Lee’s Famous Recipe
Initial Investment Range
$517,200 to $2,353,900
Franchise Fee
$40,000 to $50,000
You will operate a quick service restaurant at a designated location featuring a menu of chicken, biscuits, and other complementary items.
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Lee’s Famous Recipe April 30, 2025 FDD Risk Analysis
Free FDD Library AI Analysis Date: July 16, 2025
DISCLAIMER: Not Legal Advice - For Informational Purposes Only. Consult With Qualified Franchise Professionals.
Franchisor Stability Risks
Start HereDisclosure of Franchisor's Financial Instability
High Risk
Explanation
The parent company's audited financial statements show inconsistent profitability, including a net loss in the most recent fiscal year. While the company has positive equity, this pattern of financial performance hovering around breakeven may impact its long-term ability to invest in the brand, innovate, and provide robust support to franchisees. This potential financial weakness could pose a significant risk to your investment.
Potential Mitigations
- Your accountant should thoroughly analyze the parent company's audited financial statements, focusing on cash flow trends and profitability over the three-year period.
- A business advisor can help assess whether the franchisor's financial condition is sufficient to support its growth plans and franchisee obligations.
- Consult with your attorney regarding the strength and enforceability of the parent company's performance guarantee provided in Exhibit K.
High Franchisee Turnover
High Risk
Explanation
Item 20 data reveals a very high number of franchised restaurants being reacquired by the franchisor, including 16 units in 2024 alone. This pattern of franchisees leaving the system could indicate significant challenges within the network, potentially related to profitability, operational difficulties, or franchisee dissatisfaction. This trend represents a substantial risk that the business model may not be performing as expected for franchisees.
Potential Mitigations
- It is critical to contact a significant number of former franchisees listed in Exhibit E, especially those whose units were reacquired, to understand why they left the system.
- Your attorney can help you formulate specific questions for these former franchisees regarding their operational and financial experiences.
- Discuss this high turnover rate directly with the franchisor and evaluate the credibility of their explanations with your business advisor.
Rapid System Growth
Low Risk
Explanation
This risk was not identified. The FDD does not indicate a recent history of unusually rapid franchise system expansion. Rapid growth can sometimes strain a franchisor's ability to provide adequate support. You should still verify that the franchisor has sufficient infrastructure to support its current and projected number of franchisees.
Potential Mitigations
- Engaging a business advisor can help you assess the franchisor's support systems and personnel capacity relative to its existing franchisee base.
- Discussing the quality and timeliness of support with current franchisees is a prudent step.
- An accountant can review the franchisor's financials to see if they are investing adequately in support infrastructure.
New/Unproven Franchise System
Low Risk
Explanation
This risk was not identified, as Lee's Famous Recipe is an established brand with a long operational history. For newer franchise systems, there is a risk that the business model is unproven or that the franchisor lacks the experience to provide effective support. This does not appear to be the case here.
Potential Mitigations
- When evaluating any franchise, it's wise for your attorney to review the full history of the brand and its predecessors as disclosed in Item 1.
- A business advisor can help you analyze the long-term stability and market relevance of an established brand.
- Speaking with long-term franchisees can provide insight into the system's evolution and historical performance.
Possible Fad Business
Low Risk
Explanation
This risk was not identified. Fried chicken is a staple of the quick-service restaurant industry and is not considered a fad. When considering a franchise, it is important to assess whether the core product or service has long-term consumer demand or if its appeal is tied to a short-lived trend, which could impact future viability.
Potential Mitigations
- A business advisor can help you research the long-term market trends and competitive landscape for the specific industry.
- Analyzing the franchisor's plans for menu innovation and adaptation in Item 11 can provide insight into its strategy for staying relevant.
- Your accountant can help model the financial resilience of the business under various economic conditions.
Inexperienced Management
Medium Risk
Explanation
The management team detailed in Item 2 includes some executives with long-term experience within the Lee's system. However, the current CEO joined in 2021 from a private equity background, and other key personnel are also relatively new to the company. This blend of new leadership and established staff could signal a shift in corporate strategy and operational focus, which may present both opportunities and risks for franchisees.
Potential Mitigations
- It is advisable to research the background of the newer leadership team members and their track record with other companies.
- Speaking with franchisees who have been in the system before and after the 2021 acquisition can provide valuable insight into changes in support and strategy.
- Your business advisor can help you assess how the current management team's experience aligns with the needs of a mature franchise system.
Private Equity Ownership
High Risk
Explanation
The franchisor was acquired by its current parent company in 2021, and its CEO has a private equity background. This type of ownership can prioritize returns on investment, which may lead to strategies like increasing fees or reacquiring franchised units to boost corporate revenue. The high number of franchisee re-acquisitions shown in Item 20 could be indicative of such a strategy, which might not always align with your long-term interests as a franchisee.
Potential Mitigations
- Discussing the franchisor's long-term vision and exit strategy with your business advisor is important to understand their goals.
- It is crucial to speak with franchisees to understand how the ownership change has impacted system support, fees, and overall direction.
- Your attorney should review the Franchise Agreement for any terms that give the franchisor excessive power to implement changes that favor ownership over franchisees.
Non-Disclosure of Parent Company
Low Risk
Explanation
This risk was not identified. The FDD clearly discloses the parent company, Artemis Restaurant Corp., and provides its audited financial statements and a guarantee of performance. In some cases, franchisors may not disclose parent companies or their financials, which can hide financial instability or other risks from a prospective franchisee.
Potential Mitigations
- When reviewing any FDD, it is a good practice for your attorney to verify the corporate structure and ensure all relevant parent and affiliate companies are properly disclosed.
- An accountant should confirm that if a parent guarantee is offered, the parent's financial statements are included and audited.
- A business advisor can help research the parent company's history and reputation.
Predecessor History Issues
High Risk
Explanation
The FDD discloses that the current franchisor, Lee's Franchisor LLC (Lee's), acquired the system from predecessors. A significant issue inherited from this history is the existence of 71 legacy "licensees" who are not required to pay royalties. You will be paying a 5% royalty, placing you at a direct and significant competitive cost disadvantage against this large group of established operators within the same brand.
Potential Mitigations
- Your accountant should model the financial impact of competing against operators who have a 5% gross sales cost advantage.
- A discussion with your attorney is crucial to explore whether this two-tiered system provides grounds for negotiating more favorable royalty terms.
- You should ask the franchisor how they plan to manage brand standards and investment when a large portion of the system does not contribute to royalties.
Pattern of Litigation
Low Risk
Explanation
This risk was not identified, as the franchisor reports no material litigation in Item 3. A pattern of lawsuits, particularly those initiated by franchisees alleging fraud or misrepresentation, can be a major red flag about the health and integrity of a franchise system. The absence of such litigation is a positive indicator.
Potential Mitigations
- Even with no disclosed litigation, your attorney may suggest conducting a public records search for litigation involving the franchisor as part of thorough due diligence.
- Asking current and former franchisees about any past or pending legal disputes is a wise practice.
- A business advisor can help you assess the overall health of franchisor-franchisee relationships within the system.
Disclosure & Representation Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Financial & Fee Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Legal & Contract Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
Unlock Full Risk Analysis
Purchase the complete risk review to see all 102 risks across all 10 categories.
Territory & Competition Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
Unlock Full Risk Analysis
Purchase the complete risk review to see all 102 risks across all 10 categories.
Regulatory & Compliance Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
Unlock Full Risk Analysis
Purchase the complete risk review to see all 102 risks across all 10 categories.
Franchisor Support Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
Unlock Full Risk Analysis
Purchase the complete risk review to see all 102 risks across all 10 categories.
Operational Control Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
Unlock Full Risk Analysis
Purchase the complete risk review to see all 102 risks across all 10 categories.
Term & Exit Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
Unlock Full Risk Analysis
Purchase the complete risk review to see all 102 risks across all 10 categories.
Miscellaneous Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
Unlock Full Risk Analysis
Purchase the complete risk review to see all 102 risks across all 10 categories.
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