Explanation

This risk was not identified in the FDD Package. As a new franchisor planning to begin offering franchises in 2025, Pindao has no operating franchised outlets in the United States. Therefore, there is no historical data in Item 20 to analyze franchisee turnover. High turnover in an established system can be a major red flag indicating systemic problems, so the lack of this data for a new system is itself a form of risk.

Potential Mitigations

• A business advisor can help you assess the inherent risks of joining a new system with no performance track record in your country.
• Your attorney should advise on negotiating stronger contractual protections to compensate for the higher risk of an unproven system.
• Once franchisees exist, your accountant should help you monitor future Item 20 data to track system health.

Explanation

This risk was not identified in the FDD Package. Item 20 shows no outlets, so there is no history of rapid growth to analyze. Rapid expansion can be a risk because a franchisor's support systems may not keep pace with the needs of a quickly growing franchisee base. This can lead to inadequate training, site selection assistance, and ongoing operational support for franchisees.

Potential Mitigations

• Engaging a business advisor to review the franchisor's strategic plan for growth and support infrastructure can be beneficial.
• It is prudent to have your accountant analyze the franchisor's capitalization to determine if it can support future growth.
• Legal counsel should review the franchisor's contractual support obligations to ensure they are clearly defined.

Explanation

This risk was not identified in the FDD Package. The business model is based on selling tea, coffee, and bakery items, which is a well-established market segment rather than a temporary trend. However, whether this specific brand's concept can achieve sustained consumer demand in the US market is unproven. A business tied to a fad faces the risk of declining sales once consumer interest moves on, even if your contractual obligations remain.

Potential Mitigations

• A business advisor can help you conduct independent market research to assess long-term consumer demand for this specific type of beverage and bakery concept.
• Discuss the franchisor's plans for product innovation and brand evolution with them to gauge their long-term vision.
• Your accountant can help model the financial impact of potential shifts in consumer taste on your business's profitability.

Explanation

This risk was not identified in the FDD Package, as Item 1 does not indicate that the franchisor is owned by a private equity firm. Private equity ownership can sometimes introduce a focus on short-term returns over the long-term health of the franchise system. This might lead to increased fees, reduced support, or a quick sale of the brand, creating uncertainty for franchisees.

Potential Mitigations

• A business advisor can help you research the ownership structure of any franchise system you consider.
• It is wise to have your attorney review any clauses in the franchise agreement that relate to the sale or assignment of the franchise system.
• If a system is PE-owned, speaking with franchisees who have been with the brand both before and after the acquisition can provide valuable insight.

Explanation

This risk was not identified in the FDD Package. Pindao states in Item 1 that it has no predecessor. When a franchisor acquires a system from a predecessor, it is important to review the predecessor's history for issues like litigation, bankruptcy, or high franchisee turnover. These can signal underlying problems that may have been inherited by the new franchisor, affecting the brand and system health.

Potential Mitigations

• A franchise attorney should always be engaged to carefully review Item 1 for any disclosed predecessors.
• If a predecessor exists, a business advisor can help you research its historical performance and reputation.
• Your accountant can analyze any available historical data from the predecessor's time to identify financial trends.

Explanation

This risk was not identified in the FDD Package. Item 3 discloses no litigation history for Pindao or its management. A pattern of litigation, particularly lawsuits initiated by franchisees alleging fraud or misrepresentation, can be a significant red flag. It may suggest systemic problems with the franchisor's business practices or franchisee relations. Conversely, numerous lawsuits initiated by the franchisor against franchisees might indicate an overly aggressive or litigious culture.

Potential Mitigations

• Even with no disclosed litigation, consulting an attorney to conduct an independent search for legal disputes involving the franchisor or its affiliates is a wise precaution.
• A business advisor can help you research the franchisor's reputation online and through industry contacts.
• Discussing the franchisor's approach to conflict resolution with current franchisees can provide insight into their culture.