Explanation

The FDD does not indicate a high rate of franchisee terminations, non-renewals, or other cessations. In 2024, only two franchised outlets ceased operations for other reasons, with no terminations or non-renewals reported out of a base of 137 units. High turnover can be a red flag for systemic issues, so the low reported rate is a positive indicator. However, you should still investigate the reasons for any departures.

Potential Mitigations

• Speaking with former franchisees listed in Exhibit E is a crucial step to verify the reasons for their departure from the system.
• Your business advisor can help you analyze the full Item 20 tables to understand the context of transfers and ceased operations.
• An accountant should review the data over three years to confirm the trend of low turnover remains consistent.

Explanation

This risk was not identified in the FDD Package. PBF began offering franchises in 2015, indicating it is an established system rather than a new or unproven one. A new system can pose a higher risk due to underdeveloped support, lack of brand recognition, and unproven operational models. PBF's operational history reduces this particular risk.

Potential Mitigations

• It is still beneficial to have your business advisor evaluate the maturity of the franchise system in your specific market.
• An attorney can help review the franchisor’s history and experience as detailed in Item 1 of the FDD.
• Engage with a number of established franchisees to learn about the evolution of the system's support and operational processes.

Explanation

This risk was not identified in the FDD Package. The business operates in the well-established bakery and café industry, which has demonstrated long-term consumer demand. A fad business, which is tied to a short-lived trend, presents a risk that demand could disappear, leaving you with a worthless investment. Paris Baguette's concept does not appear to be a fad.

Potential Mitigations

• Your business advisor can help you research the long-term market trends for bakery-cafes in your specific geographic area.
• Reviewing PBF's plans for menu innovation and adaptation in Item 11 with a financial advisor can provide insight into its long-term strategy.
• Engage with long-standing franchisees to discuss the brand's resilience through different economic cycles.

Explanation

This risk was not identified in the FDD Package. The executive team described in Item 2 appears to have considerable experience in the food service and franchise industries. For example, key personnel have prior experience with large brands like Duck Donuts and The Wendy's Company. Inexperienced management can be a significant risk, leading to poor strategic decisions and inadequate support for franchisees.

Potential Mitigations

• A thorough review of the backgrounds of the key management personnel listed in Item 2 is still a prudent step for any investor.
• Speaking with current franchisees about their direct experiences with the management team can provide valuable, real-world insight.
• A business advisor can help you assess if the management team's collective experience aligns with the company's growth strategy.

Explanation

This risk was not identified in the FDD Package. Item 1 indicates that PBF is 32.4% owned by its affiliate Paris Croissant Co., Ltd. and 67.6% by two individuals. There is no disclosure of ownership by a private equity firm. Private equity ownership can sometimes lead to a focus on short-term returns over the long-term health of the franchise system.

Potential Mitigations

• It is always wise to have your attorney review the ownership structure detailed in Item 1 to understand who controls the franchise system.
• A business advisor can help you research the background of the disclosed owners to understand their history and investment philosophy.
• Inquiring with existing franchisees about any recent changes in ownership or management focus is a valuable part of due diligence.

Explanation

This risk was not identified in the FDD Package. PBF discloses an affiliate, PBUSA, as a predecessor but there are no negative historical issues like bankruptcy associated with it. The significant litigation disclosed in Item 3 relates to parent and affiliate companies, not a predecessor entity from which PBF acquired the system. A negative predecessor history could indicate inherited problems for the franchise system.

Potential Mitigations

• Your attorney should still review the information on any predecessors or affiliates in Items 1, 3, and 4.
• A business advisor can help you understand the corporate history and the relationships between the various affiliated entities.
• Engage with long-tenured franchisees to ask about their experience with the system's history and any affiliate companies.