Kahala Coffee Traders Franchise
Audited FinancialsRisk Score
Pending analysis
Investment Range
$88,400 - $516,500
Franchise Fee
$4,000
Total US Locations
5
Business Summary
Kahala Coffee Traders operates restaurants specializing in a variety of hot, cold, and iced beverages such as coffee, espresso, and tea, along with hot chocolate. The menu also includes baked goods like pastries, muffins, donuts, cookies, and brownies, fresh fruit, parfaits, breakfast sandwiches, oatmeal, sandwiches, salads, and other fast food items. Franchisees offer these items to the public from traditional or non-traditional restaurant locations.
Corporate History
Kahala Franchising, L.L.C. was formed in Arizona in December 2008. The company is in the business of franchising quick service restaurants. Its parent company, Kahala Brands, Inc., which was formerly Kahala Corp., merged with a subsidiary of MTY Food Group, Inc. in July 2016. Kahala Franchising, L.L.C. began offering Kahala Coffee Traders franchises in November 2011. While Kahala Franchising, L.L.C. itself does not operate Kahala Coffee Traders restaurants, an affiliate, Kahala Restaurants, L.L.C., operates corporate-owned locations.
Financial Overview
Investment Range
$88,400 - $516,500
Franchise Fee (Low)
$4,000
Franchise Fee (High)
$30,000
Royalty %
6%
Marketing %
1%
Equipment Costs (Low)
$48,500
Equipment Costs (High)
$375,500
Working Capital
$12,500
Audited Financials
Yes
Offers Financing
Yes
Financial Health Notes
The Franchise Disclosure Document (FDD) states that Kahala Franchising, L.L.C.'s parent company, MTY Franchising USA, Inc., provides audited consolidated financial statements for the fiscal years ending November 30, 2024, 2023, and 2022. MTY Franchising USA, Inc. also acts as a guarantor, unconditionally promising to assume the duties and obligations of Kahala Franchising, L.L.C. under its franchise registration and the Franchise Agreement. This guarantee continues until all obligations of the franchisor are satisfied. The FDD also notes that Kahala Franchising's revenues are consolidated with MTY USA's, with MTY USA and its subsidiaries reporting total revenues of $51,714,322 from sales of products, services, and vendor allowances for the year ending November 30, 2024, which was approximately 8.5% of MTY USA's total consolidated recognized revenue of $597,538,000. Additionally, MTY USA and its subsidiaries earned $30,372,764 from vendor allowances based on system-wide purchases and $5,680,438 from other revenues during the last fiscal year. However, the FDD does not provide specific details from the financial statements regarding working capital, cash flow, or any audit qualifications (such as a 'going concern' note) for the current entity. The FDD refers to a historical 'going concern' note from 2008 related to a predecessor franchisor (Triune, LLC), but this is not about the current financial health of Kahala Franchising, L.L.C. or MTY Franchising USA, Inc.
Financing Details
Kahala Coffee Traders generally does not offer direct or indirect financing. However, if a franchisee purchases an existing corporate-owned Kahala Coffee Traders restaurant from an affiliate, that affiliate may finance up to 100% of the purchase price. The interest rate for such financing ranges from 0% to 12% annually, with a repayment period of 12 to 60 months. This type of financing requires a first lien on all equipment and personal guarantees from the franchisee and their spouse. Default on such a loan can lead to an accelerated obligation to pay the full amount (with interest increasing to 18%), collection costs, termination of the franchise, and potential loss of other business properties due to cross-defaults. Franchisees who take this financing must also waive certain legal rights, such as contesting the franchisor's right to take back the restaurant upon default. Additionally, Kahala Coffee Traders may, at its sole discretion, guarantee a franchisee's lease for their location. If this occurs, the franchisee must pay a lease guarantee fee equal to 10% of the total rental obligations being guaranteed, up to a maximum of $10,000.
Performance Metrics
Total US Locations
5
Franchised Units
5
Corporate Units
0
Avg Square Footage
800
Franchising Since
2011
Legal & Compliance Analysis
Recent Litigation
Yes
Bankruptcy
No
Litigation Count
20
Litigation Summary
Kahala Coffee Traders and its various affiliates have a history of several lawsuits and administrative actions. Over the years, there have been claims by franchisees alleging issues like misrepresentation, breach of contract, and violations of franchise laws. For example, a predecessor, The Extreme Pita Franchising USA, Inc., settled a misrepresentation and FIPA violation claim for $20,000 in 2016. Kahala Franchising, L.L.C. itself was involved in a breach of contract and fraud case with a franchisee that settled in 2017 with Kahala repurchasing a territory and forgiving damages. Another breach of contract case involving a Texas franchisee settled in 2015 for $35,000 paid to the franchisee. Papa Murphy's International LLC, an affiliate, faced two consolidated lawsuits from 2014-2020 by franchisee groups alleging misrepresentations, which resulted in multiple settlements ranging from $10,000 to $4 million, and in some cases, the purchase of franchisee stores by Papa Murphy's. Public agency actions have also occurred against affiliates, such as SweetFrog and Maui Wowi, for offering unregistered franchises or using incorrect disclosures, leading to consent orders and penalties. More recently, in fiscal year 2023-2024, Kahala Franchising, L.L.C. filed two new lawsuits against franchisees for breach of contract and lease issues. Overall, Kahala Coffee Traders' legal history, predominantly through its affiliates, shows a pattern of disputes, many of which have been resolved through settlements or consent orders.
Bankruptcy History
Kahala Franchising, L.L.C. has no bankruptcy information to report in Item 4 of its FDD. Item 4 specifically states that no bankruptcy information is required to be disclosed.
Agreement Terms
Initial Term
10 years
Renewal Term
5 years
Renewal Conditions
To renew, Kahala Coffee Traders franchisees must provide at least 120 days' written notice before their agreement expires. They must be in good standing, fully compliant with the franchise agreement and confidential manual, and not have received more than three default notices during the term (or more than two within the five years preceding renewal). Franchisees must also have an approved premises, sign the then-current form of franchise agreement (which may include materially different terms and conditions, such as higher royalty and advertising fees), pay a renewal franchise fee, remodel or refurbish the location if required to meet current system standards, and be current on all financial obligations to Kahala Franchising. Additionally, a general release provided by Kahala Franchising must be signed.
Training & Support Program
Franchisor Assistance
Kahala Coffee Traders provides franchisees with both pre-opening and post-opening assistance. Before opening, the company may help with site selection, provides design drawings for construction, and identifies approved suppliers for equipment, furniture, signage, and point-of-sale (POS) systems. Franchisees receive a confidential operations manual. A mandatory initial training program, totaling 80 hours, is provided for up to two individuals. This training includes 40 hours of New Owner Training (available online or at the Kahala Training & Education Center in Scottsdale, AZ) and 40 hours of In-Store Training (conducted at the franchisee's restaurant or another designated location). During the opening week, a Kahala Coffee Traders representative visits the franchisee's restaurant for up to four days to assist with the grand opening and initial operations. After opening, ongoing support includes maintaining an advisory relationship, offering consultation on marketing, merchandising, and general business operations. Kahala Coffee Traders provides updated operating standards, conducts periodic inspections and quality checks, and may inform franchisees about available software for administrative, bookkeeping, accounting, and and inventory control.
Initial Training Hours
80
Training Location
Online, KTEC (Kahala Training & Education Center) in Scottsdale, AZ, or at the franchisee's restaurant location or other designated locations.
Ongoing Support
Kahala Coffee Traders provides ongoing support by maintaining a continuing advisory relationship, offering consultation on marketing, merchandising, and general business operations to help improve and develop the franchisee's business. Kahala Coffee Traders also provides updated operating standards, conducts periodic inspections and quality checks of restaurants, and may inform franchisees about available software for administrative, bookkeeping, accounting, and inventory control.
Franchise Requirements
Ideal Candidate Profile
Kahala Coffee Traders is seeking franchisees who intend to be actively involved in the direct operation and daily affairs of their restaurant, ideally with on-premises supervision. Candidates, or their designated managers, must successfully complete the franchisor's training program and possess the ability to adequately read and write English to effectively communicate with employees, customers, and suppliers.
Industry Experience Required
No
Management Experience Required
No
Sales Experience Required
No
Technical Skills Required
No
Operational Details
Location Type
Retail
Owner Participation
Supervisory
Territory Type
Non-Exclusive
Territory Size Requirements
Kahala Coffee Traders franchisees do not receive an exclusive territory. The franchise is granted only for a specific approved location. Kahala Franchising, L.L.C. and its affiliates reserve the right to establish other franchised or company-owned Kahala Coffee Traders restaurants, or any other competing restaurant concepts they own (such as Rollerz Rolled Sandwiches, Frullati Cafe & Bakery, Blimpie, or Maui Wowi), in any location, including in the immediate vicinity of a franchisee's restaurant or even across the street. Kahala Franchising, L.L.C. also retains the right to sell Kahala Coffee Traders products through other distribution channels, like the Internet, catalog sales, grocery stores, vending machines, and mobile units, which may compete with a franchisee's business. There are no population, geographic, or other measurable criteria used to define an exclusive territory for a Kahala Coffee Traders franchisee during the term of the franchise.
Staffing Notes
Kahala Coffee Traders franchisees are solely responsible for managing all aspects of their employees, including hiring, firing, training, supervising, and setting terms of employment, as well as maintaining employment records and ensuring employee safety and compliance with System Standards. Franchisees must employ at least one full-time, on-premises supervisor (Manager) for the restaurant. This Manager must meet the franchisor's criteria as a qualified restaurant operator, devote their full time during normal business hours to the business's management, operation, and development, and maintain confidentiality, comply with proprietary marks, and adhere to operating standards. A Manager capable of reading and understanding written materials and communicating in English must be present on each shift for safe and efficient operations. All personnel must uphold specified standards of sanitation, cleanliness, and demeanor, and wear approved uniforms.