Explanation

The FDD discloses a large system with many company-owned stores and a significant number of franchisees. While mature, the system is not growing rapidly in terms of net new units, showing a slight decline in franchised locations over the last three years. This suggests a mature system where growth may be limited, and the focus might be on operations and transfers rather than aggressive expansion, which could impact the level of support and innovation you receive.

Potential Mitigations

• With your business advisor, you should evaluate the implications of operating within a mature, rather than a rapidly growing, franchise system.
• Discuss the franchisor's long-term growth and innovation strategy with them directly.
• Asking current franchisees about their perception of the system's growth trajectory and support levels is a prudent step.

Explanation

This risk was not identified in the FDD package. Hooters is a long-established brand, and its franchisor, HOA Franchising, along with its parent and affiliates, has extensive experience operating and franchising restaurants. A new or unproven system would present higher risks related to unverified business models, undeveloped support structures, and lack of brand recognition. The established nature of this franchise system mitigates these specific risks, though it may introduce others related to system maturity.

Potential Mitigations

• Even with an established system, it is important to have your attorney review the complete history of the franchisor and its predecessors in Item 1.
• A business advisor can help you assess if the brand remains relevant and competitive in the current market.
• Confirming that management's experience is still relevant to the company's current strategic direction is a worthwhile discussion with your business advisor.

Explanation

This risk was not identified in the FDD package. While any business has risks, the Hooters concept has demonstrated decades of consumer demand and is not based on a recent, fleeting trend. The business model, focused on casual dining with a sports bar theme, has a long operational history. Therefore, the risk of the entire concept being a short-term fad that will quickly lose consumer interest appears to be low for this specific franchise.

Potential Mitigations

• It is still valuable to have a business advisor help you research your local market to confirm that the Hooters concept remains popular and competitive.
• Review the franchisor's marketing and development plans in Item 11 to assess their strategy for keeping the brand fresh and relevant.
• Your financial advisor can help model the potential impact of shifting consumer tastes on your business's long-term viability.

Explanation

This risk was not identified in the FDD package. Item 2 shows that the key executives of HOA Franchising have extensive and long-term experience within the Hooters brand and the restaurant industry. For example, the CEO has been with the brand in various high-level roles since 2006. This depth of experience suggests a strong understanding of the business model and franchise operations, which is a positive factor for a prospective franchisee.

Potential Mitigations

• A business advisor can still help you research the recent performance and reputation of the key executives mentioned in Item 2.
• It's a good practice to ask current franchisees about their direct experiences with the management team's leadership and support.
• Your attorney should verify that the experience listed is relevant to the current state and future direction of the franchise system.

Explanation

The franchisor, HOA Franchising, is part of a complex structure with a parent, HOA Holdco, LLC, which guarantees its performance. The FDD properly discloses this parent company and includes its audited financial statements in Exhibit F. This transparency allows for a more complete assessment of the financial health of the entities backing your franchise, which, while weak, is at least fully disclosed. The risk of an undisclosed parent is not present.

Potential Mitigations

• Engaging a franchise accountant to review the financials of both the franchisor and the parent guarantor is essential to understand the full financial picture.
• Your attorney should analyze the terms of the Parent Guarantee in Exhibit F to confirm its strength and enforceability.
• A business advisor can help you understand the practical implications of the relationship between the franchisor and its parent company.

Explanation

The FDD in Item 1 identifies Hooters of America, LLC (HOA) as a predecessor and parent entity. The litigation history in Item 3 includes several cases involving HOA, providing a more complete historical context of legal disputes within the system. This disclosure appears to meet the requirement to inform you about the history of entities from which the current franchisor acquired its rights and assets, mitigating the risk of hidden past issues.

Potential Mitigations

• Your attorney should review the roles of all predecessors and affiliates mentioned in Item 1 to understand the system's history.
• It is important to review the litigation and bankruptcy history for all named predecessors in Items 3 and 4.
• Asking long-term franchisees about their experiences under any predecessor entities can provide valuable context.