Surf City Squeeze
Initial Investment Range
$69,410 to $390,000
Franchise Fee
$12,000 to $57,000
We offer Surf City Squeeze franchises. As a franchisee, you will operate a restaurant called Surf City Squeeze, preparing and serving smoothies, fruit drinks, functional drinks, nutritional supplements, and other beverage and food items.
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Surf City Squeeze March 28, 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
High Risk
Explanation
The franchisor's parent company, MTY Franchising USA, Inc., reported a net loss of over $12.5 million for the fiscal year ending November 30, 2024, a significant decline from the prior year's profit. The financial statements also reveal substantial impairment charges on assets, indicating a reduction in the value of its brands. This financial weakness may impact the franchisor's ability to provide support, grow the brand, and fulfill its obligations to you.
Potential Mitigations
- An experienced franchise accountant must perform a detailed analysis of the parent company's audited financial statements, focusing on the reasons for the net loss and impairment charges.
- Discussing the company's financial health and its specific plans to address these issues with your business advisor is essential before investing.
- Engage your attorney to investigate if any financial performance bonds or escrow arrangements are required by state regulators due to these financial conditions.
High Franchisee Turnover
High Risk
Explanation
FDD Item 20 data reveals a consistent decline in the number of franchised outlets, shrinking from 73 units to 62 over the last three years, a 15% reduction. There is a steady pattern of franchisee cessations (including non-renewals and units that 'ceased operations for other reasons'). This significant and sustained system shrinkage is a strong indicator of potential widespread issues with profitability, franchisee satisfaction, or the viability of the business model.
Potential Mitigations
- It is critical to contact a significant number of the former franchisees listed in the FDD to understand why they left the system.
- Your accountant should help you analyze the turnover rates in detail, paying close attention to the "ceased operations for other reasons" category, which may obscure store failures.
- A thorough discussion with your business advisor about the risks associated with a shrinking franchise system is strongly recommended before proceeding.
Rapid System Growth
Low Risk
Explanation
This risk was not identified, as the data in Item 20 indicates the franchise system has been shrinking over the last three years, not growing rapidly. While rapid growth can strain a franchisor's support systems, a shrinking system presents a different set of risks regarding brand viability and franchisee morale.
Potential Mitigations
- A business advisor can help you assess whether a franchisor's growth plans are sustainable and supported by adequate infrastructure.
- When evaluating a franchise, ask your accountant to review the franchisor's financial statements for signs of investment in support services.
- Discussing the pace of growth and its potential impact with existing franchisees is a key due diligence step your attorney can help facilitate.
New/Unproven Franchise System
Low Risk
Explanation
This risk is not present. The franchisor, Kahala Franchising, L.L.C. (Kahala LLC), and its parent MTY Food Group, are large, established entities with a long history of franchising many brands. An unproven system carries higher risks of failure, underdeveloped support, and lack of brand recognition, which does not appear to be the primary risk here, though the performance of this specific brand is a concern.
Potential Mitigations
- With any new system, a business advisor can help you conduct extensive due diligence on the founders' industry and franchising experience.
- It is wise to have an accountant assess the capitalization of a new franchisor to ensure it can fund its support obligations.
- Your attorney can help you understand the unique risks associated with being one of the first franchisees in a new system.
Possible Fad Business
Medium Risk
Explanation
The Surf City Squeeze concept, focused on smoothies and juices, operates in a competitive market that can be subject to changing health and dietary trends. While not definitively a fad, it is important to consider the long-term consumer demand for such specialized products. The franchisor's ability to innovate and adapt the menu, as described in Item 11, will be crucial to maintaining relevance and avoiding the risks associated with a potential fad business.
Potential Mitigations
- Assess the long-term market demand for smoothie and juice products independently with your business advisor.
- Evaluating the franchisor's history of menu innovation and plans for future product development is a crucial step.
- Consider working with your financial advisor to model the business's resilience to shifts in consumer health trends.
Inexperienced Management
Low Risk
Explanation
This risk was not identified. FDD Item 2 lists numerous executives for the franchisor and its parent companies with extensive and long-term experience in the restaurant and franchise industries. Inexperienced management can be a significant risk, potentially leading to poor strategic decisions and inadequate franchisee support, but that does not appear to be the case here based on the disclosed backgrounds of the leadership team.
Potential Mitigations
- A business advisor can help you thoroughly vet the management team's background for relevant experience in both the specific industry and in franchising.
- Speaking with existing franchisees about the quality and responsiveness of management is a key part of due diligence.
- Your attorney can help you understand the backgrounds disclosed in Item 2.
Private Equity or Public Company Ownership
Medium Risk
Explanation
The ultimate parent company, MTY Food Group Inc., is a publicly-traded Canadian company that owns Kahala LLC and many other brands. This structure means major strategic decisions may be driven by shareholder returns and the needs of the larger portfolio rather than the specific health of the Surf City Squeeze brand. Such ownership can lead to changes in leadership, pressure on fee generation, and a focus on metrics that benefit the parent over individual franchisees.
Potential Mitigations
- Research the parent company's history and reputation in the franchise industry with your business advisor.
- It is important to ask current franchisees about any changes in support, fees, or direction since the parent company's involvement began.
- Have your attorney review any clauses in the Franchise Agreement that relate to the sale or assignment of the franchise system.
Non-Disclosure of Parent Company
Low Risk
Explanation
The franchisor, Kahala LLC, is a subsidiary of MTY Franchising USA, Inc., which is the Guarantor of the franchise obligations. The FDD includes the financial statements for this parent guarantor. Therefore, this specific risk of non-disclosure is not present, as the relevant controlling entity's financials are provided for review.
Potential Mitigations
- Your attorney should always verify that the financials of any guaranteeing parent company are included in the FDD, as required by law.
- An accountant should analyze the parent company's financial statements with the same scrutiny as the franchisor's.
- Ensure the parent company's guarantee, provided as an exhibit, is legally sufficient with assistance from your attorney.
Predecessor History Issues
High Risk
Explanation
Item 1 discloses a complex history with numerous predecessors and affiliates, such as Malibu Smoothie Franchise Corp., and Item 3 details significant litigation involving these related entities. This history is important as it may indicate inherited systemic issues, a pattern of franchisee disputes, or past financial problems that could still influence the current system's culture and operational stability, even under new ownership.
Potential Mitigations
- It is crucial to have your attorney carefully review the disclosed history of all predecessors and affiliates in Items 1, 3, and 4.
- Asking long-term franchisees about their experiences under any previous ownership can provide valuable context.
- Work with your business advisor to research the public records and reputation of these predecessor companies.
Pattern of Litigation
High Risk
Explanation
Item 3 discloses a significant and concerning pattern of litigation involving the franchisor, its affiliates, and predecessors. Multiple lawsuits brought by franchisees have alleged fraud, financial misrepresentation, and breach of contract, resulting in substantial settlements paid by the franchisor side. There are also several concluded administrative actions by states for registration violations. This history could indicate systemic issues with the franchisor's business practices, disclosure integrity, and franchisee relations.
Potential Mitigations
- A comprehensive review of the details of every case listed in Item 3 with your franchise attorney is absolutely essential.
- Your attorney can help you understand the implications of this litigation history and the nature of the state administrative actions.
- In discussion with your business advisor, you should treat this extensive history of disputes and regulatory actions as a major red flag.
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
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Financial & Fee 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
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Legal & Contract 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
Unlock Full Risk Analysis
Purchase the complete risk review to see all 102 risks across all 10 categories.
Territory & Competition 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
Unlock Full Risk Analysis
Purchase the complete risk review to see all 102 risks across all 10 categories.
Regulatory & Compliance 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
Unlock Full Risk Analysis
Purchase the complete risk review to see all 102 risks across all 10 categories.
Franchisor Support 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
Unlock Full Risk Analysis
Purchase the complete risk review to see all 102 risks across all 10 categories.
Operational Control 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
Unlock Full Risk Analysis
Purchase the complete risk review to see all 102 risks across all 10 categories.
Term & Exit 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
Unlock Full Risk Analysis
Purchase the complete risk review to see all 102 risks across all 10 categories.
Miscellaneous 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
Unlock Full Risk Analysis
Purchase the complete risk review to see all 102 risks across all 10 categories.
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