Explanation

This risk was not identified in the FDD Package. Rapid, uncontrolled growth can strain a franchisor's ability to provide necessary support services like training, site selection, and operational guidance. This can lead to decreased quality and consistency across the system, potentially harming the brand's reputation and your individual store's performance. The data in Item 20 shows a net decrease in stores, not rapid growth, so this specific risk is not present.

Potential Mitigations

• Engaging a business advisor to review the franchisor's support infrastructure in relation to its store count is a valuable step.
• Discussions with franchisees who opened at different times can provide insight into how support levels have evolved.
• An accountant can analyze the franchisor's financial statements to assess if resources are allocated for scaling support systems.

Explanation

This risk was not identified in the FDD Package. The franchisor and its predecessors have been franchising since the 1980s and the parent company, MTY Food Group, is a large, experienced operator of numerous franchise brands. An unproven system carries higher risks, as its business model, brand recognition, and support structures have not withstood the test of time. This lack of a track record can make it difficult to predict future success.

Potential Mitigations

• A business advisor can help research the franchisor's history and the track record of its management team in the industry.
• When evaluating any franchise, it's wise to speak with the earliest franchisees to gauge the evolution of the system and support.
• Your accountant can assess the financial stability of a new system to ensure it is adequately capitalized for the long term.

Explanation

This risk was not identified in the FDD Package. The take-and-bake pizza concept has been established for decades and is not tied to a recent, fleeting trend. A fad-based business presents a substantial risk because its popularity may decline quickly, leaving you with a long-term franchise agreement for a concept with waning consumer interest. This can make profitability and long-term viability extremely challenging once the initial excitement fades.

Potential Mitigations

• Working with a business advisor to research the long-term consumer demand for any franchise concept is a crucial due diligence step.
• Assessing a franchisor's plans for product innovation and adaptation can provide insight into its long-term strategy.
• Your financial advisor can help evaluate the business model's resilience to changing market trends and economic conditions.

Explanation

This risk was not identified in the FDD Package. Item 2 indicates that the key executives from PMI and its parent, MTY USA, have extensive experience in the restaurant and franchise industries, often with other large brands within the MTY portfolio. Inexperienced management can be a significant risk, as they may lack the knowledge to provide effective support, create robust systems, or make sound strategic decisions, potentially jeopardizing the entire franchise system.

Potential Mitigations

• A thorough review of the executive team's biographies in Item 2 with a business advisor is a good practice.
• Speaking with existing franchisees provides firsthand accounts of the management team's competence and responsiveness.
• Your attorney can help you understand the roles and responsibilities of the key personnel listed.

Explanation

This risk was not identified in the FDD Package. Item 1 clearly discloses the parent company structure, and Item 21 provides audited financial statements for the Guarantor, MTY USA, along with a formal Guarantee of Performance in Exhibit J. Failure to disclose a parent company or provide its required financials can hide significant risks, as the franchisee would lack a complete picture of the financial stability and resources backing the franchisor.

Potential Mitigations

• An attorney can help verify the corporate structure and ensure all required parent and affiliate disclosures are present.
• When a parent company provides a guarantee, your accountant should review its financial statements to assess its ability to back that guarantee.
• Always ensure that any guarantees mentioned in the FDD are included as an exhibit for your attorney to review.

Explanation

This risk was not identified in the FDD Package. The FDD provides a history of the brand's predecessors and discloses past litigation involving them. Failing to disclose or downplaying a predecessor's negative history can obscure systemic problems that may have been inherited by the current franchisor. A complete understanding of the brand's entire history, including past challenges under previous ownership, is vital for a comprehensive risk assessment.

Potential Mitigations

• A careful review of Items 1, 3, and 4 for any predecessor information is a task for your attorney.
• If a system was recently acquired, your business advisor might research the predecessor's public track record for additional context.
• Speaking with long-term franchisees who operated under a predecessor can provide invaluable historical perspective.