Explanation

The FDD discloses data for the non-traditional venues program, which is the relevant dataset for your potential investment. The data for the most recent three years does not indicate an unusually high rate of franchisee terminations, non-renewals, or other cessations of business. The system has been in a growth phase, expanding from 26 to 48 units. While any closure is a concern, the turnover rate does not appear to be a significant red flag at this time.

Potential Mitigations

• Your accountant can help you calculate the annual churn rate from the Item 20 tables to monitor for any developing negative trends.
• Speaking with franchisees who have recently left the non-traditional system, if any are listed, could provide valuable insight. A business advisor can help prepare questions.
• Asking the franchisor about the circumstances surrounding any units that have 'ceased operations for other reasons' can provide additional context.

Explanation

This specific risk was not identified in the FDD Package. While the non-traditional venue system is shown to be growing, the pace of adding approximately 7-10 units per year for a large, established franchisor like IHOP Franchisor LLC (IHOP LLC) does not suggest that its support systems would be strained. Rapid, uncontrolled growth can sometimes lead to a decline in the quality of support provided to franchisees.

Potential Mitigations

• During your due diligence calls, asking existing franchisees about the quality and timeliness of the support they receive from the franchisor is a good practice.
• A discussion with a business advisor can help you assess if the franchisor's support infrastructure, as described in Item 11, seems adequate for its current size and growth rate.
• Your accountant can review the franchisor's financial statements in Item 21 for evidence of investment in support services and personnel.

Explanation

This risk was not identified in the FDD Package. IHOP is a long-established restaurant brand that has been in operation since 1958 and has been franchising for decades. The underlying business model and brand are mature and well-known. This FDD is for a specific program within a large, experienced system, not for a new or unproven franchise concept.

Potential Mitigations

• It is still valuable to have your attorney review the complete history of the franchisor and its predecessors as outlined in Item 1.
• A business advisor can help you investigate the specific performance and support history of the non-traditional venue program, even within a mature system.
• Confirming the brand's continued market relevance and consumer appeal through independent research is a sound due diligence step.

Explanation

This risk was not identified in the FDD Package. The IHOP concept, centered on family-style dining with a breakfast focus, has demonstrated long-term consumer demand and is not considered a fad. A fad business is typically tied to a short-lived trend, which can pose a significant risk to franchisees who are bound by long-term agreements.

Potential Mitigations

• A business advisor can help you analyze the long-term trends in the family dining sector to confirm the concept's ongoing viability.
• Reviewing the franchisor's plans for menu innovation and brand updates in Item 11 can provide insight into their strategy for staying relevant.
• Assessing the brand's resilience through various economic cycles with a financial advisor is a prudent measure.

Explanation

This risk was not identified in the FDD Package. Item 2 discloses the backgrounds of the key executives of IHOP LLC and its parent, Dine Brands. The management team consists of individuals with extensive experience in the restaurant and franchising industries, often with major corporations like Yum! Brands, Realogy, and Starwood Hotels, or with long tenures within the Dine Brands system itself.

Potential Mitigations

• A thorough review of the executive backgrounds listed in Item 2 with your business advisor is still a recommended step.
• Asking existing franchisees about their perception of the management team's competence and support for the franchise system can provide valuable qualitative insight.
• Your attorney can help you research the recent performance and public statements of the leadership team for additional context.

Explanation

This risk was not identified in the FDD Package. Item 1 indicates that the ultimate parent company, Dine Brands Global, Inc., is a publicly traded corporation listed on the New York Stock Exchange. It is not owned by a private equity firm. Franchisees in private equity-owned systems can sometimes face risks related to short-term investment horizons and cost-cutting measures that may not align with the long-term health of the brand.

Potential Mitigations

• Your financial advisor can help you research the recent performance and strategic priorities of the publicly traded parent company, Dine Brands.
• Reviewing investor relations materials and earnings call transcripts can offer insight into management's focus and future plans.
• Understanding the dynamics of being part of a publicly traded company, such as pressures to meet quarterly earnings, should be discussed with a business advisor.

Explanation

This risk was not identified in the FDD Package. The franchisor clearly discloses its parent company, Dine Brands Global, Inc., in Item 1. Furthermore, the FDD package includes the audited consolidated financial statements for Dine Brands in the exhibits, providing financial transparency at the parent level. This allows for a more complete assessment of the overall financial health of the system.

Potential Mitigations

• It is critical that your accountant reviews the financial statements of both the franchisor entity and its parent, Dine Brands, to get a complete picture.
• Your attorney should review any guarantees or support obligations mentioned in the FDD that involve the parent company.
• Understanding the relationship and flow of funds between the franchisor and its parent, as described in financial statement notes, is important and can be discussed with your accountant.

Explanation

This risk was not identified in the FDD Package. Item 1 provides a clear history of the various IHOP-affiliated entities that have offered franchises since 1960. The disclosure appears to be transparent about the corporate restructuring that led to the formation of the current franchisor entity, IHOP Franchisor LLC, in 2014. No negative history appears to be concealed.

Potential Mitigations

• A careful review of the timeline and entities described in Item 1 with your attorney is always a prudent step.
• If you speak with long-tenured franchisees, asking them about their experience under any predecessor companies can provide historical context.
• A business advisor can help you assess if any past corporate changes have had a lasting impact on the franchise system's culture or operations.