Risk Score
Pending analysis
Investment Range
$472,500 - $2,399,500
Franchise Fee
$15,000
Min Cash Required
$30,000
Total US Locations
198
Business Summary
Fazoli's operates premium fast-casual Italian restaurants that offer a combination of convenience, fast service, and high-quality Italian food typically found in casual dining. Fazoli's restaurants come in various formats, including freestanding buildings, in-line end-cap units in shopping centers, nontraditional locations within venues like colleges, airports, and truck stops, and delivery-only "ghost kitchens."
Corporate History
Fazoli's Franchising Systems, LLC was formed in Delaware on October 2, 2006. Its predecessor, Fazoli's Systems, Inc., a Kentucky corporation, was incorporated on July 25, 1990, and operated and franchised Fazoli's restaurants from October 1991 until merging into Fazoli's Franchising Systems, LLC in October 2006. Fazoli's is a premium fast-casual Italian food restaurant concept. On December 15, 2021, Fazoli's parent company was sold to FAT Brands, Inc., making Fazoli's an indirect subsidiary of FAT Brands, Inc.
Financial Overview
Investment Range
$472,500 - $2,399,500
Franchise Fee (Low)
$15,000
Franchise Fee (High)
$50,000
Minimum Cash Required
$30,000
Royalty %
5%
Marketing %
4%
Equipment Costs (Low)
$335,000
Equipment Costs (High)
$1,975,000
Working Capital
$45,000
Audited Financials
Yes
Offers Financing
No
Audit Opinion
Going concern qualification
Financial Health Notes
Fazoli's financial condition raises concerns about its ability to provide services and support to franchisees. The company experienced recurring losses from operations and negative cash flows in 2021 and 2022. As of December 31, 2023, Fazoli's current liabilities exceeded its current assets by approximately $5,648,000. These financial matters lead to substantial doubt about Fazoli's ability to continue operating as a going concern.
Financing Details
Fazoli's Franchising Systems, LLC does not offer any direct or indirect financing arrangements to franchisees. The franchisor also does not guarantee any franchisee's notes, leases, or other obligations.
Performance Metrics
Total US Locations
198
Franchised Units
151
Corporate Units
57
Avg Square Footage
2,700
Franchising Since
1991
Legal & Compliance Analysis
Recent Litigation
Yes
Bankruptcy
Yes
Litigation Count
3
Litigation Summary
Fazoli's has disclosed three litigation cases. One case is currently pending: Mitchell Kates v. FAT Brands, Inc., a putative class action lawsuit filed in June 2024, alleging that FAT Brands (Fazoli's parent company) and certain executives made false and misleading statements and omitted material facts in SEC reports, which wrongfully inflated stock prices. Two cases have concluded: Robert J. Matthews, et al., v. FAT Brands, Inc., another class action lawsuit filed in March 2022 alleging similar false and misleading statements, which was settled in August 2022 for $2.5 million in cash and $500,000 in Class A common stock; and Commonwealth of Virginia ex rel. State Corporation Commission v. Fatburger North America, Inc., where an affiliate (FBNA) allegedly offered and sold franchises in Virginia without effective registration between December 2020 and August 2021. This case was settled in May 2023, requiring FBNA to offer rescission to affected franchisees and pay a $27,000 fine.
Bankruptcy History
Fazoli's has a bankruptcy history involving two former affiliates of FBNA (Fatburger Restaurants of California, Inc. and Fatburger Restaurants of Nevada, Inc.), which are affiliates of Fazoli's indirect parent company, FAT Brands, Inc. These affiliates filed for Chapter 11 bankruptcy in April 2009, which was later converted to Chapter 7 in June 2011. The proceedings involved auctions of some or all of their existing, operating restaurants, including furnishings, equipment, and assignment of leases. Both cases concluded with final decree orders closing them on July 15, 2014.
Agreement Terms
Initial Term
15 years
Renewal Term
10 years
Renewal Conditions
To renew their franchise agreement, Fazoli's franchisees must provide written notice between six and nine months before the current term ends. They must be in good standing, without any defaults of their agreements, and have met all financial obligations to Fazoli's and its affiliates. Franchisees are required to sign Fazoli's then-current standard renewal franchise agreement, which may include different terms and higher fees, and pay a renewal fee equal to 50% of the current initial franchise fee. They must also confirm their right to occupy the restaurant premises for the renewal term, execute a general release of claims against Fazoli's, complete any required renovations and modernizations to meet current brand image within 12 months of renewal, and ensure their Designated Manager successfully completes any retraining programs Fazoli's requires.
Training & Support Program
Franchisor Assistance
Fazoli's provides various forms of assistance to its franchisees. Before opening, Fazoli's offers site selection guidelines, standard building plans, a management training program for the franchisee and selected employees, and access to an online information center for specifications and approved suppliers. Fazoli's also arranges and places pre-opening and opening advertising, provides cost-control procedures and an accounting format, and offers on-site opening assistance for about one week by at least one representative (historically, Fazoli's has provided additional team members for the first two restaurant openings at no extra charge). For ongoing support, Fazoli's grants continuous access to its online information center, defends against third-party challenges to proprietary marks (excluding unfair competition claims), sends representatives to consult and inspect restaurants, and offers guidance on operating problems. Fazoli's also develops and administers regional and local advertising and marketing programs, and provides help desk support for its Brand Technology System.
Initial Training Hours
300
Training Location
Company Certified Training Restaurant
Ongoing Support
After opening, Fazoli's franchisees receive continuous access to the online information center, which is regularly updated with operational standards and procedures. Fazoli's representatives conduct periodic inspections and consult with franchisees on operational issues, offering guidance through the online center, bulletins, written materials, or telephonic consultations. Fazoli's also develops and administers regional and local advertising and marketing programs, and provides help desk support for the Brand Technology System. For franchisees with three or more restaurants, Fazoli's may require the designation of a Key Operator to provide full-time supervision and conduct of the franchise business.
Franchise Requirements
Industry Experience Required
No
Management Experience Required
Yes
Sales Experience Required
No
Technical Skills Required
No
Operational Details
Location Type
Retail
Owner Participation
Hands-On
Territory Type
Non-Exclusive
Staffing Notes
Fazoli's requires each restaurant to have four management personnel who have completed specific management training before opening: two trained in Salaried Manager training and two in Hourly Manager training. The Designated Manager must also be ServSafe certified. For franchisees operating three or more Fazoli's restaurants, a Key Operator may be required. This Key Operator must be approved by Fazoli's, possess prior multi-unit restaurant supervisory experience, and focus solely on supervising the franchise business, not daily shift management. All managers and individuals with access to confidential information must sign non-disclosure agreements.