Explanation

This risk was not identified in the FDD package. While the number of units has decreased, the franchisor itself is a very large, mature company that is not undergoing a phase of rapid expansion that would strain its resources. A business advisor can still help you evaluate if the support infrastructure is appropriate for the current system size.

Potential Mitigations

• Your business advisor can help you assess whether the franchisor's support systems are robust enough to handle its franchisee base.
• It is wise to ask existing franchisees about the quality and timeliness of support they receive from the franchisor.
• Your accountant can review the franchisor's financial statements to determine if they are investing adequately in support infrastructure.

Explanation

This specific risk was not identified. The Manchu WOK brand has a long history, and the franchisor, MTY USA, along with its parent MTY Food Group, Inc., is a large, established company with extensive experience operating and franchising dozens of restaurant brands. The management team also has significant tenure in the franchising industry. However, you should still perform your own due diligence on the brand's current market position.

Potential Mitigations

• A business advisor can help you research the brand's history and its competitive position in the current market.
• Reviewing the management team's experience in Item 2 with your business advisor is a prudent step.
• Discussing the system's maturity and evolution with long-term franchisees can provide valuable insight.

Explanation

This risk was not identified in the FDD package. The Manchu WOK brand operates in the established quick-service Chinese food segment, which is not typically considered a fad. The business model is based on a well-known type of cuisine rather than a fleeting trend. A business advisor can help you assess its long-term market viability.

Potential Mitigations

• Your business advisor can help you research the long-term consumer demand for this type of restaurant concept.
• It is wise to assess the brand's plans for innovation and adaptation to changing consumer tastes.
• An accountant can help you analyze the financial sustainability of the business model beyond any short-term trends.

Explanation

This risk was not identified in the FDD package. Item 2 shows that the key executives at MTY USA and its parent company, MTY Food Group, Inc., have extensive and long-standing experience in the restaurant and franchising industries, many with long tenures within the MTY/Kahala portfolio of brands. This suggests a deep familiarity with managing large-scale franchise systems.

Potential Mitigations

• Verifying the specific experience of the leadership team outlined in Item 2 with your business advisor is still a recommended practice.
• Asking current franchisees about their perception of management's competence and support is a valuable due diligence step.
• Your attorney can help you understand the corporate structure and the roles of the key executives.

Explanation

This specific risk was not identified. While MTY Food Group, Inc. is a publicly traded company and acts like a holding company for many brands, it is not a traditional private equity firm with a typical short-term hold and exit strategy. It has a long history of acquiring and operating brands. However, its focus is on acquiring brands and generating shareholder value, which can present similar risks of prioritizing investor returns over individual franchisee success.

Potential Mitigations

• Your business advisor can help you research the history of MTY Food Group's acquisitions and how it has managed other brands post-acquisition.
• It is important to ask current franchisees about any changes in philosophy, fees, or support they have experienced under MTY's ownership.
• Your attorney should review any clauses in the agreement that relate to the sale or transfer of the franchise system.

Explanation

This risk is not present. The FDD clearly identifies MTY Franchising USA, Inc. as the franchisor and discloses its parent companies, MTY Franchising Inc. and MTY Food Group, Inc. Furthermore, the FDD includes the audited consolidated financial statements for the franchisor entity, MTY USA, providing direct insight into its financial health.

Potential Mitigations

• It is good practice for your accountant to confirm that the financial statements provided are for the correct legal entity granting you the franchise.
• Your attorney should review Item 1 to ensure the corporate structure and all parent companies are clearly disclosed.
• If a parent company provides a financial guarantee, your attorney should verify that this agreement is included as an exhibit.