Explanation

This risk was not identified in the FDD package. While the system has been shrinking rather than growing, rapid expansion can be a risk in other franchise systems. When a franchisor expands too quickly, their support infrastructure for training, site selection, and ongoing assistance can be stretched thin. This may result in franchisees not receiving the level of support they need to succeed, despite paying ongoing fees for such services, potentially harming the entire brand.

Potential Mitigations

• A prospective franchisee should always ask a franchisor about its growth plans and how it intends to scale support services to match.
• Engaging a business advisor to review a system's growth trajectory in Item 20 against its financial capacity in Item 21 is a valuable step.
• Discussing the quality and timeliness of support with both new and established franchisees can provide insight into whether a system's growth is sustainable.

Explanation

This risk was not identified. MPI began operating in 1971 and franchising in 1974. Its parent, MSI, began franchising in 1970, and the ultimate parent, Cardinal Health, is a long-established public company. However, in other opportunities, a new franchisor may lack a proven track record, have inexperienced management, or an unproven business model. This can lead to system-wide failures, inadequate support, and minimal brand recognition, increasing your investment risk.

Potential Mitigations

• When evaluating a new franchise system, it is important to have a business advisor help you conduct extensive due diligence on the founders' and management's experience.
• Speaking with the earliest franchisees of a new system is critical to understanding the learning curve and support quality.
• An accountant should assist you in closely examining a new franchisor's capitalization to ensure it has the resources to support its initial growth.

Explanation

This risk was not identified in the FDD package. The business of a retail pharmacy is a well-established and enduring industry. In other franchise opportunities, a business concept may be tied to a new or fleeting trend, posing a risk of limited long-term viability. When consumer interest in a fad wanes, you could be left with a failing business but still be bound by the long-term franchise contract and its financial obligations.

Potential Mitigations

• It is prudent to have a business advisor help you assess the long-term market demand for any franchise's product or service.
• You should evaluate a franchisor's plans for innovation, research, and development to gauge its commitment to staying relevant.
• Your financial advisor can help you consider a business model's resilience to market shifts and economic downturns.

Explanation

This risk was not identified in the FDD package. The key personnel listed in Item 2 appear to have extensive experience with MPI, its parent companies, or in the industry. For other franchises, inexperienced management can be a significant concern. Leaders lacking a background in franchising or the specific industry may struggle to provide adequate support, create effective systems, or make sound strategic decisions, which could jeopardize the success of your business.

Potential Mitigations

• A thorough vetting of the management team's background should be conducted with the help of your business advisor.
• When dealing with an inexperienced franchisor, asking if they have engaged experienced franchise consultants can be an important question.
• You should always speak with existing franchisees to gauge their opinion of the management team's competence and responsiveness.

Explanation

This risk was not identified in the FDD package, as the ultimate parent, Cardinal Health, is a publicly-traded company, not a private equity firm. When a franchisor is PE-owned, there is a risk that decisions may prioritize short-term investor returns over the long-term health of the system. This can manifest as reduced franchisee support, increased fees, or pressure to use affiliated vendors. The franchisor may also be sold, introducing new ownership with different priorities.

Potential Mitigations

• Your business advisor can help you research a private equity firm's track record with its other franchise brands.
• It is essential to speak with franchisees to understand how PE ownership has impacted support, fees, and the overall direction of the system.
• An attorney should be consulted to review the franchisor's right to assign the agreement and the potential implications of a sale.

Explanation

This risk was not identified in the FDD package. MPI's parent and grandparent corporations, MSI and Cardinal Health, are clearly disclosed in Item 1. The FDD also includes the audited financial statements and a guarantee from the ultimate parent, Cardinal Health. In some cases, a franchisor might be a thinly capitalized subsidiary of a larger company, and failing to provide the parent's financial information could obscure the true financial stability and backing of the franchise system.

Potential Mitigations

• Your attorney should always verify the corporate structure if there's any suspicion of an undisclosed controlling entity.
• If a parent company provides essential services or guarantees, it's vital that your attorney ensures their financial statements are provided and properly reviewed.
• An accountant can help you confirm that any provided parent financials meet required accounting and auditing standards.

Explanation

This risk was not identified in the FDD package, as MPI does not list any predecessors. In other situations, a franchisor may have acquired the system from a predecessor. If the FDD provides incomplete information about the predecessor's history, such as prior litigation, bankruptcy, or high franchisee failure rates, you may not get a full picture of the system's historical challenges. This could obscure inherited problems that might continue to affect the brand and its franchisees.

Potential Mitigations

• Your attorney should carefully review Items 1, 3, and 4 of any FDD for information related to predecessors.
• A business advisor can help you conduct independent research on a predecessor's track record through news archives or other public records.
• Speaking with long-term franchisees who operated under the predecessor is an invaluable way to understand the system's history.