The Coffee Bean & Tea Leaf
Initial Investment Range
$531,550 to $1,430,177
Franchise Fee
$62,500 to $142,000
The franchise is for “Traditional” or “Special Distribution” The Coffee Bean & Tea Leaf® Stores or Kiosks featuring premium coffee beverages, espresso drinks, premium teas, roasted coffee beans and blends, prepackaged coffees, prepackaged teas, baked goods, snacks and other food items and products.
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The Coffee Bean & Tea Leaf June 14, 2024 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 Illinois state addendum explicitly states that the payment of your initial franchise fee is deferred "due to Franchisor's financial condition." This is a significant warning from a state regulatory agency, suggesting potential concerns about the company's financial stability, despite the audited financial statements appearing profitable. This discrepancy presents a considerable risk, as the franchisor's financial health is critical for providing ongoing support and maintaining the brand's value.
Potential Mitigations
- An accountant should scrutinize the audited financial statements in Exhibit D, focusing on cash flow, liquidity, and the nature of the assets and liabilities.
- Legal counsel should be asked to investigate the specific reasons behind the Illinois Attorney General's fee deferral requirement.
- You should discuss the franchisor's financial condition and the Illinois deferral directly with the franchisor and existing franchisees.
High Franchisee Turnover
High Risk
Explanation
The franchisor explicitly discloses a "Turnover Rate" special risk, stating that during the last three years, 31 franchised outlets—more than 30% of the total—were terminated, not renewed, or ceased operations. This high rate of turnover is a significant red flag that could indicate systemic issues such as franchisee unprofitability, dissatisfaction with the system, or other operational challenges. The franchisor itself characterizes this as a "higher risk investment."
Potential Mitigations
- Engaging a business advisor to analyze the turnover rates in Item 20 relative to system size and industry benchmarks is essential.
- You must contact a significant number of former franchisees listed in Exhibit F to understand the specific reasons for their departure.
- Discussing this high turnover rate directly with the franchisor and how they are addressing the underlying causes should be a priority, with questions framed by your attorney.
Rapid System Growth
Low Risk
Explanation
This risk was not identified in the FDD package. The data in Item 20 does not show a pattern of rapid system growth; in fact, the total number of outlets has been relatively stable over the past three years. Unchecked rapid expansion can strain a franchisor's ability to provide adequate support, so its absence here is a neutral factor.
Potential Mitigations
- An accountant can review the franchisor's financial statements to confirm it has the resources to support its current system size and any future growth plans.
- In discussions with existing franchisees, it is still wise to inquire about the quality and timeliness of the support they currently receive from the franchisor.
- A business advisor can help you assess the franchisor's strategic plans for future growth and the infrastructure in place to manage it.
New/Unproven Franchise System
High Risk
Explanation
The franchisor is a relatively new entity, organized in 2019, and explicitly discloses "Short Operating History" as a special risk. The FDD states the franchisor is at an early stage of development with a limited operating history. While the brand is well-established, investing in a franchise under this specific, newer corporate structure could present unique risks related to its unproven track record as a franchisor, its financial stability, and its support systems.
Potential Mitigations
- Your attorney should investigate the corporate restructuring in 2019 and understand why this new entity was formed to be the franchisor.
- It is important to discuss with your accountant the financial health and capitalization of this specific new entity, Super Magnificent Coffee Company Ireland Limited (SMCC Ireland).
- Engaging a business advisor to assess the management team's experience in running a franchise system under this new corporate structure is crucial.
Possible Fad Business
Low Risk
Explanation
This risk was not identified. The Coffee Bean & Tea Leaf operates in the specialty coffee and tea market, a well-established and mature industry. The brand has been in operation since 1963, indicating long-term consumer demand rather than a short-term fad. A fad business carries the risk of collapsing when consumer interest wanes, which does not appear to be the case here.
Potential Mitigations
- A business advisor can still help you analyze local competition and market trends to ensure demand exists in your specific area.
- Reviewing the franchisor's plans for product innovation in Item 11 with a business consultant can provide insight into their long-term strategy.
- An accountant can help you model different scenarios to assess the business's resilience to economic downturns.
Inexperienced Management
Low Risk
Explanation
This risk was not identified in the FDD package. Item 2 shows that the management team has extensive experience in the food, beverage, and franchise industries. Many key executives and directors have long tenures with the parent company, Jollibee Foods Corporation, a large and experienced global franchisor. Inexperienced management can be a significant liability for a franchise system, so its absence is a positive factor.
Potential Mitigations
- It is still valuable to interview current franchisees to gauge their opinion on the effectiveness and responsiveness of the current management team.
- A business advisor can help you research the recent performance of other brands managed by the same parent company or key executives.
- During your own discussions with the management team, you can assess their vision and strategy for the brand.
Private Equity Ownership
Low Risk
Explanation
This risk, as defined by ownership by a typical private equity firm, was not identified. The ultimate majority owner is Jollibee Foods Corporation, a publicly-traded global food service company with extensive experience operating franchise brands. While this represents corporate ownership, it differs from the typical private equity model which often prioritizes short-term returns and a quick exit, a structure that can pose unique risks to franchisees.
Potential Mitigations
- A business advisor can help you research Jollibee Foods Corporation's reputation and its management style with its other franchise brands.
- It is prudent to discuss with your attorney the implications of the "Assignment by Franchisor" clauses in the Franchise Agreement.
- Talking to franchisees about any changes in the system since the 2019 acquisition by JFC can provide valuable insight.
Non-Disclosure of Parent Company
Low Risk
Explanation
This risk was not identified. Item 1 of the FDD provides a detailed description of the franchisor's parent companies and their corporate structure. The FDD includes audited financial statements for the franchisor entity, and there is no indication that a parent company guarantee is being used to meet financial requirements, which would necessitate the disclosure of the parent's financials.
Potential Mitigations
- An attorney can review Item 1 and Item 21 to confirm that the franchisor has met all legal requirements for financial disclosure.
- Understanding the complex corporate structure and the roles of the various affiliated entities with a business advisor is important.
- An accountant can assess whether the franchisor entity appears sufficiently capitalized on its own based on the provided financials.
Predecessor History Issues
Medium Risk
Explanation
The FDD discloses a history of litigation against the franchisor’s predecessors in Item 3. For example, the New Amsterdam Coffee & Tea litigation involved claims of intentional and negligent misrepresentation and fraud against predecessors ICT and CBTL. As the current franchisor acquired the assets and agreements from these entities, you may be inheriting a system with a legacy of disputes and potential reputational issues that warrant careful consideration.
Potential Mitigations
- Your attorney should carefully review the details of the predecessor litigation disclosed in Item 3 to understand the nature of the claims and their outcomes.
- Conducting independent research on these predecessor companies and their historical issues can provide additional context.
- It would be wise to ask long-term franchisees about their experiences under both the current franchisor and any predecessors.
Pattern of Litigation
High Risk
Explanation
Item 3 discloses a history of material litigation involving SMCC Ireland and its predecessors. Cases include a pending class action alleging deceptive trade practices and concluded franchisee-initiated lawsuits and arbitrations asserting serious claims like intentional misrepresentation, fraud, and breach of contract. This pattern of significant legal disputes may indicate underlying systemic issues and suggests a potentially contentious relationship between the franchisor and its franchisees, representing a substantial risk.
Potential Mitigations
- A franchise attorney must carefully analyze the allegations and outcomes of all lawsuits disclosed in Item 3.
- You should consider the high frequency of serious franchisee-initiated legal action as a major red flag about the franchise relationship.
- Discussing these litigation patterns with current and former franchisees is crucial to understand the context from their perspective.
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
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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
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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
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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
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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
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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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