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How much does Red Roof Inn cost?
Initial Investment Range
$259,000 to $14,843,155
Franchise Fee
$54,550 to $119,650
The franchisee will own and operate a guest lodging facility under the Red Roof Inn®, Red Roof Inn & Suites®, Red Roof PLUS+® or Red Roof PLUS+ & Suites® brand.
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Red Roof Inn April 14, 2025 FDD Risk Analysis
Free FDD Library AI Analysis Date: July 16, 2025
DISCLAIMER: Not Legal Advice - For Informational Purposes Only. Consult With Qualified Franchise Professionals.
Franchisor Stability Risks
Start HereDisclosure of Franchisor's Financial Instability
Medium Risk
Explanation
RRF's audited financials show consistent profitability. However, they also reveal a trend of decreasing cash reserves and member's equity over the past three years. This appears driven by large annual distributions to the member company that exceed net income. This pattern of significant cash extraction from the franchise system could potentially impact RRF's ability to reinvest in the brand, provide robust support, or weather economic downturns, which may affect your long-term viability.
Potential Mitigations
- A franchise accountant should analyze the franchisor's cash flow statements and statement of changes in member's equity to assess the impact of distributions.
- Discuss the franchisor's capital reinvestment strategy with your business advisor to understand their long-term plans for the brand.
- Ask your attorney to inquire if state regulators have required any financial assurances like a bond or escrow due to these financial trends.
High Franchisee Turnover
Medium Risk
Explanation
Item 20 data shows a notable number of franchise terminations over the past three years (17 in 2022, 23 in 2023, and 20 in 2024). While the system is growing overall, these figures suggest that a number of franchisees are leaving the system involuntarily each year. Understanding the reasons behind these terminations is important for assessing potential challenges within the franchise relationship, operational difficulties, or the franchisor's enforcement policies.
Potential Mitigations
- To understand the context behind the numbers, speaking with former franchisees is highly recommended.
- An analysis of the termination and transfer rates with your accountant can help benchmark the system's stability against industry norms.
- Your franchise attorney can help you formulate specific questions for the franchisor about the reasons for these terminations.
Rapid System Growth
Low Risk
Explanation
The franchisor demonstrates consistent, steady growth in the number of franchised units over the past three years, as shown in Item 20. The financial statements in Item 21 do not indicate that this growth is outpacing the company's ability to provide support. Therefore, the specific risks associated with excessively rapid, unsupported expansion were not identified.
Potential Mitigations
- Engaging a business advisor can help you evaluate if the franchisor's support infrastructure is scalable for future growth.
- When speaking with franchisees, it is valuable to ask newer operators about their onboarding experience and the quality of support received.
- Your accountant can review the franchisor's financials to assess whether they are allocating sufficient resources to franchisee support services.
New/Unproven Franchise System
Low Risk
Explanation
This risk was not identified. Red Roof Franchising, LLC (RRF) and its predecessors have been franchising since 1996 and operating hotels since 1973, indicating a long-established brand and significant experience in the lodging and franchise industries. The FDD does not present the characteristics of a new or unproven system.
Potential Mitigations
- In any franchise opportunity, it's wise to have an accountant review the franchisor's full, audited financial statements for the last three years.
- A conversation with a business advisor can help assess the maturity and stability of the franchise system relative to its competitors.
- Your attorney can help you understand the history of the company and its management as detailed in Items 1 and 2.
Possible Fad Business
Low Risk
Explanation
The Red Roof Inn brand is a long-established concept in the economy lodging segment of the hotel industry, which is not typically considered a fad. The business model is based on providing lodging services to business and leisure travelers, a historically stable source of consumer demand. The risk of the business being a short-lived trend appears low.
Potential Mitigations
- A business advisor can help you analyze the long-term stability and market trends of the economy lodging industry.
- When creating your business plan, it is important to consider local market competition and demand drivers with a real estate professional.
- Reviewing the franchisor's history of adaptation and brand updates in Item 1 with your attorney can provide insight into its long-term focus.
Inexperienced Management
Low Risk
Explanation
The executive team detailed in Item 2 of the FDD possesses extensive experience in the lodging, hospitality, and franchise industries. Many key personnel have long tenures with Red Roof or significant prior experience with other major hotel and franchise companies. Therefore, the risk of an inexperienced management team is not indicated.
Potential Mitigations
- A thorough review of the executive biographies in Item 2 with your business advisor is a good practice for any franchise investment.
- Asking existing franchisees about their direct experiences with the management team can provide valuable, real-world insight.
- Your attorney can help you research the public record or industry reputation of key executives.
Private Equity Ownership
Medium Risk
Explanation
The FDD discloses that the franchisor's ultimate parent company is WRRH LP. While not explicitly identified as a traditional private equity firm, this corporate structure can present similar risks. Decisions may prioritize investor returns over the long-term health of franchisees. This structure, combined with the large cash distributions shown in the financial statements, suggests a focus on extracting capital from the system, which could impact long-term brand investment.
Potential Mitigations
- It is advisable to discuss the franchisor's ownership structure and its potential implications with your franchise attorney.
- An accountant should review the financial statements to understand how the ownership structure impacts cash flow and reinvestment within the franchise system.
- Inquiring with existing franchisees about any shifts in strategy or support levels can offer insight into the parent company's influence.
Non-Disclosure of Parent Company
Low Risk
Explanation
This risk was not identified. The FDD clearly discloses the parent companies in Item 1, up to the ultimate parent WRRH LP. Furthermore, the franchisor, Red Roof Franchising, LLC, provides its own audited financial statements in Item 21 and Exhibit A. There is no indication that required parent company financials have been omitted.
Potential Mitigations
- Your attorney can help confirm the corporate structure and ensure all necessary financial disclosures from parent companies are present.
- Having an accountant review the provided financial statements is crucial to understanding the franchisor's financial health.
- Always ask your business advisor to assess the relationships between the franchisor and its parent entities.
Predecessor History Issues
Low Risk
Explanation
This risk was not identified. The FDD discloses in Item 1 that the franchisor has no predecessors that must be disclosed under franchise law. It states that Red Roof Inn franchises have been offered by the current franchisor and its parent, RRI, since 1996, indicating a consistent history under the same general corporate family.
Potential Mitigations
- For any franchise, it is good practice for your attorney to review Item 1 for any disclosed predecessors and their history.
- A business advisor can help you research the history of the brand and its ownership to identify any potential inherited issues.
- Speaking with long-term franchisees can provide insight into the brand's history and evolution.
Pattern of Litigation
High Risk
Explanation
The FDD's financial statement footnotes disclose a highly concerning pattern of litigation. The company is aware of 205 matters, with 66 filed, alleging involvement in sex trafficking at franchised hotels. While the franchisor states its accruals are adequate, the sheer volume and serious nature of these claims represent a significant financial and reputational risk to the entire brand. This could lead to increased insurance costs, brand damage, and potential liabilities not fully covered by insurance.
Potential Mitigations
- Discussing this specific litigation pattern and its potential impact on your insurance, reputation, and liability with your attorney is critical.
- Your insurance broker should be consulted to assess the availability and cost of coverage for such third-party claims.
- A frank conversation with your business advisor is needed to evaluate the potential brand damage from this type of widespread litigation.
Disclosure & Representation Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems