Explanation

The franchise system is experiencing steady growth, with a net increase of 42 franchised units in 2024. While growth can be positive, it is important to verify that the franchisor’s support infrastructure, as described in Item 11, is scaling effectively to provide adequate training, site selection assistance, and ongoing operational support to all new and existing franchisees. Rapid expansion can sometimes strain a franchisor's resources, potentially impacting the quality of support you receive.

Potential Mitigations

• It is important to ask the franchisor about their plans for expanding support staff and infrastructure to match unit growth.
• Engaging with both new and established franchisees from the list in Item 20 can provide insight into the current quality and responsiveness of franchisor support.
• Your business advisor can help you evaluate if the support systems described in Item 11 appear robust enough for the pace of growth.

Explanation

This risk was not identified. Wetzel's Pretzels has been franchising since 1996 and operating since 1994, indicating a long-established system. With a new or unproven system, there is a higher risk of business model failure and inadequate support. It is crucial to evaluate a young franchisor’s financial stability and the business experience of its management team to gauge their ability to successfully grow and support a franchise network.

Potential Mitigations

• For any franchise, especially a new one, a thorough review of the management team's experience in both the specific industry and in franchising is critical.
• An accountant should be engaged to scrutinize the financial statements of a young franchisor for signs of undercapitalization.
• Speaking with the very first franchisees of a new system provides invaluable insight into the early support and challenges.

Explanation

This risk was not identified. The business model, focused on fresh-baked pretzels, has shown longevity and is not tied to a recent, fleeting trend. A fad-based business carries the risk that consumer interest may decline rapidly, leaving you with a long-term contractual obligation for a business with diminished market demand. Assessing a concept's long-term consumer appeal, beyond current popularity, is a crucial part of evaluating a franchise opportunity.

Potential Mitigations

• A business advisor can help you research the long-term market trends for the product or service to assess its staying power.
• It is wise to evaluate the franchisor’s commitment to research and development for future product innovation.
• Consider how a business concept might perform during various economic cycles with your financial advisor.

Explanation

This risk was not identified. The executive team disclosed in Item 2, largely from the parent company MTY and its affiliate Kahala Brands, appears to have extensive experience in the restaurant and franchising industries. Inexperienced management can be a significant risk, as they may lack the specific skills needed to provide effective training, support, and strategic direction for a franchise system, potentially leading to operational inefficiencies and challenges for franchisees.

Potential Mitigations

• For any franchise investment, it's wise to independently research the backgrounds of the key executives listed in Item 2.
• A discussion with your business advisor can help assess whether the management team's skills align with the franchise system's needs.
• Speaking with existing franchisees can provide firsthand accounts of their interactions with and support from the management team.

Explanation

This risk was not identified. The FDD clearly identifies Wetzel's Pretzels, LLC, its parent MTY Franchising USA, Inc. (MTY USA), and ultimate parent MTY Food Group Inc. MTY USA provides a performance guaranty for Wetzel's Pretzels' obligations and includes its audited consolidated financial statements in Exhibit B-1. When a franchisor is a subsidiary, the financial health of the parent company can be crucial, and its omission can hide significant risks.

Potential Mitigations

• Your attorney should always verify that the FDD properly discloses all parent companies and affiliates that exert significant control.
• If a parent company provides a performance guarantee, it is essential for your accountant to review the parent's financial statements thoroughly.
• Understanding the legal relationship and obligations between a franchisor and its parent is a key area for review with your legal counsel.

Explanation

This risk was not identified. Item 1 states, "We have no predecessors that must be disclosed." It then details the history of acquisitions leading to the current ownership. In some franchise systems, a complex or poorly disclosed predecessor history can obscure past issues like litigation, bankruptcies, or high franchisee failure rates under previous ownership. A clear understanding of the brand's complete history is important for assessing its stability.

Potential Mitigations

• Your attorney should carefully review the predecessor and acquisition history detailed in Item 1 of any FDD.
• When a brand has been acquired, asking long-term franchisees about their experience under previous ownership can provide valuable context.
• A business advisor can help you research the history and reputation of any predecessor companies mentioned.