Explanation

This risk was not identified in the FDD package. The Pollo Campero brand was established in 1971 and has been operating in the U.S. for many years, indicating it is not a new or unproven system. Evaluating a system's history is important because new franchisors may lack refined support structures, brand recognition, and a proven track record of franchisee success, which increases investment risk.

Potential Mitigations

• For any franchise, it is wise to have a business advisor help you research the franchisor's history and the overall brand's market longevity.
• An accountant can help you assess whether a franchisor's financial statements reflect a stable and mature business operation.
• Your attorney can help you understand the experience level of the management team as detailed in Item 2.

Explanation

The Pollo Campero concept is long-established and not a fad. However, like any restaurant, it is subject to changing consumer tastes and competitive pressures. A prospective franchisee should consider the long-term sustainability of any food concept. Your success depends on the brand's ability to adapt and remain relevant over the 10-year term of your agreement and beyond, which is a standard business risk in this industry.

Potential Mitigations

• A business advisor can help you research the quick-service restaurant industry to evaluate long-term consumer trends and the brand's competitive positioning.
• Reviewing the franchisor's history of innovation and menu adaptation with current franchisees can provide insight into their ability to evolve.
• Your accountant can assist in building financial models that account for potential fluctuations in market demand over the life of the franchise.

Explanation

This risk was not identified in the FDD package. The executive team disclosed in Item 2 appears to have extensive experience with the Pollo Campero brand and in the restaurant industry. Assessing management's experience is crucial because a team lacking expertise in franchising or their specific industry may struggle to provide adequate support, training, and strategic direction, increasing the risk for franchisees.

Potential Mitigations

• With any franchise, having your attorney and business advisor review the management biographies in Item 2 is a key due diligence step.
• It is always recommended to interview current franchisees about their direct experiences with the management team's competence and support.
• Investigating the past performance of brands previously managed by the executive team can offer valuable insights.

Explanation

This risk was not identified in the FDD package. The franchisor, Campero USA Corp., properly discloses its parent entities in Item 1. The parent company provides a guarantee of performance and its audited financial statements are included in Item 21. This level of disclosure is appropriate. A failure to disclose a parent company or its financials, when required, could obscure significant risks related to the system's true financial backing and stability.

Potential Mitigations

• An attorney should always verify that the FDD properly discloses all parent and affiliate companies as required by franchise law.
• If a parent company's guarantee is offered, your attorney should review the document to ensure it is legally sound and provides meaningful protection.
• Your accountant should review any provided parent company financials with the same diligence as the franchisor's statements.

Explanation

This risk was not identified in the FDD package. The franchisor discloses in Item 1 that it has no predecessors. Understanding a franchisor's history, including any predecessors, is important because it can reveal inherited issues, past litigation, or historical franchisee turnover that might not be immediately apparent but could impact the system's current health and your investment.

Potential Mitigations

• It's always a good practice to have your attorney review Item 1 carefully to understand the full history of the franchisor entity.
• For any franchise with predecessors, a business advisor can help you research the predecessor's reputation and historical performance.
• If a predecessor exists, asking long-term franchisees about their experience under the prior ownership can provide valuable context.

Explanation

Item 3 of the FDD states that no litigation is required to be disclosed. The absence of a pattern of franchisee-initiated lawsuits for fraud or franchisor-initiated suits for royalty collection is a positive indicator. However, this does not eliminate all potential for future disputes. You should remain diligent, as a clean legal history is not a guarantee of a conflict-free relationship.

Potential Mitigations

• Your attorney should always review Item 3 thoroughly and can perform independent searches for litigation not required to be disclosed.
• A discussion with your business advisor about the typical litigation landscape in the franchise industry can provide useful context.
• Asking current and former franchisees about their experiences with disputes, even those not rising to the level of litigation, is a crucial part of due diligence.