Ace Sushi
Food and Beverage
Founded 2004535 locationsCompany Profile
Year Founded:2004
Ace Sushi Franchise Cost
| Franchise Fee: | $10,500Key Metric |
| Total Investment: | $18,000 - $120,000Key Metric |
| Liquid Capital: | $10,000 |
| Royalty Fee: | 12% of gross sales |
| Marketing Fee: | 2% of gross sales |
Quick ROI Calculator
Based on Ace Sushi's actual financial data
Outlet Counts by Year
Historical outlet data extracted from FDD documents
Total US Locations:535
Scale relative to 1,000 locations
Franchised Units:504
Corporate Units:31
Additional Information
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AI-Powered Due Diligence Analysis
Our advanced AI analyzes Franchise Disclosure Documents (FDDs) to identify potential risks and opportunities across 10 critical categories.
15
High Risk
Critical items
33% of total
21
Medium Risk
Monitor closely
47% of total
9
Low Risk
Manageable items
20% of total
45
Total Items
Factors analyzed
10 categories
5.67
Overall Score
Low RiskHigh Risk
010
Franchisor Stability Risks
3 risks identified
2
1
Rapid Growth and Potential Overexpansion
High
Explanation:
- Item 20 reveals a significant increase in the number of franchised units from 25 in 2022 to 97 in 2024. This rapid expansion raises concerns about the franchisor's ability to maintain quality control, provide adequate support to franchisees, and manage the growing complexity of the system.
- Such rapid growth can strain resources, leading to diluted support and potentially impacting franchisee success.
- The substantial increase in company-owned units also adds to the management burden and potential financial strain.
Potential Mitigations:
- Thoroughly investigate the franchisor's infrastructure, training programs, and support systems to ensure they are scalable and can handle the rapid growth.
- Speak with existing franchisees about their experiences with support and the impact of the system's expansion.
- Assess the franchisor's financial stability to ensure they have the resources to support the growth trajectory.
FDD Citations:
- Item 20, Table 1: "System-Wide Outlet Summary" showing the rapid increase in franchised and company-owned units.
High Franchisee Turnover/Churn
High
Explanation:
- Item 20, Table 3 indicates a concerning number of franchise terminations, non-renewals, and ceased operations across several states, especially in 2024. This suggests potential issues with franchisee profitability, support, or relationship with the franchisor.
- High churn rates can destabilize the system, negatively impact brand reputation, and create uncertainty for prospective franchisees.
Potential Mitigations:
- Carefully analyze the reasons for terminations and closures. Contact former franchisees to understand their experiences and challenges.
- Compare the churn rate to industry averages and investigate any significant discrepancies.
- Assess the franchisor's dispute resolution process and history.
FDD Citations:
- Item 20, Table 3: "Status of Franchised Outlets" showing terminations, non-renewals, and ceased operations.
Significant Shift in Company-Owned Unit Strategy
Medium
Explanation:
- Item 20, Table 1 shows a substantial decrease in company-owned units from 45 in 2023 to 9 in 2024. This drastic change in strategy could indicate financial difficulties, a shift in focus away from the core business, or other internal issues.
- It raises questions about the franchisor's long-term commitment to the brand and its ability to support franchisees effectively.
Potential Mitigations:
- Inquire about the reasons for the significant reduction in company-owned units and the franchisor's future plans for these units.
- Analyze the franchisor's financial statements to assess their financial health and stability.
- Determine if the shift in strategy aligns with the franchisor's overall business goals and long-term vision.
FDD Citations:
- Item 20, Table 1: "System-Wide Outlet Summary" showing the decrease in company-owned units.
Disclosure & Representation Risks
6 risks identified
2
3
1
Dependence on Third-Party Store Operators
High
Explanation:
- The FDD reveals a significant dependence on third-party store operators for locations. The business model relies on placing Ace Sushi bars within existing grocery stores, supermarkets, and other locations. This creates a vulnerability as the success of the franchisee is tied to the performance and decisions of the host store.
- The host store could choose to terminate the agreement, impacting the franchisee's business. Changes in store ownership, management, or strategy could also negatively affect the franchisee.
- Competition from other food vendors within the host store could also impact sales.
Potential Mitigations:
- Carefully review the agreement with the third-party store operator, paying close attention to termination clauses, exclusivity provisions, and any other terms that could impact the franchisee's business.
- Develop a strong relationship with the store management to foster collaboration and address potential issues proactively.
- Diversify location strategies by exploring non-store locations or developing co-branding opportunities.
- Negotiate longer-term agreements with host stores to provide greater stability.
FDD Citations:
- Exhibit B, Initial Training Agreement, Recital A: "...sushi bar departments in grocery stores, supermarkets and other locations (the “Stores”) owned and operated by third-party operators who have entered into agreements with AMG..."
Reliance on Affiliate for System and Marks
High
Explanation:
- The FDD states that Franchisor licenses the system, proprietary products, and trademarks from an affiliate, Asiana Management Group, Inc. (AMG). This reliance on a separate entity introduces potential risks. Disputes or financial difficulties at AMG could disrupt the franchisor's ability to provide support and maintain the brand.
- Changes in the relationship between the franchisor and AMG could also impact franchisees, potentially leading to changes in fees, product offerings, or system standards.
Potential Mitigations:
- Thoroughly investigate the financial stability and operational history of AMG.
- Review the licensing agreement between the franchisor and AMG to understand the terms and conditions, including duration, termination clauses, and potential for changes.
- Inquire about the franchisor's contingency plans in case of disruptions at AMG.
FDD Citations:
- Exhibit B, Initial Training Agreement, Recital A: "Asiana Management Group, Inc., a California corporation (“AMG”), an affiliate of Franchisor..."
- Exhibit B, Initial Training Agreement, Recital D: "Franchisor has obtained the right to use, and to license others to use, the Proprietary Marks, the Proprietary Products and the System from AMG."
Franchisor's Right to Change System
Medium
Explanation:
- The FDD mentions that the franchisor reserves the right to change, improve, and further develop the system. While this can be positive, it also presents a risk. Changes to the system, such as product offerings, pricing, or operational procedures, could negatively impact franchisees if not implemented effectively or if they require significant investment.
Potential Mitigations:
- Request clarification on the process for implementing system changes, including notification periods, training provided, and any associated costs.
- Seek feedback mechanisms to voice concerns or suggestions regarding proposed changes.
- Review the franchise agreement for provisions related to system modifications and the franchisor's obligations to support franchisees during transitions.
FDD Citations:
- Exhibit B, Initial Training Agreement, Recital B: "...all of which may be changed, improved, and further developed by Franchisor and Franchisor’s affiliates from time to time."
Limited Information on Financial Performance
Medium
Explanation:
- The provided FDD excerpts do not include Item 19, which typically contains financial performance representations. The absence of this information makes it difficult to assess the potential profitability of the franchise and increases the risk of making an uninformed investment decision.
Potential Mitigations:
- Request the complete FDD, specifically Item 19, to review any available financial performance representations.
- If Item 19 is not available, conduct independent market research and financial analysis to estimate potential revenue and expenses.
- Consult with a franchise attorney and financial advisor to assess the investment opportunity.
FDD Citations:
- N/A - Item 19 not provided.
Training Fee Structure
Medium
Explanation:
- The Initial Training Agreement specifies a training fee but doesn't disclose the amount. The additional fee per attendee is stated. Lack of transparency around the base training fee makes it difficult to fully assess the upfront investment required.
Potential Mitigations:
- Request clarification on the base training fee and what it covers.
- Negotiate the training fee, especially if multiple attendees are required.
- Ensure the training program adequately prepares franchisees for all aspects of operating the business.
FDD Citations:
- Exhibit B, Initial Training Agreement, Section 2: "Trainee shall pay Franchisor an initial training fee of $ for the Initial Training Program..."
Receipt Acknowledgement Process
Low
Explanation:
- Item 23 describes the receipt acknowledgment process, which is standard practice. However, relying solely on a returned copy as proof of receipt could be problematic. There's a risk of the franchisor claiming non-receipt or the franchisee losing their copy, leading to disputes.
Potential Mitigations:
- Send the acknowledgment via certified mail with return receipt requested to ensure documented proof of delivery.
- Retain a digital copy of the signed acknowledgment for your records.
FDD Citations:
- Item 23: "Two copies of an acknowledgment of your receipt of this Disclosure Document appear as Exhibit K. Please return one copy to us and retain the other for your records."
Financial & Fee Risks
6 risks identified
2
3
1
Potential for Disputes and Litigation
Medium
Explanation:
- The FDD highlights several areas where Washington state law may supersede the franchise agreement, particularly regarding termination, renewal, and non-compete clauses. This creates a complex legal landscape and increases the potential for disputes and litigation between the franchisor and franchisees in Washington.
- While these provisions aim to protect franchisees, navigating the interplay between the franchise agreement and state law can be challenging and costly.
Potential Mitigations:
- Carefully review the franchise agreement and the Washington Addendum with legal counsel specializing in franchise law in Washington state.
- Seek clarification from the franchisor on any discrepancies or ambiguities between the agreement and state law.
- Maintain open communication with the franchisor and adhere to both the agreement and applicable state laws to minimize the risk of disputes.
FDD Citations:
- Item 5, Washington Addendum, Sections 6, 7, 8, 9, 11: These sections detail the specific areas where Washington law may override the franchise agreement.
Unclear Transfer Fee Structure
Medium
Explanation:
- The FDD states that transfer fees are collectable based on "reasonable estimated or actual costs." This lacks specificity and could lead to disputes over what constitutes "reasonable" costs.
- Without a clear fee structure, franchisees face uncertainty regarding the financial implications of transferring their franchise.
Potential Mitigations:
- Request a detailed breakdown of potential transfer costs from the franchisor.
- Negotiate a clear and specific transfer fee structure in the franchise agreement.
- Consult with a franchise lawyer to ensure the transfer fee provisions are fair and reasonable.
FDD Citations:
- Item 5, Washington Addendum, Section 10: "Transfer fees are collectable to the extent that they reflect the franchisor’s reasonable estimated or actual costs in effecting a transfer."
Limited Non-Compete Enforceability
Low
Explanation:
- The FDD explains that non-compete covenants are largely unenforceable in Washington state against employees and independent contractors earning below specific thresholds.
- This could make it difficult for franchisees to protect their business interests from former employees or contractors who may compete directly with them.
Potential Mitigations:
- Focus on building strong employee relationships and offering competitive compensation and benefits to reduce employee turnover.
- Implement robust trade secret protection measures.
- Consult with legal counsel to explore alternative strategies for protecting competitive advantages within the bounds of Washington law.
FDD Citations:
- Item 5, Washington Addendum, Section 11: Details the specific income thresholds for non-compete enforceability in Washington.
Potential for Cost Overruns During Setup
High
Explanation:
- While the franchisor doesn't collect the initial franchise fee until after training and opening, this doesn't eliminate the risk of cost overruns during the pre-opening phase.
- Franchisees are still responsible for other startup expenses, and delays in opening could significantly impact their financial stability.
Potential Mitigations:
- Develop a detailed pre-opening budget that includes contingency funds for unexpected expenses.
- Secure financing sufficient to cover both the initial investment and potential cost overruns.
- Establish clear timelines with the franchisor for training and opening and hold them accountable for meeting these deadlines.
FDD Citations:
- Item 5: Describes the franchise fee payment structure.
Potential Conflicts with Franchisor over Damages and Costs
Medium
Explanation:
- The Washington Addendum modifies the franchise agreement's section on payment of franchisor costs upon termination. The broad language regarding "damages, costs, and expenses" incurred by the franchisor due to the franchisee's non-compliance could lead to disputes over the validity and amount of these charges.
Potential Mitigations:
- Carefully review Section 13.4 of the Franchise Agreement as modified by the Washington Addendum with legal counsel.
- Negotiate clearer language regarding the specific types of damages, costs, and expenses that the franchisee would be responsible for in case of termination.
- Maintain meticulous records of compliance with the franchise agreement to defend against potential claims.
FDD Citations:
- Item 5, Washington Addendum, Section 2: This section replaces Section 13.4 of the Franchise Agreement with new language regarding payment of franchisor costs.
Risk of Misunderstanding Franchisee Rights in Washington
High
Explanation:
- The numerous references to Washington-specific laws overriding the franchise agreement create a complex legal environment. Franchisees may struggle to fully understand their rights and obligations under both the agreement and state law.
- This complexity increases the risk of unintentional non-compliance and potential disputes with the franchisor.
Potential Mitigations:
- Consult with a franchise attorney specializing in Washington law to thoroughly review the FDD and the franchise agreement.
- Seek clarification from the franchisor on any confusing or contradictory provisions.
- Participate in all training and orientation programs provided by the franchisor, paying close attention to Washington-specific regulations.
FDD Citations:
- Item 5, Washington Addendum: The entire addendum highlights the interplay between the franchise agreement and Washington state law.
Legal & Contract Risks
8 risks identified
2
3
3
Enforceability of Non-Compete in North Dakota
Low
Explanation:
- The FDD states that non-compete covenants are generally unenforceable in North Dakota. This could limit the franchisor's ability to protect its brand and trade secrets after termination or expiration of the franchise agreement in that state.
Potential Mitigations:
- Review the specific language of the non-compete clause in the context of North Dakota law with legal counsel.
- Consider alternative protective measures, such as strong confidentiality agreements and trade secret protection strategies.
FDD Citations:
- Item 17(r): "Covenants not to compete... are generally considered unenforceable in the State of North Dakota."
- North Dakota Addendum, Section 4
Third-Party Location Dependence and Termination Risk
High
Explanation:
- The franchise model relies on operating within third-party locations (grocery stores, etc.). The FDD highlights the risk of these third-party agreements being terminated with short notice (30-60 days), potentially leading to franchise termination.
- Franchisees have no control over the third-party location's operations, impacting customer traffic and overall business success.
Potential Mitigations:
- Carefully review the agreements between Ace Sushi and the third-party locations. Negotiate for longer termination notice periods where possible.
- Assess the financial stability and reputation of the third-party locations before committing to a franchise.
- Develop a contingency plan in case of third-party termination, such as identifying alternative locations.
FDD Citations:
- Rhode Island Addendum: "The owners of the stores may terminate their agreement with AMG... on only 30 – 60 days’ notice."
- South Dakota Addendum: Similar wording regarding third-party termination.
Choice of Law and Forum Selection (Rhode Island)
Medium
Explanation:
- The Rhode Island addendum notes that the Rhode Island Franchise Investment Act may void provisions restricting jurisdiction or venue to a forum outside Rhode Island or requiring application of another state's laws.
Potential Mitigations:
- Consult with legal counsel specializing in Rhode Island franchise law to understand the implications and ensure compliance.
- Be prepared for potential litigation in Rhode Island regardless of the franchise agreement's choice of law/forum clauses.
FDD Citations:
- Rhode Island Addendum, Section 1: Reference to Section 19-24.1-14 of the Rhode Island Franchise Investment Act.
Waiver of Claims and Reliance Disclaimer Restriction
Low
Explanation:
- The FDD explicitly prohibits waivers of claims under state franchise laws (including fraud in the inducement) and disclaimers of reliance on franchisor statements. This protects franchisees from unknowingly signing away important rights.
Potential Mitigations:
- This is a positive provision for franchisees. Ensure that no separate agreements contradict this clause.
FDD Citations:
- Item 17(r): Specific language regarding waiver prohibition.
- North Dakota Addendum: Similar language reinforcing the prohibition.
- Main Franchise Agreement (implied): This clause likely appears in the main agreement as well, given its inclusion in the addenda.
Deferred Initial Franchise Fee (North Dakota)
Low
Explanation:
- In North Dakota, the initial franchise fee is deferred until the franchisor fulfills its initial obligations and the business opens. This can be beneficial for franchisees, but it's important to clearly understand the franchisor's obligations and the opening timeline.
Potential Mitigations:
- Carefully review the franchisor's initial obligations as defined in the franchise agreement.
- Establish a clear timeline for fulfilling these obligations and the business opening.
FDD Citations:
- North Dakota Addendum, Section 1: "Payment of the Initial Franchise Fee is deferred..."
Specific Prohibited Clauses in North Dakota
Medium
Explanation:
- The North Dakota addendum highlights specific clauses considered unfair in the state, including liquidated damages/termination penalties, restrictions on forum, waivers of exemplary/punitive damages, and limitations of claims.
Potential Mitigations:
- Review the franchise agreement to ensure it doesn't include these prohibited clauses.
- Consult with a North Dakota franchise attorney to confirm compliance.
FDD Citations:
- North Dakota Addendum, Sections 3, 6: Specific mentions of prohibited clauses.
Governing Law (North Dakota)
Low
Explanation:
- The North Dakota addendum specifies that the franchise agreement will be governed by North Dakota law, overriding any conflicting choice of law provisions. This provides clarity for North Dakota franchisees.
Potential Mitigations:
- This is generally a positive provision for North Dakota franchisees. Ensure awareness of North Dakota franchise law.
FDD Citations:
- North Dakota Addendum, Section 5
General Release Limitation (North Dakota)
Medium
Explanation:
- The North Dakota addendum clarifies that any general release signed by the franchisee does not apply to the franchisor's liability under the North Dakota Franchise Investment Law. This protects franchisee rights under state law.
Potential Mitigations:
- This is a positive provision for franchisees. Understand the protections afforded by the North Dakota Franchise Investment Law.
FDD Citations:
- North Dakota Addendum, Section 2
Territory & Competition Risks
3 risks identified
1
2
Restricted Territory & Limited Catering
High
Explanation:
- The FDD states that franchisees cannot accept orders from outside their designated territory or satellite locations without prior written authorization. This severely restricts growth potential and the ability to capitalize on catering opportunities, a significant revenue stream for food businesses.
- The complete ban on catering services further limits revenue potential and competitive advantage, especially in areas with high demand for catered events.
Potential Mitigations:
- Negotiate with the franchisor for greater flexibility in territory boundaries and catering permissions before signing the agreement.
- Thoroughly research the designated territory's demographics and market potential to ensure sufficient demand within the allowed area.
- Explore alternative revenue streams within the permitted territory, such as delivery services within the designated area.
FDD Citations:
- "...solicit or accept orders from outside your Main Sushi Bar and/or your Satellite Locations without advance written authorization from Ace. (See Item 12)"
- "You are not permitted to offer or provide catering services."
Competition from Other Franchisees & Corporate Locations
Medium
Explanation:
- While not explicitly stated in the provided excerpt, Items 1 and 8 likely contain information about the franchisor's territory allocation strategy and potential competition from other Ace Sushi locations (franchisee-owned or corporate-owned). Encroachment or market saturation by other Ace Sushi locations could significantly impact sales and profitability.
Potential Mitigations:
- Carefully review Items 1 and 8 of the FDD to understand the franchisor's territory development plans, including the potential for other Ace Sushi locations nearby.
- Analyze the competitive landscape in the designated territory, including existing sushi restaurants and other food establishments, to assess market share potential.
- Request clarification from the franchisor regarding their long-term development strategy and any plans for corporate-owned locations in the area.
FDD Citations:
- "See Item 1, Item 8 and Notes 1, 2 and 3 for details."
Venue Owner Restrictions and Equipment Lease
Medium
Explanation:
- The FDD mentions potential lease payments for equipment if required by the "Venue Owner." This suggests that franchisees operating within a larger venue (e.g., a mall, food court) may face additional costs and restrictions imposed by the venue owner, impacting profitability and operational flexibility.
- The specific terms and conditions of these leases are not detailed in the provided excerpt, creating uncertainty about the potential financial burden.
Potential Mitigations:
- Clarify with the franchisor the circumstances under which a "Venue Owner" would require equipment leases and the typical terms of such leases.
- Negotiate with the venue owner directly to secure favorable lease terms and ensure alignment with the franchise agreement.
- Factor potential lease payments into financial projections to assess the overall profitability of the franchise opportunity.
FDD Citations:
- "Lease payments of $50.00 - $500... If required by the Venue Owner."
Regulatory & Compliance Risks
5 risks identified
1
3
1
Unclear Marketing Fund Usage and Management
Medium
Explanation:
- The FDD mentions a 2% Marketing Fund contribution but lacks details on how the fund is managed, used, and overseen. This lack of transparency creates a risk of misuse or ineffective use of franchisee funds.
- The phrase "Payable when and if we establish the Marketing Fund" (Item 1) raises concerns about the fund's actual existence and operational status. Franchisees may contribute without a clear understanding of when or if the fund will be actively utilized for marketing initiatives.
Potential Mitigations:
- Request a detailed accounting of the Marketing Fund, including its current balance, planned expenditures, and past performance. Inquire about the fund's governing body and decision-making process.
- Negotiate for greater transparency and franchisee involvement in the Marketing Fund's management. Seek representation on a marketing committee or advisory board.
- If the fund is not yet established, clarify the conditions and timeline for its establishment. Consider delaying contributions until the fund is operational and transparently managed.
FDD Citations:
- Item 1: "Marketing Fund Contribution - 2% of Gross Sushi Sales ... Payable when and if we establish the Marketing Fund."
- Item 8: (Implied - Lack of details on marketing fund management within Item 8, which typically addresses franchisee obligations and restrictions.)
Arbitrary Default Compliance Fee
Medium
Explanation:
- The Default Compliance Fee of up to $1,000 per default, as "reasonably determined" by the franchisor, is subjective and potentially arbitrary. The FDD lacks clear criteria for assessing these fees, leaving franchisees vulnerable to inconsistent or excessive charges.
- The broad language regarding "default under the Franchise Agreement or the Confidential Operations Manual" creates uncertainty about what constitutes a default and the corresponding fee. This ambiguity could be exploited by the franchisor.
Potential Mitigations:
- Request a detailed schedule of potential default violations and corresponding fees. Negotiate for clear and objective criteria for assessing Default Compliance Fees.
- Seek legal counsel to review the Franchise Agreement and Confidential Operations Manual for clarity on default provisions and potential financial implications.
- Request examples of past default situations and the fees assessed. This can provide insight into the franchisor's interpretation and application of the default clause.
FDD Citations:
- Item 1: "Default Compliance Fee - Up to $1,000 per default ... If you or your employees commit a default under the Franchise Agreement or the Confidential Operations Manual ... we may require you to pay us a fee ... as we reasonably determine."
Expense Deduction Priority and Transparency
Medium
Explanation:
- The FDD repeatedly states that various fees (Insurance Processing Administration Fee, Marketing Fund Contribution, Default Compliance Fee, Equipment Rental) "may be deducted as an Expense before the payment of Commissions" to the franchisee. This prioritization of franchisor fees over franchisee earnings raises concerns about potential cash flow issues for the franchisee.
- The lack of transparency regarding the specific calculation and timing of these deductions creates uncertainty for franchisees in projecting their net income.
Potential Mitigations:
- Request a detailed explanation of the expense deduction process, including the order of deductions and the timing of payments to franchisees. Negotiate for greater transparency in expense reporting.
- Develop a detailed financial model that incorporates these deductions to accurately project potential earnings and cash flow.
- Consult with a financial advisor to assess the potential impact of these deductions on the financial viability of the franchise.
FDD Citations:
- Item 1: Repeated mentions of fees being deducted "as an Expense before the payment of Commissions."
Mandatory Insurance Processing Fee Structure
Low
Explanation:
- The mandatory Insurance Processing Administration Fee of $100 plus 15% of insurance costs, even if the franchisor obtains insurance on the franchisee's behalf, may be excessive and lacks justification. Franchisees have limited control over insurance costs, making this fee structure potentially burdensome.
Potential Mitigations:
- Request a detailed breakdown of the services included in the Insurance Processing Administration Fee. Negotiate for a more reasonable fee structure, potentially based on actual administrative costs rather than a percentage of insurance premiums.
- Explore obtaining insurance independently to compare costs and potentially avoid the franchisor's fee. However, carefully review the Franchise Agreement to ensure compliance with any required insurance coverage through the franchisor.
FDD Citations:
- Item 1: "Insurance Processing Administration Fee - $100 plus 15% of the insurance costs ... If we obtain insurance on your behalf, you must pay us [this fee]."
Restricted Sales Channels and Territory Limitations
High
Explanation:
- Restricting franchisees to operating solely at the Franchised Location (and potential Satellite Locations) severely limits growth potential and adaptability to changing market conditions. The prohibition on using other distribution channels prevents franchisees from exploring online sales, delivery services, or other innovative approaches.
- The lack of clarity regarding territory boundaries and the process for granting Satellite Locations creates uncertainty and potential for disputes with the franchisor.
Potential Mitigations:
- Negotiate for greater flexibility in sales channels, particularly exploring options for online ordering and delivery services. Request clear definitions of permitted and prohibited sales activities.
- Request a detailed map and description of the designated territory, including any exclusivity provisions. Clarify the criteria and process for obtaining approval for Satellite Locations.
- Seek legal counsel to review the Franchise Agreement regarding territorial restrictions and potential limitations on future business expansion.
FDD Citations:
- Item 8: "For a description of your restrictions on some purchases, see Item 8 of this Disclosure Document."
- Item 39: "You may conduct business only at the Franchised Location ... You are not permitted to use any other channels of distribution to make sales outside your territory."
Franchisor Support Risks
3 risks identified
1
1
1
Limited Marketing Fund Transparency
Medium
Explanation:
- While the FDD states that a Marketing Fund accounting will be provided upon written request within 120 days of the fiscal year end, this reactive approach limits transparency. Franchisees may not be fully aware of how marketing funds are being spent, potentially leading to concerns about effectiveness and allocation.
- The 120-day timeframe can create a significant delay in accessing information, hindering franchisees' ability to assess the marketing fund's performance and impact on their business.
Potential Mitigations:
- Request the marketing fund accounting proactively each year immediately following the fiscal year end.
- Inquire about the marketing fund's strategy, budget allocation, and performance metrics during the due diligence process. Ask for examples of past marketing campaigns and their results.
- Form a franchisee advisory council to discuss marketing strategies and expenditures with the franchisor.
FDD Citations:
- Provided FDD Content: "Notwithstanding anything to the contrary in Item 11, an accounting (a statement of income and expenditures for the prior fiscal year) of the Marketing Fund will be provided to you if you request such accounting in writing not later than 120 days after the end of our fiscal year."
Restricted Sales Channels and Territory
High
Explanation:
- Restricting franchisees to operating solely at the Franchised Location (and potential Satellite Locations) severely limits growth potential and adaptability to changing market conditions. This lack of flexibility can be detrimental if the designated location underperforms or if new market opportunities arise.
- The prohibition on using other distribution channels prevents franchisees from leveraging online platforms, delivery services, or other innovative sales methods, which are increasingly crucial in the food and beverage industry.
- The territorial restrictions, while common, can stifle expansion and create potential conflicts if customer demand extends beyond the designated area.
Potential Mitigations:
- Carefully review Item 8 to fully understand the specific restrictions on purchases and territory limitations. Negotiate for broader territorial rights or flexibility in sales channels if possible.
- Analyze the designated territory's demographics, competition, and growth potential to assess the viability of the location and potential for future expansion.
- Discuss with the franchisor their long-term vision for online sales and delivery services. Understand how they plan to adapt to evolving consumer preferences and technological advancements.
FDD Citations:
- Provided FDD Content: "For a description of your restrictions on some purchases, see Item 8 of this Disclosure Document."
- Provided FDD Content: "You may conduct business only at the Franchised Location, unless you are granted the right and obligation to operate Satellite Locations...You are not permitted to use any other channels of distribution to make sales outside your territory."
Limited Information on Supplier Restrictions
Low
Explanation:
- The FDD mentions restrictions on purchases in Item 8 but doesn't provide details. This lack of transparency makes it difficult to assess the potential impact on operations and profitability. Franchisees need to understand if they are obligated to purchase specific ingredients, equipment, or supplies from the franchisor or approved vendors, and at what cost.
Potential Mitigations:
- Carefully review Item 8 of the FDD to understand the full extent of the purchasing restrictions. Request clarification from the franchisor on any ambiguous language or unclear terms.
- Compare the costs of mandated supplies and equipment with market prices to assess their competitiveness. Negotiate for greater flexibility in sourcing if possible.
- Inquire about the quality and availability of approved suppliers. Understand the process for resolving any issues with supplier performance or product availability.
FDD Citations:
- Provided FDD Content: "For a description of your restrictions on some purchases, see Item 8 of this Disclosure Document."
Exit & Transfer Risks
5 risks identified
2
2
1
Dependence on Third-Party Store Agreements
High
Explanation:
- Ace Sushi Bars operate within third-party grocery stores and supermarkets. The franchisee has no control over the host store's operations, including hours, customer traffic, and advertising.
- The host store can terminate its agreement with Ace Sushi's parent company (AMG) with short notice (30-60 days), potentially leading to the franchise agreement's termination.
- This dependence creates significant vulnerability for franchisees, as their business success is tied to a contract they don't control.
Potential Mitigations:
- Thoroughly investigate the financial stability and contractual history of potential host stores.
- Negotiate a clause in the franchise agreement that addresses potential losses due to host store termination, such as compensation or relocation assistance.
- Develop a contingency plan for rapid relocation or business adaptation in case of host store closure.
FDD Citations:
- Rhode Island Addendum: "The owners of the stores may terminate their agreement with AMG at any time, and generally on only 30 – 60 days’ notice. Termination of that agreement may result in the expiration of the term of your franchise agreement."
- South Dakota Addendum: "The owners of the stores may terminate their agreement with AMG at any time, and generally on only 30 – 60 days’ notice. Termination of that agreement may result in the expiration of the term of your franchise agreement."
Variable and Potentially High Onsite Training Fees
Medium
Explanation:
- The onsite training fee ranges from $1,500 to $9,000, with additional charges of $500/day/person beyond 6 days, plus travel expenses.
- The franchisor determines the training duration and personnel, creating uncertainty about the final cost.
- Franchisees with less experience or operating in larger supermarkets may face higher fees, impacting initial investment and profitability.
Potential Mitigations:
- Obtain a clear, written estimate of the training fee before signing the franchise agreement.
- Negotiate a cap on the maximum training fee or a fixed-fee structure.
- Gain clarity on the criteria used to determine training duration and personnel needs.
FDD Citations:
- Item 6: References the Onsite Training Fee.
- Franchise Agreement, Section 6.3: "If we determine that our training personnel must remain at the Sushi Bar for more than 6 days, you must pay us the sum of $500 per day per person..."
Transfer Restrictions and State Law Conflicts
Medium
Explanation:
- The FDD mentions non-compete covenants, which can restrict franchisees' post-termination business activities.
- The North Dakota Addendum states such covenants are generally unenforceable in North Dakota, creating potential conflict between the franchise agreement and state law.
- This ambiguity can lead to legal disputes and complicate the transfer or sale of the franchise in North Dakota.
Potential Mitigations:
- Consult with a franchise attorney specializing in North Dakota law to understand the enforceability of non-compete clauses.
- Negotiate clear and specific language in the franchise agreement regarding post-termination activities in North Dakota.
- Ensure the franchise agreement aligns with North Dakota law to avoid future legal challenges.
FDD Citations:
- Item 17(r): Discusses non-compete covenants.
- North Dakota Addendum: "Covenants not to compete such as those mentioned above are generally considered unenforceable in the State of North Dakota."
Waiver of Claims Limitations in North Dakota
High
Explanation:
- The FDD states that no document can waive claims under state franchise law, including fraud in the inducement.
- This provision aims to protect franchisees' rights, particularly in North Dakota, where specific legal protections exist.
- However, the enforceability and interpretation of this provision can be complex and may lead to legal disputes.
Potential Mitigations:
- Consult with a franchise attorney in North Dakota to understand the implications of this provision.
- Document all communications and representations made by the franchisor during the sales process.
- Ensure a clear understanding of your rights under North Dakota franchise law.
FDD Citations:
- Item 17(r), North Dakota Addendum: "No statement, questionnaire, or acknowledgment...shall have the effect of (i) waiving any claims under any applicable state franchise law, including fraud in the inducement..."
Location Dependence and Business Success
Low
Explanation:
- The FDD acknowledges that the success of an Ace Sushi Bar depends on the chosen location and other factors, including the franchisee's business acumen and resources.
- This is a general risk inherent in most businesses, but it's explicitly mentioned in the FDD.
Potential Mitigations:
- Conduct thorough market research and due diligence to assess the viability of the chosen location.
- Develop a strong business plan that addresses potential challenges and opportunities in the target market.
- Seek guidance from experienced business advisors and mentors.
FDD Citations:
- Rhode Island Addendum: "The possible success of your Ace Sushi Bar may be dependent upon the location or area you choose..."
- South Dakota Addendum: "The possible success of your Ace Sushi Bar may be dependent upon the location or area you choose..."
Operational & Brand Risks
3 risks identified
1
1
1
Restricted Sales Channels
High
Explanation:
- Franchisees are restricted to selling only at their Franchised Location and approved Satellite Locations. This limits growth potential and flexibility, especially in evolving market conditions (e.g., increased demand for delivery or online ordering).
- Inability to adapt to changing consumer preferences or leverage alternative sales channels could significantly impact revenue and competitiveness.
- The restriction may be overly broad, preventing franchisees from participating in potentially lucrative opportunities like catering, local events, or online marketplaces.
Potential Mitigations:
- Carefully review Item 8 to fully understand the restrictions and any potential exceptions or future amendments.
- Negotiate with the franchisor for greater flexibility in sales channels, particularly for online ordering, delivery services, or catering.
- Explore alternative revenue streams within the allowed framework, such as optimizing in-store promotions or developing loyalty programs.
FDD Citations:
- "You may conduct business only at the Franchised Location...You are not permitted to use any other channels of distribution to make sales outside your territory."
- Item 8: (Full details of restrictions on purchases are expected here)
Limited Territory
Medium
Explanation:
- The FDD mentions restrictions on sales "outside your territory" implying a defined territory for each franchisee. Limited territories can restrict growth and create potential conflicts with other franchisees or corporate-owned locations.
- The specific details of territory definition and exclusivity are not provided in this excerpt, making it difficult to assess the true impact of this restriction.
Potential Mitigations:
- Carefully review the FDD (likely in Item 12) for the precise definition of the franchise territory, including exclusivity provisions and any potential for expansion.
- Negotiate with the franchisor for a larger or more strategically advantageous territory, if possible.
- Analyze the local market demographics and competition within the assigned territory to understand its potential.
FDD Citations:
- "...to make sales outside your territory."
- Item 12 (Expected location for territory details)
Limited Marketing Fund Transparency
Low
Explanation:
- While the FDD mentions providing a Marketing Fund accounting upon written request, the proactive disclosure is limited. This lack of transparency can raise concerns about the fund's management and effectiveness.
- Requiring a written request within 120 days of the fiscal year-end places the onus on the franchisee to actively seek this information, potentially hindering oversight.
Potential Mitigations:
- Submit a written request for the Marketing Fund accounting within the specified timeframe (120 days after the fiscal year-end).
- Inquire about the Marketing Fund's strategy, budget allocation, and performance metrics during the due diligence process.
- Communicate with existing franchisees to understand their experience with the Marketing Fund and its impact on their business.
FDD Citations:
- "Notwithstanding anything to the contrary in Item 11, an accounting (a statement of income and expenditures for the prior fiscal year) of the Marketing Fund will be provided to you if you request such accounting in writing not later than 120 days after the end of our fiscal year."
Performance & ROI Risks
3 risks identified
1
2
Lack of Financial Performance Representations
High
Explanation:
- The FDD explicitly states that Ace Sushi does not provide any financial performance representations.
- This lack of information makes it difficult to assess the potential profitability of the franchise and creates uncertainty about return on investment.
- Without benchmarks or historical data, prospective franchisees are left to rely on their own market research and financial projections, which may not be accurate.
Potential Mitigations:
- Conduct thorough independent market research in your target area to assess local demand for sushi and the competitive landscape.
- Develop realistic financial projections based on conservative estimates of sales and expenses.
- Consult with experienced franchise consultants and accountants to review your business plan and financial projections.
- Network with existing Ace Sushi franchisees (if possible) to gain insights into their experiences and financial performance (while acknowledging the FDD's prohibition on seeking such information from representatives).
FDD Citations:
- Item 19: "We do not make any financial performance representations. We also do not authorize our employees or representatives to make any such representations either orally or in writing."
High Franchisee Turnover (Potential)
Medium
Explanation:
- Item 20, Table 3 shows a significant number of franchise terminations, non-renewals, and reacquisitions by the franchisor, particularly in 2024 in California (4 terminations, 2 other ceased operations).
- While the specific reasons are not provided, this level of turnover could indicate underlying issues with the franchise system, such as lack of profitability, operational challenges, or disputes with the franchisor.
Potential Mitigations:
- Carefully analyze Item 20, Table 3 to understand the reasons for franchisee turnover in previous years.
- Inquire with the franchisor about the specific circumstances surrounding the terminations, non-renewals, and reacquisitions.
- Speak with current and former franchisees to gather their perspectives on the franchise system and any challenges they faced.
FDD Citations:
- Item 20, Table 3: Data on franchise terminations, non-renewals, and reacquisitions.
Rapid Growth and Potential Over-Saturation
Medium
Explanation:
- Table 1 shows substantial growth in the number of franchised outlets, particularly between 2022 and 2024.
- This rapid expansion could lead to market oversaturation, increasing competition among franchisees and potentially impacting individual store profitability.
Potential Mitigations:
- Carefully evaluate the market potential in your target area, considering the existing number of Ace Sushi locations and other sushi restaurants.
- Discuss with the franchisor their plans for future expansion and how they intend to manage competition among franchisees.
- Secure an exclusive territory agreement, if possible, to limit competition within your designated area.
FDD Citations:
- Item 20, Table 1: System-wide outlet summary showing significant growth.
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FDD Year: 2025
Uploaded: 8/8/2025
FDD Year: 2024
Uploaded: 8/25/2025
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