Explanation

The FDD does not indicate that the franchisor is growing at a pace that might strain its resources. However, rapid system growth can sometimes stretch a franchisor's capacity to provide adequate site selection guidance, training, and ongoing operational support to all franchisees. This can be a particular concern for new franchise systems as they begin to expand.

Potential Mitigations

• Discussing the franchisor's plans for scaling its support infrastructure with its management team is advisable.
• An accountant should review the franchisor's financial statements to assess if they have the capital to support planned growth.
• Posing questions to your attorney about contractual support commitments can help clarify what you are entitled to receive.

Explanation

The Peet's Coffee brand is well-established and has a long operating history, suggesting it is not a fad. The business operates in the competitive but enduring coffee shop industry. The risk of the entire concept being a short-term trend appears low. However, you will still face significant competition from both national chains and local cafes.

Potential Mitigations

• Engaging a business advisor to create a comprehensive business plan that includes a thorough local market and competitor analysis is recommended.
• An accountant can help you model different revenue scenarios to assess profitability in a competitive market.
• Your real estate professional should help evaluate the long-term viability of your proposed location against the competitive landscape.

Explanation

The management team disclosed in Item 2 appears to have extensive experience within the parent company, Peet's Coffee, Inc., and its various affiliated brands. This experience within the broader corporate family and the coffee industry may mitigate some risks associated with the new franchise entity. However, their specific experience in managing and supporting a new, third-party franchisee network is yet to be demonstrated.

Potential Mitigations

• It is wise to ask the franchisor direct questions about how the management team's corporate experience will translate to supporting new franchisees.
• A business advisor can help you assess the backgrounds of the key personnel responsible for franchise operations and support.
• Your attorney can help clarify which individuals have direct responsibility for fulfilling the franchisor's contractual obligations to you.

Explanation

This risk was not identified. The FDD clearly discloses the parent companies, up to the ultimate public parent JDE Peet's N.V. The franchisor entity is a subsidiary of Peet's Coffee, Inc. (PCI), and the financials for the new franchisor entity are provided. The franchisor's reliance on its parent is clear from the financial statements, which show a significant liability due to a related party.

Potential Mitigations

• An accountant's review of the financial statements of both the franchisor and any parent entities is a crucial step.
• It is important to have your attorney examine any parent guarantees or support agreements mentioned or included in the FDD.
• Clarifying the nature of financial and operational support from a parent entity should be part of your due diligence discussions with the franchisor.

Explanation

This risk was not identified in the FDD. The franchisor, Peet's Coffee Franchise, LLC, is a new entity and states that it has no predecessors. Its parent, Peet's Coffee, Inc., has a long operating history that is described in Item 1. Ensuring a franchisor properly discloses its history and that of its predecessors is important for understanding the system's lineage and any inherited issues.

Potential Mitigations

• Your attorney should always verify that the predecessor information disclosed in Item 1 appears complete and consistent with other information.
• A business advisor can assist in researching a brand's history, especially if it was acquired from a different company.
• Speaking with long-tenured employees or franchisees can sometimes reveal important details about a system's past.

Explanation

The FDD states that no litigation is required to be disclosed for the new franchisor entity. For a large, established brand family, this is notable. While technically true for the new legal entity, it provides no insight into the litigation history of its parent or affiliated brands. A pattern of franchisee-initiated lawsuits alleging fraud or franchisor-initiated suits over contract enforcement can be a major warning sign about the health of a franchise relationship.

Potential Mitigations

• Your attorney can conduct public records searches to check for litigation involving the franchisor's parent and affiliated brands.
• It is crucial to ask current and former franchisees of affiliated brands about their experiences and any legal disputes.
• A business advisor can help you assess whether the lack of disclosed litigation for a new entity is a meaningful indicator of future conduct.