Explanation

This specific risk was not identified in the FDD Package. Wingstop is a large, publicly traded, and mature franchise system that has been operating since 1994 and franchising since 1997. However, for any new or unproven system, a lack of operating history would present a significant risk, as the business model's long-term viability and the franchisor's ability to support franchisees would be untested, increasing the potential for failure.

Potential Mitigations

• Before investing in any new system, it is wise to have an accountant thoroughly vet the franchisor's capitalization and business plan.
• Your attorney should investigate the business and franchising experience of the management team of any emerging brand.
• A business advisor can help you determine if a new concept has long-term market sustainability or is a temporary fad.

Explanation

This specific risk was not identified in the FDD Package. The Wingstop concept is well-established, having been in operation for decades. For other concepts, especially those tied to new trends, there's a risk that the business could be a fad with limited long-term viability. A franchisee could be left with a long-term contractual obligation after consumer interest has moved on, posing a significant risk to their investment.

Potential Mitigations

• Your business advisor should help you research the long-term market demand for any trendy product or service to assess its sustainability.
• Review a franchisor's plans for innovation and adaptation to see how they plan to remain relevant beyond the initial trend.
• An accountant can help you model the financial risks if consumer interest in a fad product were to decline significantly.

Explanation

This specific risk was not identified in the FDD Package. Item 2 shows that the key personnel at Wingstop have extensive experience in the restaurant and franchise industries. For other systems, inexperienced management can be a major risk, as they may lack the expertise to provide adequate support, make sound strategic decisions, or manage a large franchise network effectively, jeopardizing the success of their franchisees.

Potential Mitigations

• A thorough background check of the franchisor's executive team is a crucial due diligence step a business advisor can help with.
• When evaluating a system with new management, it is critical to speak with existing franchisees about the quality of support.
• Your attorney can help you understand the risks if the franchisor's management team lacks specific experience in franchising.

Explanation

The FDD discloses a complex parent and affiliate structure involving Wingstop Franchising LLC (the franchisor), Wingstop Restaurants Inc. (the manager), and Wingstop Inc. (the ultimate public parent). The audited financial statements for all relevant entities are provided. This structure means your primary support provider (WRI) is not your direct contractual counterparty (Wingstop LLC), which could create complexity in the event of a dispute. The financials of all entities should be reviewed for a complete picture.

Potential Mitigations

• Your attorney should explain the legal relationship between you, the franchisor, and the affiliated management company.
• Have your accountant review the financial statements of all disclosed parent and affiliate entities to assess the system's consolidated financial health.
• When speaking with existing franchisees, a business advisor can help you ask about their experience with this corporate structure and support system.

Explanation

The FDD discloses that Wingstop Restaurants Inc. (WRI) was the predecessor franchisor before a 2018 Securitization Transaction. The current franchisor, Wingstop Franchising LLC, assumed the franchise agreements at that time. While the FDD provides history and financials for WRI, it is important to understand that you are contracting with a different legal entity. The disclosed litigation in Item 3 involves the current franchisor, which provides relevant insight into its current dispute resolution practices.

Potential Mitigations

• It is important to have your attorney explain the legal distinction between the current franchisor and its predecessor.
• You should discuss with existing franchisees whether they noticed any changes in support or operations after the 2018 corporate restructuring.
• Your accountant can help you analyze the financial statements of both the current franchisor and its affiliate WRI to get a full picture.