Explanation

This risk was not identified in the FDD package. The Taziki's system has been in operation since 1998 and franchising since 2013, indicating it is not a new or unproven system. However, for any franchise, especially newer ones, a lack of a long performance history can increase the risk of business model failure, underdeveloped support systems, and low brand recognition. Diligence is key when evaluating younger franchise concepts.

Potential Mitigations

• Assessing the track record of the founders and management team in both the specific industry and in franchising is important for any opportunity.
• Speaking with the earliest franchisees of a system can provide valuable insight into its evolution and the franchisor's learning curve.
• For any new system, having an accountant review the franchisor's capitalization is a prudent step to ensure it can fund its growth and support obligations.

Explanation

The fast-casual Mediterranean restaurant space is competitive and subject to changing consumer tastes. While Mediterranean food is a well-established category, the specific trend-level popularity can fluctuate. A prospective franchisee should consider the long-term sustainability and brand differentiation in a crowded market. The franchisor's ability to innovate and adapt its menu and concept will be important for continued relevance and profitability over the full term of the franchise agreement.

Potential Mitigations

• Engage a business advisor to conduct independent research on the long-term market trends for fast-casual Mediterranean dining in your specific area.
• Question the franchisor on their long-term plans for menu innovation, brand development, and strategies to compete against other similar concepts.
• Evaluating the business's resilience to economic shifts and its appeal beyond current dining trends is a wise step to take with your financial advisor.

Explanation

This risk was not identified in the FDD package, as Item 1 does not indicate ownership by a private equity firm. When a franchise is owned by a PE firm, there is a potential risk that the firm's focus on short-term financial returns might lead to decisions, such as cutting franchisee support or increasing fees, that could conflict with the long-term health of the brand and its franchisees. This often brings a different management philosophy to the system.

Potential Mitigations

• When evaluating a PE-owned franchise, it is prudent to research the firm's history with other franchise brands they have managed.
• A business advisor can help assess changes in franchisee support, costs, and overall system direction since a PE acquisition.
• Speaking with franchisees who have operated under both founder and PE ownership can provide invaluable comparative insights.

Explanation

The FDD discloses that the franchisor, Taziki's Franchising, LLC, is a wholly-owned subsidiary of Taziki's Holding Company, LLC, and its direct parent is Taziki's, Inc. The FDD provides the financial statements for the franchisor entity itself. While there is no guarantee for the franchisor's obligations from the parent, the relationship is disclosed. You should be aware that you are contracting with a subsidiary entity whose financial health is distinct from its parent's.

Potential Mitigations

• Your accountant should carefully analyze the financial statements of the specific franchising entity you are contracting with.
• Understanding the full corporate structure and the flow of funds between the parent and subsidiary is a key discussion to have with your attorney.
• Inquire if the parent company provides any formal guarantee of the franchisor's obligations, and if so, request to review that document.

Explanation

This risk was not identified in the FDD package. The franchisor states in Item 1 that it has no predecessors. In cases where a franchisor has acquired the system from a predecessor, it is important to investigate the predecessor's history, as past issues with litigation, franchisee failures, or bankruptcy could carry over and affect the current system's health and reputation. A clean history with no predecessors simplifies this aspect of due diligence.

Potential Mitigations

• When a predecessor is disclosed, your attorney should carefully review their history as detailed in Items 1, 3, and 4.
• Independent research into a predecessor's business reputation can provide context that the FDD might not offer.
• Speaking with long-term franchisees who operated under a predecessor can reveal important information about the system's evolution and inherited challenges.

Explanation

This risk was not identified in the FDD package. Item 3 states that no litigation is required to be disclosed. This is a positive sign, as a pattern of litigation, especially cases initiated by franchisees alleging fraud or misrepresentation, can be a major red flag. Similarly, a high number of lawsuits filed by the franchisor against franchisees can indicate an overly aggressive or punitive system. The absence of such disclosures suggests a less litigious environment.

Potential Mitigations

• In any FDD, it is crucial for your attorney to carefully review the nature, allegations, and outcomes of all disclosed litigation in Item 3.
• Independent legal research can sometimes uncover additional cases or context not fully detailed in the FDD.
• Even with no disclosed litigation, discussing the dispute resolution process with current franchisees provides valuable practical insight.