Explanation

The FDD package does not indicate a high rate of franchisee turnover. Item 20 data shows no terminations, non-renewals, or other cessations of franchised outlets over the past three years. Low turnover is generally a positive indicator, as it may suggest franchisee satisfaction and profitability within the system.

Potential Mitigations

• Speaking with current and former franchisees is always a valuable step to confirm the reasons for any past departures.
• Your franchise attorney can help you understand the contractual reasons a franchisor can terminate an agreement.
• A business advisor can help you assess the overall health and stability of the franchise system.

Explanation

Based on Item 20 data, the franchise system is not experiencing rapid growth; in fact, the total number of outlets has remained stable over the last three years. Rapid growth can sometimes strain a franchisor's ability to provide adequate support, so the stable nature of this system may be viewed positively.

Potential Mitigations

• Discussing the franchisor's future growth plans and how they intend to scale support systems with their management team is a prudent step.
• Your business advisor can help you evaluate whether the franchisor's growth strategy aligns with your own business goals.
• Consulting existing franchisees about the current quality of support can provide valuable insight into the franchisor's capabilities.

Explanation

This is not a new or unproven system. Item 1 indicates the franchisor has been offering franchises since 1995 and its founder has been in the business since 1982. A long history can suggest a stable business model and experienced management, which are generally positive factors for prospective franchisees.

Potential Mitigations

• Even with an established system, it is wise to speak with long-term franchisees about how the brand has evolved over time.
• A business advisor can help you research the brand's reputation and competitive standing in its market.
• Your attorney should review the franchise agreement for terms that may have become more or less favorable over the years.

Explanation

The business operates in the pizza, wings, and sub sandwich market, a well-established and enduring segment of the fast-food industry. This type of business is not considered a fad, which reduces the risk of a sudden decline in consumer interest that can affect trend-based franchise concepts.

Potential Mitigations

• A business advisor can help you analyze the local competitive landscape for pizza and fast-food restaurants.
• Researching local consumer dining trends can help you assess long-term market demand for this type of restaurant.
• Discussing the franchisor's plans for menu innovation and brand adaptation with their management team is advisable.

Explanation

The management team detailed in Item 2 has extensive and long-term experience with the Mark's Pizzeria brand, with key executives having been involved for decades. Experienced leadership is a significant positive, suggesting a deep understanding of the business operations and franchise system, which is beneficial for franchisee support.

Potential Mitigations

• When speaking with current franchisees, inquire about their direct experiences and the quality of support received from the management team.
• A business advisor can help you research the reputation of the key executives within the industry.
• Preparing questions for the management team about their vision for the future can provide valuable insights.

Explanation

The FDD indicates the franchisor is owned by its founder, not a private equity firm. This can be a positive attribute, as founder-led companies may prioritize the long-term health of the brand and franchisee relationships over the short-term return objectives often associated with private equity ownership.

Potential Mitigations

• It is still prudent to ask the franchisor about any long-term succession or ownership transfer plans.
• Your attorney should review the assignment clause in the franchise agreement to understand what happens if the company is sold.
• Discussing the company culture with existing franchisees can offer insight into the leadership's philosophy.

Explanation

This risk was not identified in the FDD package. The franchisor and its affiliate relationships appear to be clearly disclosed in Item 1. Proper disclosure of parent and affiliate companies is important for understanding the complete corporate structure and any potential dependencies or conflicts of interest.

Potential Mitigations

• Your attorney can help confirm the corporate structure and the relationship between the franchisor and its disclosed affiliates.
• Your accountant should analyze any financial transactions between the franchisor and its affiliates as detailed in the notes to the financial statements.
• Inquire with existing franchisees about their interactions with any of the affiliate companies.

Explanation

The FDD states in Item 1 that the franchisor has no predecessor. This means the historical performance and legal history of the current company, as disclosed in Items 3, 4, and 20, represent the full history of the franchise system. This simplifies due diligence as there are no past corporate entities to investigate.

Potential Mitigations

• Your attorney should confirm that the information in Item 1 regarding predecessors is consistent with other parts of the FDD.
• Speaking with long-tenured franchisees can provide anecdotal history of the system's early days.
• A business advisor can help you research the brand's history through public sources to ensure no undisclosed entities were involved.

Explanation

This risk was not identified, as Item 3 of the FDD and the New York Addendum state there is no material or significant litigation to disclose. A clean litigation history is a positive sign, as it may suggest a healthy relationship between the franchisor and its franchisees and a lower risk of systemic problems.

Potential Mitigations

• Your attorney can conduct independent public records searches to verify the absence of significant litigation.
• When speaking with franchisees, it is still a good practice to ask about any past or present disputes within the system.
• A business advisor can help you assess the franchisor's overall reputation in the marketplace.