Explanation

This specific risk was not identified in the FDD Package. Rapid system growth can strain a franchisor's resources, potentially leading to inadequate franchisee support. If a franchisor expands too quickly, its ability to provide quality training, site selection assistance, and ongoing operational guidance for all of its new locations may be compromised, which could negatively affect your business's performance.

Potential Mitigations

• Engaging a business advisor to research the franchisor's growth plans and support infrastructure capacity can provide valuable insight.
• Your accountant can review the franchisor’s financial statements in Item 21 to assess if they have the capital to support planned growth.
• Discussing the quality and timeliness of franchisor support with existing franchisees is a key due diligence step.

Explanation

This risk was not identified, as the Johnny Rockets system has been in operation since 1986 and franchising since 1987. For a new system, risks are higher due to an unproven business model, minimal brand recognition, and potentially underdeveloped support structures. Prospective franchisees in such systems face greater uncertainty regarding long-term viability and profitability, requiring more extensive due diligence on the concept and the experience of the management team.

Potential Mitigations

• When evaluating any franchise, a business advisor can help you assess the franchisor's track record and the system's maturity.
• An accountant should be consulted to scrutinize the financials of any young franchise system for signs of stability and adequate capitalization.
• Your attorney can help you understand if there are ways to negotiate more favorable terms to offset the risks of a newer system.

Explanation

The Johnny Rockets brand, a classic American diner concept, has a long operating history since 1986, which suggests it is not a short-term fad. However, the restaurant industry is highly competitive and subject to changing consumer tastes. You should independently assess if this classic concept has long-term appeal in your specific market, as you will be committed to the franchise for the full term regardless of shifts in dining trends.

Potential Mitigations

• A business advisor can help you conduct local market research to evaluate the long-term consumer demand for this style of restaurant.
• Discuss the brand's strategies for innovation and staying relevant with the franchisor and current franchisees.
• Your accountant can help you model the financial risks associated with long-term consumer taste changes.

Explanation

This specific risk was not identified in the FDD Package. Management experience is critical for a franchise system's success. If key executives lack significant experience in franchising or in the specific industry, it could lead to poor strategic decisions, weak operational support, and inadequate training programs. This can negatively impact the entire system and your potential for success. Evaluating the resumes and track records of the management team in Item 2 is a crucial due diligence step.

Potential Mitigations

• Engaging a business advisor to help you research the backgrounds of the franchisor's key executives is a prudent step.
• Speaking with current franchisees about their direct experiences with the management team can provide invaluable, real-world insight.
• Your attorney can help you understand how the experience level of the management team might correlate with the level of support you receive.

Explanation

This risk was not identified, as the FDD discloses that Johnny Rockets Licensing, LLC is a wholly-owned subsidiary of FAT Brands, Inc., and provides financial statements for the franchisor entity. In cases where a parent company is not disclosed or its financials are omitted when they are material to the franchisee's risk (e.g., if the parent guarantees obligations), it can obscure the true financial health and backing of the system.

Potential Mitigations

• Your attorney should verify the corporate structure and ensure that all relevant parent and affiliate relationships are disclosed in Item 1.
• An accountant should confirm whether parent company financial statements are required for a complete picture of the system's financial health.
• If a parent company guarantees the franchisor's performance, your attorney should ensure the guarantee is a formal exhibit to the FDD.

Explanation

This specific risk was not identified in the FDD Package. A franchisor's predecessor is a former entity from which it acquired the business. Failing to disclose a predecessor or downplaying negative history associated with them (like high franchisee failure rates or litigation) can prevent you from seeing the full picture of the system's historical challenges. Item 1 of the FDD is where this information should be disclosed, providing transparency about the brand's lineage.

Potential Mitigations

• Your attorney should carefully review Item 1 for any mention of predecessors and related disclosures in Items 3 and 4.
• If a predecessor is mentioned, a business advisor can help you research the predecessor's public reputation and history.
• Asking long-term franchisees about their experience under any previous ownership can provide important historical context.