advisor about typical turnover rates in the fast-casual restaurant industry can provide useful context.
• When speaking with current franchisees, you should still ask about their satisfaction and long-term plans.

Explanation

The number of franchised units has grown rapidly over the last three years. While rapid growth can sometimes strain a franchisor's ability to provide adequate support, this risk appears to be mitigated here. HBG LLC is owned by YUM! Brands, a global company with extensive experience and resources in managing large, fast-growing franchise systems. This backing likely provides the infrastructure needed to support new franchisees.

Potential Mitigations

• When speaking with newer franchisees, asking about the quality and timeliness of the support they received during their opening process is important.
• Your business advisor can help you question the franchisor about their specific plans for scaling franchisee support infrastructure.
• Confirming the nature of the support provided by the parent company, YUM! Brands, with your attorney can provide additional assurance.

Explanation

This risk is not present. HBG LLC began franchising in 2013 and is part of YUM! Brands, one of the world's largest and most experienced franchise operators. The system is well-established, with experienced management and a long operating history through its predecessors dating back to 1969. Therefore, the risks associated with an unproven system or inexperienced management appear to be low.

Potential Mitigations

• It is still wise to discuss the franchisor's current strategic direction and support levels with existing franchisees.
• A review of the management team's recent tenure and background in Item 2 with your business advisor is always a prudent step.
• Your accountant should still review the financial statements in Item 21 to confirm the system's financial health.

Explanation

This risk appears to be low. The Habit Burger Grill concept, focusing on premium burgers, sandwiches, and salads, has been in operation since 1969. This long history suggests it is not a fad but a concept with sustained consumer demand. The risk of the business model being tied to a short-lived trend seems minimal given its decades of operation and position within the established fast-casual dining sector.

Potential Mitigations

• A business advisor can help you assess the current competitive landscape in the fast-casual burger market to understand long-term challenges.
• Engaging a marketing professional to analyze local consumer trends can confirm the concept's appeal in your specific area.
• Discussing the brand's adaptability and menu evolution with long-term franchisees can provide insight into its resilience.

Explanation

This risk was not identified. Item 2 of the FDD shows that the executive team has extensive experience in the restaurant and franchise industries, with many key personnel having long tenures at HBG LLC's parent or affiliate companies like KFC and Taco Bell. As a subsidiary of YUM! Brands, the franchisor is supported by one of the most experienced management organizations in the world.

Potential Mitigations

• It's still valuable to research the backgrounds of key executives in Item 2 with your business advisor.
• When speaking with franchisees, ask about their direct experiences with the management team's accessibility and support.
• Your attorney can help you understand the corporate structure and the roles of the various executives listed.

Explanation

This risk was not identified. Item 1 clearly discloses the parent companies (The Habit Restaurants, LLC; The Habit Restaurants, Inc.; YUM! Brands, Inc.). While the franchisor's own financial statements are provided, parent company financials for YUM! Brands are publicly available, and the FDD does not appear to obscure the relationship or dependency. The franchisor relies on its parent for support, but this relationship is disclosed.

Potential Mitigations

• Your attorney should always confirm that the corporate structure disclosed in Item 1 is clear and complete.
• An accountant can advise if the provided financials are sufficient to assess the overall health of the entity you are contracting with.
• It is prudent to review the public financial statements of the ultimate parent, YUM! Brands, with your financial advisor.

Explanation

This risk was not identified. Item 1 provides a clear history of the business, including the predecessor entity, The Habit Restaurants, Inc., which began operating in 1969. The FDD does not appear to hide or downplay the system's lineage. Information regarding litigation or bankruptcy for predecessors is also required and appears to be addressed, with none disclosed for the relevant periods.

Potential Mitigations

• Your attorney should always carefully review the predecessor information in Items 1, 3, and 4 of any FDD.
• If a system was acquired from a predecessor, researching the predecessor's public track record can be a useful step for your business advisor.
• Asking long-term franchisees about their experience under any prior ownership structures can provide valuable historical context.

Explanation

This risk was not identified in the FDD. Item 3, which requires the disclosure of material litigation, states that "No litigation is required to be disclosed in this Item." This indicates an absence of the specific types of lawsuits, such as actions by franchisees alleging fraud or claims by the franchisor against franchisees, that would signal a pattern of significant legal disputes within the system.

Potential Mitigations

• Your attorney can conduct an independent search of court records to verify the absence of significant litigation involving the franchisor.
• In your discussions with current and former franchisees, it is still wise to inquire about any legal disputes they are aware of.
• A business advisor can help you understand what level of litigation is typical for a franchise system of this size.