The Franchise Disclosure Document - Assignment Example

Individual Assignment #3 Franchise Disclosure Agreement or Uniform Franchise Offering Circular (UFOC Each FDD is required by the Federal Trade Commission (FTC) to contain specific categories of information. List those specific categories in order. Do the three companies in question have complete FDD’s? If not, what sections are missing and why? According to the FDC, franchisors have legal responsibilities laid out in the Franchise Rule (Federal Trade Commission, n.p.). The FTC enforces the Franchise Rule, which requires provision of the specific categories of information, summarized in Table 1. Based on the information presented in three FDD of each company it is possible to conclude that all three companies in question have complete FDD’s, while there are some small adjustments to formulations. Specific Category (Ecfr.gov, n.p.) Houlihans Restaurant Hard Rock Hotel Five Guys Burgers and Fries The Franchisor and any Parents, Predecessors, and Affiliates yes yes yes Business Experience yes yes yes Litigation yes yes yes Bankruptcy yes yes yes Initial Fees yes yes yes Other Fees yes yes yes Estimated Initial Investment yes yes yes Restrictions on Sources of Products and Services yes yes yes Franchisees Obligations yes yes yes Financing yes yes yes Franchisors Assistance, Advertising, Computer Systems, and Training Yes (franchisors obligations) Yes (franchisors obligations) Yes (franchisors obligations) Territory yes yes yes Trademarks yes yes yes Patents, Copyrights, and Proprietary Information yes yes yes Obligations to Participate in the Actual Operation of the Franchise Business yes yes yes Restrictions on What the Franchisee May Sell yes Yes (Licensee) yes Renewal, Termination, Transfer, and Dispute Resolution yes yes yes Public Figures yes yes yes Financial Performance Representations Yes (Earnings claims) Yes (Earnings claims) Yes (Earnings claims) Outlets and Franchisee Information Yes (list of outlets) Yes (list of outlets) Yes (list of outlets) Financial Statements yes yes yes Contracts yes yes yes Receipt yes yes yes Exhibits A. Franchise Agreement Yes (E) Yes (D) Hotel License Agreement Yes (C) Table 1. Comparative analysis of Specific categories of FDD 2. How much would it cost you to acquire the franchise rights for each of the companies? Is the franchise cost information from each company’s FDD different from figures listed on the company website? If so in what way? Costs Houlihans Restaurant Hard Rock Hotel Five Guys Burgers and Fries Development fee $10 000 - $25 000 - $ 45 000/ $ 55 000 (New York) Initial Franchise fee $40 000 - $50 000 $ 45 000/ $ 55 000 (New York) Site fee (400 guest rooms) $300,000-$400,000 Technical service fee (400 guest rooms) $ 600,000 Estimated initial investment for one unit $278,100- $625, 250 $117,481,200- $128,426,950 $278,100- $625, 250 Table 2. Comparative analysis of estimated initial investments for one outlet in each company Houlihans Restaurant and Five Guys Burgers and Fries don’t reveal publicly information about its franchise cost information on its website, and therefore it is impossible to compare the numbers given online and those presented in FTC reports (Franchise Information - Houlihans Restaurant, n.p.; Franchise Opportunities: Five Guys Burgers and Fries).  Hard Rock Hotel offers on its website information for potential franchisees and claims that the standard Hard Rock site fee is no less than $350, 000 (Hard Rock Cafe Franchise & Development Opportunities, n.p). This minimum is higher than given in the FTC report, probably because the report was published in 2007, while now it is 2014. 3. The function of the FDD is to provide information and full disclosure about the company. What disclosures (if any) revealed in the three FDD’s in questions would give you concerns? Houlihan’s Restaurant’s offering circular presented some cases of bankruptcy, where copmpany’s representatives were debtors in proceeding under the U.S. Bankruptcy Code. These cases are multiple and raise concerns Hard Rock Hotels FDD raised several serious concerns mainly referred to litigation and bankruptcy cases. The company has got claims for tortuous interference, breach of contract, breach of fiduciary duty, fraud, unjust enrichment and civil conspiracy (Hard Rock Hotels, 5-6). While finally the parties entered into a settlement agreement, there are some serious concerns raised. On May, 2000 the company (Sunterra Corporation) filed a petition for reorganization under the U.S. Bankruptcy Code (Hard Rock Hotels, 7). Five Guys Burgers and Fries’ FDD raises less concerns comparing with two other companies as there were no bankruptcy cases. However, there was one litigation case according to which the company should offer rescission to the one franchisee (Five Guys Burgers and Fries, 4). 4. What types of intellectual property rights are extended to the franchisee for each company? For Houlihan’s Restaurants the following types of intellectual property rights are extended to the franchisee: the Marks at the Restaurant, a computer program nLine, trade secrets and other relevant confidential information (Houlihan’s Restaurants, 38). For Hard Rock Hotels the following types of intellectual property rights are extended to the franchisee: the Licensed Marks (“HARD ROCK HOTEL” and “HARD ROCK HOTEL & Design”) (Hard Rock Hotels, 33). All other trade name, trademark, service mark or other intellectual property rights can’t be used without prior written approval (Hard Rock Hotels, 36). For Five Guys Burgers and Fries the following types of intellectual property rights are extended to the franchisee: the Marks (“Five Guys” and “Five Guys Burgers”), certain trademarks, trade names, service marks, symbols, emblems, logos and indicia of origin as well as confidential information (the Manuals, proprietary rights in certain of the Recipes, trade secrets, training video series) (Five Guys Burgers, 30-31). 5. What is the total number of franchisees for each company according to the most recent figures listed in each company’s FDD? Are there more recent figures listed on the company’s website? If so how many franchisees does the company have now? Total number of franchisees for each company: Houlihans Restaurant Hard Rock Hotel Five Guys Burgers and Fries in FDD 59 0 (2006) 8 (as of at the end of 2005) On the website 61 (Houlihans - Franchising.com) n/a over 1,000 locations  (Five Guys Burgers and Fries) Table 3. Training programs and other support initiatives, comparative analysis It has not been indicated clearly in the FDD reports of the three companies how many franchisees were operated by franchisees. Moreover, there is no information given specific to each business on the website of the companies. Thus, for example, Houligans Restaurant doesn’t publish the information about the total number of franchises on its website, but according to one of the authoritative franchising websites Houlihans restaurants franchised 61 of its restaurants (Houlihans - Franchising.com, n.p.). For Hard Rock Hotel it is difficult to differentiate between hotels and cafes. 6. What types training and support is available according to each company’s FDD? Type of Houlihans’ Restaurant Hard Rock Hotel Five Guys Burgers and Fries Training Initial training to the General Manager, kitchen manager and 4 assistant managers (Houlihans Restaurant FDD report, 23); Provision of the initial pre-opening training team to franchisee at the Restaurant (Houlihans Restaurant FDD report, 24). Provides initial training to the management (paid) before opening date for Hotel as well as additional training programs to the Hotel’s management and staff (Hard Rock Hotel Licensing, Franchise Offering Circular, 27) Initial training for Operating principal and General Manager (no charge); 5 days of on-site preopening and 5 days of post-opening management assistance at the Restaurant (Five Guys Burgers and Fries, 18); on-site remedial training for personnel. Other support Site selection counseling and assistance; loan of one set of the manuals; on-site, construction pre-opening and opening supervision and assistance (Houlihans Restaurant, 23); consultations concerning the operations; possible audits and assistance with respect thereto (Houlihans Restaurant, 24) Loan of one cope of the operating manuals, accompanying workbooks and training manuals; provide specifications for the computer software and hardware (Hard Rock Hotel Licensing, Franchise Offering Circular, 27) Site selection assistance; one set of the Manuals and Training Video Series; a list of approved suppliers (Five Guys Burgers and Fries, 18); Post-opening audits and assistance; advice and written materials concerning techniques of managing and operating the Restaurant 7. Provide an opinion on each company regarding their desirability and potential as a successful franchise. If you had the required financial capability would you invest in any of the franchises? Taking into consideration all of the above information, as a potential franchisee I would buy either Houlihans Restaurants franchise or Five Guys Burgers franchise. Hard Rock Hotels requires much more investment than the other two franchises, and simultaneously imposes higher risks. Taking into consideration litigation and bankruptcy cases of Hard Rock hotels the investment to this company is less desirable. Five Guys Burgers franchise seems to be more appropriate for startup business as the company has significant experience (nowadays more than 1000 locations) and it provides huge support to its franchisees both before and after restaurant opening. Works Cited: Ecfr.gov, "eCFR — Code of Federal Regulations." Ecfr.gov, 2014. Web. 14 Apr 2014. . Federal Trade Commission. "Thinking About Buying a Franchise?. Consumer Information." Consumer.ftc.gov, 2014. Web. 14 Apr 2014. . Five Guys Burgers and Fries, “About Us”, Fiveguys.com, 2014. Web. 14 Apr 2014. . "Five Guys Enterprise, LLC: Information for prospective franchisee required by the Deferal Trade Commission". San Francisco: 2008. E-book. Hard Rock Hotel Licensing, Franchise Offering Circular. San Francisco: Federal Trade Commission, 2007. E-book. Houlihans Restaurants, Franchise Offering Circular. California: UFOC, 2007. E-book. Unknown. "Franchise Information - Houlihans Restaurant." Houlihans.com, 2014. Web. 14 Apr 2014. . Unknown. "Franchise Opportunities| Five Guys Burgers and Fries." Fiveguys.com, 2014. Web. 14 Apr 2014. . Unknown. "Hard Rock Cafe Franchise & Development Opportunities | Investor Information."Hardrock.com, 2014. Web. 14 Apr 2014. . Read More