Explanation

This risk was not identified. The data in Item 20 indicates the system's growth has slowed and recently experienced a slight contraction, rather than expanding at a pace that might strain support resources. While the contraction is a concern addressed in the "High Franchisee Turnover" risk, the specific risk of overly rapid growth is not present here.

Potential Mitigations

• When evaluating any franchise, it is wise to have a business advisor assess whether the franchisor's growth rate appears sustainable and supported by its infrastructure.
• Your attorney can help you understand the support commitments detailed in the franchise agreement, regardless of growth speed.
• An accountant can review the franchisor's financials to see if they have the resources to properly support their existing and planned franchisees.

Explanation

This risk was not identified. Sharetea's U.S. entity was formed in 2015, and its parent company has operated since 1992. With over 150 outlets in the U.S. system as shown in Item 20, it is an established brand rather than a new or unproven one. This can offer benefits like refined operational systems and greater brand recognition.

Potential Mitigations

• For any franchise opportunity, engaging a business advisor to research the franchisor’s full history and track record is a valuable step.
• Speaking with long-standing franchisees can provide insight into the system's evolution and stability.
• Your accountant should always review the financial statements to confirm the franchisor's stability over its operating history.

Explanation

The business is centered on bubble tea, a product that has experienced a significant surge in popularity. While the Sharetea brand has a long international history suggesting resilience, any business heavily reliant on a specific trending product category carries some risk that consumer preferences could shift over the long term. The market is described as highly competitive.

Potential Mitigations

• It is important to conduct your own local market research with a business advisor to assess the long-term consumer demand for this type of product.
• Evaluate the franchisor's plans for product innovation and menu diversification to gauge its strategy for staying relevant.
• An accountant can help you model different revenue scenarios based on potential shifts in consumer tastes or increased competition.

Explanation

This risk was not identified. Item 2 of the FDD indicates that the key executives have extensive and long-term experience with the brand and within the food and beverage industry. Experienced leadership can be a significant asset, contributing to better strategic decisions, more effective operational support, and overall system stability.

Potential Mitigations

• When evaluating any franchise, having a business advisor help you research the backgrounds and track records of the key management personnel is prudent.
• Your attorney can help you frame questions for existing franchisees about their confidence and interactions with the current leadership team.
• Asking the franchisor directly about their strategic vision and management philosophy is always a recommended part of due diligence.

Explanation

This risk was not identified. According to Item 1, the franchisor is owned by its international parent company, not a private equity firm. This type of ownership structure can sometimes indicate a focus on long-term brand health rather than the shorter-term investment horizons that can be associated with private equity ownership, which can be a positive for franchisees.

Potential Mitigations

• Understanding the complete ownership structure of any franchisor is a critical due diligence step that your attorney can help you investigate.
• A business advisor can help you assess the potential impact that different ownership models could have on franchisee relationships and system strategy.
• Inquiring about any potential future sale of the company and how your rights might be affected is a wise question for any potential franchisee.

Explanation

This risk was not identified. Item 1 of the FDD states that the franchisor has no predecessors within the last ten years. This can simplify your due diligence process, as the analysis can focus entirely on the operational and financial history of the current franchising entity without the need to investigate past corporate structures or performance records.

Potential Mitigations

• When evaluating any franchise, your attorney should always verify the information provided about predecessors in Item 1.
• A business advisor can help research the company's corporate history to ensure no undisclosed predecessors exist that might be relevant.
• Speaking with the longest-tenured franchisees can often provide valuable historical context about the brand's origins and any prior ownership.