Fro-Yo Files: What to Ask When Considering Purchasing a Frozen Yogurt Franchise (2013 Due Diligence Guide, Part 1)

(Ambrosio’s note:  Welcome to this week’s edition of Fro-Yo Files, an exclusive bonus series for Platinum subscribers of Franchise Chatter. Today’s post is the first of two parts.  Stay tuned for Part 2 to be posted next week.)

Thinking about getting into the frozen yogurt business? If you’re looking to purchase a franchise from a frozen yogurt company, you know that you need to do your homework. You need to acquire and examine the company’s Franchise Disclosure Document (FDD) and assess the costs: franchise and marketing fees, build-out, materials and equipment costs, and royalty percentage, to name a few.

Just as important, you need to decide if you and the company are a good fit. Are you going to have a productive, mutually beneficial relationship with the company? Are you going to be given enough support to help you launch and sustain a successful franchise?

Your own due diligence, of course, involves assessing the hard numbers, but it should also include asking franchisors about both daily operations and long-term goals, and asking other franchisees about their own experiences.

By law, under the Franchise Rule, companies must make available the names and contact information of 100 prior purchasers in your geographical area. You may be able to find out, from these other franchisees, problems and impending legal issues that may not be included in the FDD. And, of course, you can and should visit as many of the company’s franchises as possible, to see how they’re run and to speak with their owners.

Franchise Chatter has compiled a set of issues you will want to address and assess before you take the plunge.

Mission and Differentiation

Most frozen yogurt companies include a mission statement on their Web sites, as well as a company history. While some of what’s included here may seem inessential or boilerplate — they often focus on “fun” and “friendliness” — you should take these seriously, and ask franchisors to elaborate.

Look to see how the company is positioning itself in a crowded market. Do they offer a clear statement about how they differentiate themselves from the competition? After all, you may very well be opening a store a stone’s throw away from a competitor, and you need to know that your own franchise will have a significant “draw” for consumers, one that you can rely on in the years to come.

For instance, a company may make its own proprietary flavors, or it may target a select audience, such as children or young adults. A company that has not won, or is not positioned to win, market share through significant differentiation is not as likely to survive in the extremely competitive fro-yo landscape.

Similarly, assess the company’s mission in terms of its goals for the future. What expansion plans to they have in place? Do they have the infrastructure — for example, R&D, distribution channels, training, real estate and marketing teams — to support this envisioned growth? Has the company retreated in certain areas, closing locations? Has the company been able to maintain a consistent brand identity and product over time and across territories? Has it diversified its product offerings, and if so, have these been successful?