Blimpie
Food and Beverage
Founded 2006101 locationsCompany Profile
Year Founded:2006
Blimpie Franchise Cost
| Franchise Fee: | $13,760Key Metric |
| Total Investment: | $254,000 - $589,000Key Metric |
| Liquid Capital: | $70,000 |
| Royalty Fee: | 6% of gross sales |
| Marketing Fee: | 1% of gross sales |
Quick ROI Calculator
Based on Blimpie's actual financial data
Outlet Counts by Year
Historical outlet data extracted from FDD documents
Total US Locations:101
Scale relative to 1,000 locations
Franchised Units:97
Corporate Units:4
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
34% of total
24
Medium Risk
Monitor closely
55% of total
5
Low Risk
Manageable items
11% of total
44
Total Items
Factors analyzed
10 categories
6.14
Overall Score
Low RiskHigh Risk
010
Franchisor Stability Risks
3 risks identified
1
2
Significant Franchisee Turnover and Closures
High
Explanation:
- Item 20 reveals a concerning trend of franchise terminations, non-renewals, and closures. From 2022 to 2024, the system saw a net decrease of 42 franchise units (137 down to 97). This indicates potential issues with the franchise model's profitability, support, or market saturation.
- The high rate of closures and terminations could negatively impact brand reputation and create uncertainty for prospective franchisees.
- While some transfers occur, the overall decline suggests underlying problems within the system.
Potential Mitigations:
- Thoroughly investigate the reasons behind the closures and terminations. Interview former franchisees to understand their challenges.
- Evaluate the franchisor's support programs and identify areas for improvement. Focus on training, marketing, and operational assistance.
- Analyze market demographics and competition to ensure the brand's positioning and viability in different regions.
FDD Citations:
- Item 20, Table 1: Shows a net decrease in franchise units from 137 in 2022 to 97 in 2024.
- Item 20, Table 3: Details terminations, non-renewals, and other reasons for ceasing operations across various states.
Limited Transparency on Advertising Fund Expenditures
Medium
Explanation:
- The FDD states that franchisees can only obtain an accounting of the Advertising Fund expenditures 120 days after the calendar year-end. This delay in transparency could raise concerns about the fund's management and how effectively the funds are being utilized.
Potential Mitigations:
- Request a detailed breakdown of how the Advertising Fund has been spent in previous years. Compare the expenditures with the results achieved.
- Inquire about the franchisor's marketing strategy and how it benefits franchisees at the local level.
- Seek legal counsel to review the advertising fund agreement and ensure adequate protections for franchisees.
FDD Citations:
- FDD Introduction: "A Franchisee may, at any time after 120 days following the end of the calendar year, obtain an accounting of expenditures…"
Potential Lack of Franchisor Experience (Founded 2006)
Medium
Explanation:
- While not inherently a risk, the relatively recent founding date of Blimpie in 2006 (compared to other established franchise brands) suggests potentially less experience in navigating economic downturns or adapting to changing market conditions. This could pose a risk to the franchisor's long-term stability.
Potential Mitigations:
- Research the management team's background and experience in franchising and the food and beverage industry.
- Inquire about the franchisor's plans for future growth and how they intend to address potential challenges.
- Analyze the franchisor's financial performance and assess their ability to weather economic downturns.
FDD Citations:
- Franchise Context: "Founded: 2006"
Disclosure & Representation Risks
6 risks identified
2
3
1
Bankruptcy History of Affiliated Company
High
Explanation:
- Ranch*1, Inc. and its subsidiaries, affiliates of Kahala Franchising, L.L.C. (Blimpie's parent company), filed for Chapter 11 bankruptcy in 2001. This raises concerns about the parent company's financial stability and potential impact on support, resources, and brand reputation for Blimpie franchisees.
- While the filing was years ago, its implications on current operations and future stability warrant careful consideration. The details of the bankruptcy's impact on Blimpie are crucial for assessing risk.
Potential Mitigations:
- Thoroughly review Item 4 of the FDD, as referenced in the addendum, for full details of the bankruptcy filing. Analyze the reasons for the filing, the reorganization plan, and the current financial health of Kahala Franchising, L.L.C.
- Consult with a bankruptcy attorney to understand the potential long-term implications of this past filing on the franchisor's stability.
- Assess Blimpie's performance since the bankruptcy and its current market position to gauge its recovery and future prospects.
FDD Citations:
- Exhibit A, California Addendum, Section 5: "Ranch*1, Inc. and its subsidiaries, all affiliates of Kahala Franchising, L.L.C., filed for Bankruptcy Protection Code Chapter 11...Full disclosure of the particulars of this filing is in Item 4 of this Disclosure Document."
Inconsistency and Superseding State Laws (Wisconsin)
Medium
Explanation:
- The Wisconsin addendum states that certain provisions in the Franchise Agreement are amended to comply with Wisconsin Fair Dealership Law. This creates potential conflicts and inconsistencies between the standard franchise agreement and Wisconsin-specific regulations.
- Understanding these differences is crucial for Wisconsin franchisees, as the state law supersedes conflicting franchise agreement clauses.
Potential Mitigations:
- Carefully review the Wisconsin Fair Dealership Law and compare it with the Franchise Agreement. Identify any discrepancies regarding termination, non-renewal, notice periods, and other key provisions.
- Consult with a franchise attorney specializing in Wisconsin law to ensure full understanding of your rights and obligations under both the Franchise Agreement and state law.
- Obtain written clarification from the franchisor regarding any conflicting provisions and how they will be handled in practice.
FDD Citations:
- Exhibit A, Wisconsin Addendum, Section 1: "The Securities Commissioner of the State of Wisconsin requires that certain provisions contained in franchise documents be amended to be consistent with Wisconsin Fair Dealership Law..."
Potential Lease Issues (Month-to-Month)
Medium
Explanation:
- The Asset Purchase Agreement mentions the possibility of a month-to-month lease arrangement for the premises, indicating potential lease instability and negotiation challenges for acquiring an existing corporate store.
- A month-to-month lease lacks long-term security and could be terminated with short notice, disrupting business operations.
Potential Mitigations:
- If considering purchasing a corporate store, confirm the current lease status and terms. Negotiate a long-term lease agreement directly with the landlord before finalizing the purchase.
- Include lease terms and security as a key condition in the purchase agreement.
- Consult with a real estate attorney to review the lease agreement and ensure favorable terms.
FDD Citations:
- Exhibit D, Asset Purchase Agreement, Recitals B: "[MONTH TO MONTH LANGUAGE IF APPLICABLE: Notwithstanding the foregoing, the Lease Agreement is currently on a month-to- month basis, and Purchaser is currently in direct negotiations with the landlord for the Premises to enter into a new lease directly with the landlord"
Waiver of Compliance Concerns (Wisconsin)
Medium
Explanation:
- The Wisconsin addendum highlights that any provision in the agreement requiring the franchisee to waive compliance with the Wisconsin Franchise Investment Law may be void. This suggests potential conflict between the franchise agreement and state law regarding franchisee rights and protections.
Potential Mitigations:
- Carefully review the Franchise Agreement for any clauses that might be interpreted as waiving compliance with Wisconsin Franchise Investment Law. Seek legal counsel to clarify any ambiguous language.
- Document any discussions with the franchisor regarding Wisconsin-specific regulations and obtain written confirmation of their commitment to comply with state law.
FDD Citations:
- Exhibit A, Wisconsin Addendum, Section 1.d: "Any condition, stipulation or provision in the Agreement requiring Franchisee to waive compliance with any provision under the Wisconsin Franchise Investment law may be void."
Limited Disclosure on Past Bankruptcy Impact
High
Explanation:
- While the FDD mentions the bankruptcy of affiliated companies, it defers full disclosure to Item 4. This lack of immediate transparency creates a risk of overlooking crucial information about the bankruptcy's impact on Blimpie's operations and financial health.
- Prospective franchisees need readily accessible information to assess the potential risks associated with the franchisor's past financial difficulties.
Potential Mitigations:
- Prioritize reviewing Item 4 of the FDD to understand the full scope of the bankruptcy and its implications for Blimpie. Do not rely solely on the brief mention in the state addendum.
- Request further information from the franchisor regarding any lingering effects of the bankruptcy on current operations, support systems, and financial stability.
FDD Citations:
- Exhibit A, California Addendum, Section 5: "...Full disclosure of the particulars of this filing is in Item 4 of this Disclosure Document."
Potential Misleading Statements Disclaimer (Wisconsin)
Low
Explanation:
- The Wisconsin addendum states that no acknowledgment signed by the franchisee waives claims under state franchise law, including fraud in the inducement. This highlights the importance of due diligence and reliance on factual information, as franchisees cannot waive their right to legal recourse in case of misrepresentation.
Potential Mitigations:
- Conduct thorough due diligence and independently verify all information provided by the franchisor. Do not solely rely on statements or presentations.
- Consult with a franchise attorney to review the FDD and all related documents for potential misrepresentations or omissions.
- Document all communications and agreements with the franchisor.
FDD Citations:
- Exhibit A, Wisconsin Addendum, Section 1.e: "No statement...signed...by a franchisee...shall have the effect of (i) waiving any claims under any applicable state franchise law, including fraud in the inducement, or (ii) disclaiming reliance on any statement made by any franchisor..."
Financial & Fee Risks
3 risks identified
1
2
Unrestricted Use of Initial Franchise Fee
Medium
Explanation:
- The franchisor states that the initial franchise fee will be used as part of their general operating funds at their discretion. This lacks transparency and raises concerns about how the funds are actually utilized. There's no guarantee the funds will be directly reinvested into franchisee support, training, or marketing, potentially impacting the brand's growth and the franchisee's success.
Potential Mitigations:
- Inquire with the franchisor about the typical allocation of initial franchise fees. Request specific examples of how these funds have been used in the past to support franchisees.
- Compare this fee usage policy with other franchise opportunities in the same industry to assess its reasonableness.
- Consult with a franchise attorney to review the franchise agreement and understand the implications of this clause.
FDD Citations:
- Item 5: "The initial franchise fee constitutes part of our general operating funds and will be used as such in our discretion."
Variable and Potentially High Real Estate Costs
High
Explanation:
- The FDD indicates a wide range of potential real estate costs, including lease security deposits, land purchase, and building construction, depending on location and market conditions. This variability makes it difficult to accurately budget and could lead to significantly higher investment than initially anticipated.
- The FDD mentions security deposits ranging from one to six months' rent, a substantial difference that could strain finances. The lack of specific real estate cost estimates makes financial planning challenging.
Potential Mitigations:
- Conduct thorough research on real estate costs in your target market. Obtain multiple quotes from real estate agents and developers to understand the local market dynamics.
- Develop a detailed budget that considers various real estate scenarios, including leasing and purchasing options. Factor in potential cost overruns.
- Secure financing pre-approval to ensure you have the necessary funds to cover potential variations in real estate expenses.
FDD Citations:
- Item 7, Note 2: "If you decide to lease the premises, the landlord will generally require a security deposit, the amount of which generally ranges from one month of monthly rent to six months of monthly rent."
- Item 7, Note 2: "If you decide to purchase land and construct your own building or buy an existing building, you can expect to add the cost of the real estate and costs of building to the total investment."
Variability in Construction and Leasehold Improvement Costs
Medium
Explanation:
- The FDD provides a broad range for construction and leasehold improvement costs, influenced by factors like location, premises condition, and required improvements. This ambiguity makes precise budgeting difficult and exposes franchisees to potential cost overruns.
- The FDD mentions variations based on labor costs (union vs. non-union) and equipment requirements, further adding to the uncertainty.
Potential Mitigations:
- Obtain detailed bids from multiple contractors specializing in restaurant construction. Clearly define the scope of work and specifications to ensure accurate comparisons.
- Consult with experienced restaurant developers or consultants to gain insights into typical construction costs in your area and potential challenges.
- Include a contingency buffer in your budget to account for unforeseen construction expenses and delays.
FDD Citations:
- Item 7, Note 4: "The total amount of leasehold improvements for your Blimpie restaurant will vary greatly, depending on the type of premises for your restaurant, condition of the premises, and what improvements you require."
- Item 7, Note 4: "Construction costs also vary considerably depending on fair market values in your area; size, condition, and location of the premises; labor costs (union versus non-union); and equipment requirements."
Legal & Contract Risks
3 risks identified
1
1
1
Virginia 'Reasonable Cause' Termination Standard
Medium
Explanation:
- Virginia law requires 'reasonable cause' for franchise termination, potentially overriding the Franchise Agreement's termination clauses.
- Ambiguity around what constitutes 'reasonable cause' can lead to disputes and litigation.
Potential Mitigations:
- Carefully review the Franchise Agreement's termination clauses and compare them to Virginia's 'reasonable cause' standard.
- Consult with a Virginia-licensed attorney specializing in franchise law to understand the implications and potential risks.
- Negotiate with the franchisor to clarify termination provisions and ensure alignment with Virginia law.
FDD Citations:
- Item 17 Addendum: "Pursuant to Section 13.1-564 of the Virginia Retail Franchising Act, it is unlawful for a franchisor to cancel a franchise without reasonable cause."
Washington State Franchise Act Superseding Franchise Agreement
High
Explanation:
- Washington's Franchise Investment Protection Act (FIPA) may supersede the Franchise Agreement, particularly regarding termination and renewal.
- This can create uncertainty and potential conflict between the agreement and state law.
Potential Mitigations:
- Thoroughly review the Washington Addendum and Chapter 19.100 RCW to understand FIPA's provisions.
- Consult with a Washington-licensed attorney specializing in franchise law to analyze the interplay between FIPA and the Franchise Agreement.
- Negotiate with the franchisor to address any discrepancies and ensure compliance with Washington law.
FDD Citations:
- Washington Addendum: "The State of Washington has a statue, RCW 19.100.180, which may supersede the Franchise Agreement..."
Restrictions on Franchisee Associations (Washington)
Low
Explanation:
- Washington's FIPA prohibits franchisors from restricting franchisees' right to join associations.
- While generally positive for franchisees, it's important to understand the implications and potential limitations.
Potential Mitigations:
- Review the Franchise Agreement for any clauses that might indirectly restrict association activities.
- Consult with a Washington-licensed attorney to understand the scope of permissible association activities.
FDD Citations:
- Washington Addendum, Section 19.100.180(2)(a): "Restrict or inhibit the right of the franchisees to join an association of franchisees."
Territory & Competition Risks
8 risks identified
3
4
1
No Exclusive Territory
High
Explanation:
- The FDD explicitly states that franchisees are not granted exclusive territories. This means multiple Blimpie locations (franchised or corporate-owned) can operate in close proximity, potentially leading to direct competition and market saturation, impacting sales and profitability.
Potential Mitigations:
- Carefully assess the existing and planned Blimpie locations in your target area. Discuss potential market saturation with the franchisor and existing franchisees.
- Focus on building a strong local customer base through superior service, marketing, and community engagement to differentiate yourself from competitors.
FDD Citations:
- Item 12: "You will not receive an exclusive territory. You may face competition from other franchisees, from restaurants that we own, or from other channels of distribution or competitive brands that we control."
Competition from Other Channels
High
Explanation:
- Blimpie may sell its products through other channels like grocery stores, movie theaters, and online platforms. This creates competition for franchisees and could cannibalize sales from their restaurants.
Potential Mitigations:
- Inquire about the franchisor's plans for other sales channels in your area and how they intend to manage potential conflicts with franchisees.
- Leverage the in-store experience and personalized service to differentiate your restaurant from other sales channels.
FDD Citations:
- Item 12: "We (and/or our affiliates) may market and/or test, directly or indirectly, Blimpie products or services through channels of distribution other than Blimpie restaurants…including through the Internet, catalog sales, telemarketing, grocery stores…"
Competition from Similar Brands Owned by Franchisor
High
Explanation:
- The franchisor owns and operates other restaurant brands like Frullati Cafe & Bakery and Rollerz Rolled Sandwiches, which offer similar products. These brands could be located near Blimpie restaurants, creating direct competition.
Potential Mitigations:
- Research the presence and performance of these other brands in your target market. Understand their positioning and target audience.
- Clearly define your target customer and develop a unique selling proposition to differentiate your Blimpie restaurant from these competing brands.
FDD Citations:
- Item 12: "The Frullati Cafe & Bakery brand is a business that we franchise under a different trademark than Blimpie that sells sandwiches, soups and salads similar to those offered by Blimpie."
- Item 12: "A Frullati Cafe & Bakery restaurant or Rollerz Rolled Sandwiches restaurant may be located within the vicinity of your Blimpie restaurant."
Franchisor's Right to Establish or Convert Competing Businesses
Medium
Explanation:
- The franchisor reserves the right to operate or license other businesses, including competitors, which could impact your market share.
Potential Mitigations:
- Discuss the franchisor's long-term strategy and plans for developing or acquiring competing businesses in your area.
FDD Citations:
- Item 12: "We reserve the right, either directly or through affiliated entities, to operate or license others to operate businesses other than Blimpie restaurants anywhere…"
Potential Impact of Multi-Area Marketing Programs
Medium
Explanation:
- The franchisor's multi-area marketing programs could inadvertently benefit competing locations, potentially drawing customers away from your restaurant.
Potential Mitigations:
- Understand the details of the multi-area marketing programs and how they will be implemented in your region.
- Supplement the franchisor's marketing efforts with your own local marketing initiatives to target your specific customer base.
FDD Citations:
- Item 12: "Except as expressly limited in the Franchise Agreement, we…retain all rights…including, without limitation, the right to implement multi-area marketing programs…"
No Compensation for Sales through Other Channels
Medium
Explanation:
- The franchisor is not obligated to compensate franchisees for sales made through other channels, even if those sales occur within the franchisee's general operating area.
Potential Mitigations:
- Negotiate with the franchisor to establish clear boundaries and guidelines for sales through other channels to minimize potential conflicts.
FDD Citations:
- Item 12: "Kahala Franchising is under no obligation to pay any compensation to its franchisees on sales Kahala Franchising makes using Other Channels."
Franchisor Mergers and Acquisitions
Medium
Explanation:
- The franchisor's potential mergers or acquisitions could introduce new competing brands or change the strategic direction of the company, impacting franchisee support and brand consistency.
Potential Mitigations:
- Stay informed about the franchisor's business activities and potential mergers or acquisitions. Communicate with the franchisor and other franchisees to understand the potential impact of such events.
FDD Citations:
- Item 12: "We may merge with, acquire and/or be acquired by any other business, including, without limitation, a business that competes with your Blimpie restaurant…"
Limited Control over Online Sales
Low
Explanation:
- Franchisees are restricted from using online channels for sales, except for catering services, limiting their ability to reach a wider customer base and compete in the digital marketplace.
Potential Mitigations:
- Focus on local marketing and community engagement to drive in-store traffic. Explore opportunities for online marketing and advertising within the franchisor's guidelines.
FDD Citations:
- Item 12: "Franchisees may not use Other Channels, including the Internet, catalog sales or telemarketing to make sales except that the franchisee may provide catering services anywhere…"
Regulatory & Compliance Risks
6 risks identified
2
3
1
Lack of Transparency and Potential Misuse of Advertising Funds
Medium
Explanation:
- The FDD states that franchisees can request an accounting of the Advertising Fund and Cooperative Regional Funds only after 120 days following the end of the calendar year. This delay could hinder timely oversight and raise concerns about potential misuse or mismanagement of these funds.
- The process for requesting the accounting seems cumbersome, requiring a written request to the CFO. This might discourage franchisees from actively monitoring the fund's usage.
Potential Mitigations:
- Negotiate for more frequent and readily accessible reporting on advertising fund expenditures, ideally quarterly or monthly.
- Request a clear explanation of how the funds are allocated and used, including specific marketing campaigns and their effectiveness.
- Consider forming a franchisee advisory council to have a collective voice in the management and oversight of advertising funds.
FDD Citations:
- First paragraph of provided FDD content: "A Franchisee may, at any time after 120 days following the end of the calendar year, obtain an accounting..."
Past Bankruptcy of Affiliated Companies
High
Explanation:
- The FDD discloses that Ranch*1, Inc. and its subsidiaries, affiliates of Kahala Franchising, L.L.C., filed for Chapter 11 bankruptcy in 2001. This raises concerns about the financial stability and management experience of the franchisor and its affiliates.
- While the FDD mentions full disclosure in Item 4, the provided excerpt doesn't contain Item 4's content. It's crucial to thoroughly review Item 4 to understand the implications of the bankruptcy and any ongoing risks.
Potential Mitigations:
- Carefully review Item 4 of the FDD for complete details about the bankruptcy filing, its causes, and its resolution.
- Assess the current financial health of Kahala Franchising, L.L.C. through independent research and financial statement analysis.
- Consult with a franchise attorney and financial advisor to evaluate the potential impact of the past bankruptcy on the franchise opportunity.
FDD Citations:
- FDD Item 5: "Ranch*1, Inc. and its subsidiaries...filed for Bankruptcy Protection Code Chapter 11..."
- FDD Item 5: "Full disclosure of the particulars of this filing is in Item 4..."
Inconsistency and Potential Conflict with Wisconsin Fair Dealership Law
Medium
Explanation:
- The FDD includes a Wisconsin-specific addendum that amends provisions of the Franchise Agreement to comply with the Wisconsin Fair Dealership Law. This suggests potential conflicts between the standard Franchise Agreement and state-specific regulations.
- The addendum highlights differences in notice periods for non-renewal and termination, as well as choice of law provisions. These variations can create complexity and legal uncertainty for franchisees in Wisconsin.
Potential Mitigations:
- If operating in Wisconsin, carefully review the Wisconsin Fair Dealership Law and the FDD addendum to understand your rights and obligations.
- Consult with a Wisconsin-based franchise attorney to ensure the Franchise Agreement complies with state law and to address any potential conflicts.
- Be aware of the specific notice requirements and remedies available under Wisconsin law in case of non-renewal or termination.
FDD Citations:
- FDD Wisconsin Addendum, Item 1a, 1b, 1c: Specific references to the Wisconsin Fair Dealership Law and its impact on the Franchise Agreement.
Waiver of Rights Restrictions Under Wisconsin Law
Medium
Explanation:
- The FDD's Wisconsin addendum states that any provision requiring the franchisee to waive compliance with the Wisconsin Franchise Investment Law may be void. This indicates the franchisor may have attempted to include such waivers in the past, raising concerns about their willingness to protect franchisee rights.
Potential Mitigations:
- Carefully review the Franchise Agreement for any clauses that could be interpreted as waiving rights under Wisconsin law. If any are found, seek legal counsel to clarify their enforceability.
- Be aware of your rights under the Wisconsin Franchise Investment Law and resist any pressure to waive them.
FDD Citations:
- FDD Wisconsin Addendum, Item 1d: "Any condition, stipulation or provision in the Agreement requiring Franchisee to waive compliance with any provision under the Wisconsin Franchise Investment law may be void."
Potential for Misleading Information and Limited Recourse
Low
Explanation:
- The Wisconsin addendum emphasizes that registration does not constitute approval or endorsement of the information's accuracy by the Commissioner. This highlights the franchisee's responsibility to independently verify the information provided in the FDD.
Potential Mitigations:
- Conduct thorough due diligence and independent research to verify the information presented in the FDD.
- Consult with a franchise attorney and financial advisor to assess the risks and opportunities associated with the franchise.
FDD Citations:
- FDD Wisconsin Addendum, introductory paragraph: "Registration does not constitute approval, recommendation, or endorsement..."
Complex Regulatory Landscape Across Multiple States
High
Explanation:
- Exhibits B and C list numerous state agencies and agents for service of process, indicating Blimpie operates in a complex regulatory environment across multiple jurisdictions. This complexity can create challenges for franchisees in understanding and complying with varying state-specific regulations.
- The FDD notes that if a state is not listed in Exhibit C, Kahala Franchising, L.L.C. has not appointed an agent for service of process in that state *in connection with franchise laws*. This implies potential gaps in legal coverage and could complicate dispute resolution in those states.
Potential Mitigations:
- If operating in a state not listed in Exhibit C, consult with legal counsel to understand the implications for legal recourse and dispute resolution.
- Be aware of the specific franchise regulations in your state and ensure compliance with all applicable laws.
- Engage experienced legal counsel specializing in franchising to navigate the complexities of multi-state operations.
FDD Citations:
- FDD Exhibit B: Directory of State Agencies and Administrators
- FDD Exhibit C: Franchisor's Agent for Service of Process
- Text following Exhibit C: "If a state is not listed..."
Franchisor Support Risks
3 risks identified
1
2
Limited Supplier Options & Potential Price Gouging
High
Explanation:
- Franchisees are required to purchase from approved suppliers, restricting their ability to negotiate better prices or explore alternative, potentially higher-quality or more cost-effective options.
- The FDD states that "over 90% of the total purchases" and "over 80% of annual operating expenses" must come from approved sources, creating a significant dependency and vulnerability to price increases.
- While the FDD mentions "other non-affiliated approved suppliers," the limited selection and the franchisor's control over approval create a risk of inflated pricing from affiliated suppliers like Neptune Equipment and Kahala Management.
Potential Mitigations:
- Carefully review the list of approved suppliers and their pricing. Compare with market rates for similar products and services.
- Negotiate hard with approved suppliers, leveraging the potential collective bargaining power of other franchisees.
- Thoroughly understand the approval process for new suppliers and actively seek alternative options to reduce reliance on potentially overpriced affiliated suppliers.
FDD Citations:
- Item 11, Paragraph 8.a: "The Franchise Agreement requires that all... products... be purchased only from approved distributors and suppliers."
- Item 11, Paragraph 8.a: "You can expect that the items you will purchase... will represent over 90% of the total purchases... and over 80% of your annual operating expense..."
- Item 11, Paragraph 8.a: "Neptune Equipment, an affiliate of Kahala Franchising, is currently one of the approved suppliers..."
Mandatory POS System and Support from Affiliated Company
Medium
Explanation:
- Franchisees are required to purchase the POS system and its support from Kahala Management, an affiliate of the franchisor. This creates a dependency and limits flexibility in choosing potentially better or cheaper POS solutions.
- This mandatory purchase could lead to higher costs and potentially less innovative technology compared to independent providers.
Potential Mitigations:
- Negotiate the price and terms of the POS system and support agreement with Kahala Management.
- Research alternative POS systems and compare their features, costs, and support options to understand the market value and potential disadvantages of the mandated system.
- Inquire about the frequency and cost of software updates and hardware replacements.
FDD Citations:
- Item 11, Paragraph 8.a: "Kahala Management... is currently the only approved service provider of phone support maintenance for the software and hardware of the POS system... You are required to purchase the POS Help Desk Phone Support Maintenance from Kahala Management."
Rebates and Allowances Benefitting Franchisor, Not Franchisees
Medium
Explanation:
- The franchisor receives rebates and allowances (1-5%) from suppliers based on franchisee purchases. These funds are used for general revenue and various franchisor activities, not necessarily directly benefiting franchisees.
- This lack of transparency raises concerns about potential conflicts of interest and whether the franchisor prioritizes maximizing rebates over securing the best prices for franchisees.
Potential Mitigations:
- Request detailed information about the rebate and allowance programs, including specific amounts received from each supplier.
- Inquire about how these funds are used and how they benefit franchisees.
- Compare supplier pricing with competitors to assess whether potential rebates are offset by higher overall costs.
FDD Citations:
- Item 11, Paragraph 8.a: "We or our affiliates may also receive rebates and/or allowances, usually ranging between 1% and 5%, from certain suppliers... The rebates and/or allowances are generally based upon a percentage of franchisee purchases, will be included in our general revenue..."
Exit & Transfer Risks
6 risks identified
2
3
1
Restrictive Post-Termination Covenants
High
Explanation:
- While Washington law requires fair compensation for inventory, supplies, and goodwill upon termination, the FDD doesn't explicitly address the enforceability of non-compete clauses post-termination. Such clauses could restrict the franchisee's ability to operate a similar business after termination, impacting their future earnings potential.
Potential Mitigations:
- Carefully review the Franchise Agreement for any non-compete clauses and negotiate their scope and duration. Seek legal counsel specializing in franchise law to ensure the clauses are reasonable and enforceable under Washington law.
- Consider the potential impact of these restrictions on your future business prospects before signing the agreement.
FDD Citations:
- Washington Addendum, Section 1(j): Discusses termination provisions but doesn't explicitly address non-compete enforceability.
Termination for "Good Cause"
High
Explanation:
- The FDD defines "good cause" for termination broadly, including "failure to comply with lawful material provisions." This broad definition creates a risk of subjective interpretation by the franchisor, potentially leading to disputes and unfair termination.
Potential Mitigations:
- Thoroughly review the Franchise Agreement to understand all "material provisions" and ensure they are clear and unambiguous. Seek legal counsel to clarify any ambiguities.
- Maintain meticulous records of compliance with all franchise requirements to demonstrate good faith effort in case of a dispute.
FDD Citations:
- Washington Addendum, Section 1(j): Defines "good cause" for termination, including "failure to comply with lawful material provisions."
Transfer Fee Limitations
Medium
Explanation:
- While Washington law limits transfer fees to reasonable costs, the FDD lacks specifics on how these costs are calculated. This ambiguity could lead to disputes over the fairness of transfer fees charged by the franchisor.
Potential Mitigations:
- Request a detailed breakdown of the franchisor's estimated transfer costs before initiating any transfer. Negotiate a clear and transparent fee structure in the Franchise Agreement.
- Consult with a franchise attorney to ensure the transfer fee is reasonable and compliant with Washington law.
FDD Citations:
- Washington Addendum, Section 4: States transfer fees are limited to reasonable costs but doesn't define how these costs are determined.
Conflict with State Franchise Laws
Medium
Explanation:
- The FDD acknowledges potential conflicts between the Franchise Agreement and specific state franchise laws (Virginia and Washington). This indicates a risk that certain provisions in the Franchise Agreement may not be enforceable in these states, creating uncertainty and potential legal challenges.
Potential Mitigations:
- Consult with legal counsel specializing in franchise law in both Virginia and Washington to understand the specific implications of these state laws on the Franchise Agreement.
- Ensure the Franchise Agreement is amended to comply with the respective state laws before signing.
FDD Citations:
- Item 17, Virginia Addendum: Addresses the Virginia Retail Franchising Act and its impact on termination clauses.
- Washington Addendum: Highlights several areas where Washington law may supersede the Franchise Agreement.
Waiver of Claims Restrictions
Medium
Explanation:
- The FDD highlights that franchisees cannot waive claims under state franchise laws, including fraud in the inducement. While this is a protection for the franchisee, it also indicates a potential area of contention and litigation if misrepresentations or fraud occur during the franchise sales process.
Potential Mitigations:
- Conduct thorough due diligence before signing the Franchise Agreement, including independent verification of all material facts presented by the franchisor.
- Consult with legal counsel to review the FDD and Franchise Agreement for any potential red flags related to misrepresentation or fraud.
FDD Citations:
- Washington Addendum, Section 1(k): Prohibits waivers of claims under state franchise law, including fraud in the inducement.
Non-Sufficient Funds Fees (Minnesota)
Low
Explanation:
- The Minnesota addendum specifies fees for non-sufficient funds. While not a major risk, it highlights the importance of maintaining sufficient funds to avoid these fees, which can accumulate over time.
Potential Mitigations:
- Implement robust financial management practices to ensure sufficient funds are available for all franchise-related payments.
- Set up automatic payments to avoid missed deadlines and potential NSF fees.
FDD Citations:
- Item 6, Minnesota Addendum: Specifies fees for returned electronic funds transfers and checks.
Operational & Brand Risks
3 risks identified
1
2
Limited Supplier Options & Potential Price Gouging
High
Explanation:
- Blimpie mandates using approved suppliers for almost everything (over 80% of operating expenses), severely restricting franchisee choice and potentially exposing them to higher prices due to limited competition.
- Affiliated suppliers like Neptune Equipment and Kahala Management create a potential conflict of interest, where the franchisor could prioritize its own profits over franchisee costs.
- While Blimpie claims to negotiate discounts, they retain sole discretion over passing them on, leaving franchisees vulnerable.
Potential Mitigations:
- Carefully analyze the approved supplier list and their pricing during due diligence. Compare with market rates for similar products and services.
- Negotiate strongly on the franchise agreement to secure better terms regarding supplier selection and pricing transparency.
- Join franchisee associations to collectively bargain for better deals with suppliers and challenge unfair pricing practices.
FDD Citations:
- Item 8: "The Franchise Agreement requires that all food products...be purchased only from approved distributors and suppliers."
- Item 8: "Neptune Equipment, an affiliate of Kahala Franchising, is currently one of the approved suppliers..."
- Item 8: "Some or all of these discounts could be passed on to our franchisees, in our sole discretion."
Mandatory POS System & Support from Affiliated Company
Medium
Explanation:
- Requiring franchisees to purchase the POS system and support from Kahala Management, an affiliate, creates a captive market and potential for inflated pricing and subpar service.
- Lack of alternative options limits franchisees' ability to choose a system that best suits their needs and budget.
Potential Mitigations:
- Thoroughly investigate the POS system's features, functionality, and cost during due diligence. Compare with other POS systems available in the market.
- Inquire about the service level agreement (SLA) for POS support and ensure it meets acceptable standards.
- Negotiate for the right to switch to a different POS provider after a certain period, if performance is unsatisfactory.
FDD Citations:
- Item 8: "Kahala Management, an affiliate of Kahala Franchising, is currently the only approved service provider of phone support maintenance for the software and hardware of the POS system… You are required to purchase the POS Help Desk Phone Support Maintenance from Kahala Management."
Supplier Approval Process Burden & Potential Delays
Medium
Explanation:
- The complex and potentially lengthy supplier approval process (up to 60 days) can create delays in sourcing necessary goods and services, impacting operations.
- The franchisor's "sole reasonable discretion" in approving suppliers gives them significant control and could be used to unfairly favor certain vendors.
- The cost of inspection and testing (up to $5,000) can be a barrier to introducing new, potentially better suppliers.
Potential Mitigations:
- Understand the supplier approval process thoroughly during due diligence and factor in potential delays in your business plan.
- Build relationships with existing approved suppliers early on to ensure smooth procurement.
- Negotiate clearer criteria for supplier approval and a shorter timeframe for the process in the franchise agreement.
FDD Citations:
- Item 8: "All requests for approving new or alternative suppliers must be submitted in writing... within 60 days of our receipt of an approval request."
- Item 8: "A charge not to exceed...$5,000 must be paid to us either by you or by the proposed supplier."
Performance & ROI Risks
3 risks identified
1
2
No Financial Performance Representations
High
Explanation:
- Item 17.3(ii) explicitly states that no financial performance representations are provided outside of Item 19. This lack of information makes it difficult to assess the potential profitability of the franchise and increases the risk of unrealistic financial expectations.
- Without benchmarks or historical data, franchisees are operating with limited insight into potential revenue, expenses, and overall return on investment.
Potential Mitigations:
- Carefully review Item 19 for any available financial performance representations. Understand the limitations and disclaimers associated with this information.
- Conduct independent market research and analysis to estimate potential revenue and expenses in your target market. Consult with industry experts and existing franchisees to gain insights into realistic financial performance.
- Develop a conservative financial projection based on your research and analysis. Be prepared for potential variations and have contingency plans in place.
FDD Citations:
- Item 17.3(ii): "Other than any financial performance representation contained in Item 19 of the Disclosure Document, at no time did the Area Representative make any promises or statements... concerning profits or expenses or costs or actual or projected sales..."
Dependence on Franchisor's Brand and System
Medium
Explanation:
- Franchisees are entirely dependent on the Blimpie brand and operating system. Any negative publicity or changes in consumer preferences towards the brand could significantly impact the franchisee's business.
- The franchisee has limited control over product development, marketing strategies, and overall brand management.
Potential Mitigations:
- Thoroughly research the Blimpie brand and its history. Assess the brand's reputation and stability in the market.
- Evaluate the franchisor's marketing and advertising programs. Understand how the franchisor supports franchisees in building brand awareness and attracting customers.
- Actively participate in franchisee associations and communicate with other franchisees to stay informed about brand-related issues and best practices.
FDD Citations:
- Item 17.3(k): "You acknowledge the ownership of the Proprietary Marks by us, and you agree that during the Term and after its expiration or termination, you will not, directly or indirectly, apply to register, register or otherwise seek to use or control or in any way use “Blimpie”, or any other of our proprietary marks..."
Trademark Restrictions and Enforcement
Medium
Explanation:
- Strict restrictions on trademark usage can limit the franchisee's flexibility in marketing and branding their business. The franchisor has significant control over the use of the Blimpie trademarks and can enforce these restrictions rigorously.
- Failure to comply with trademark guidelines can result in legal action and financial penalties.
Potential Mitigations:
- Carefully review the franchise agreement and understand the specific restrictions on trademark usage. Seek legal counsel to clarify any ambiguities.
- Ensure that all marketing and advertising materials comply with the franchisor's trademark guidelines. Obtain prior approval from the franchisor for any deviations from established branding standards.
- Maintain open communication with the franchisor regarding trademark-related issues and seek guidance when needed.
FDD Citations:
- Item 17.3(k): "...you will not, directly or indirectly, apply to register, register or otherwise seek to use or control or in any way use “Blimpie”, or any other of our proprietary marks..."
- Item 17.3(l): "You acknowledge and understand that in the event you have registered a trade name or entity name containing our trademarks, you will be required to immediately discontinue all further use..."
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FDD Year: 2025
Uploaded: 8/8/2025
FDD Year: 2024
Uploaded: 8/25/2025
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