Mellow Mushroom Franchise
Audited FinancialsRisk Score
Pending analysis
Investment Range
$1,710,000 - $4,756,500
Franchise Fee
$50,000
Total US Locations
161
Business Summary
Mellow Mushroom operates restaurants that specialize in pizza and also sell a variety of other food products, beverages, clothing, souvenirs, and novelty items. The restaurants offer on-premises dining, take-out, and delivery services, providing a distinctive atmosphere and product quality that sets them apart in the competitive restaurant industry.
Corporate History
Home-Grown Industries of Georgia, Inc., operating as Mellow Mushroom, was incorporated in Georgia in 1975. The company began operating Mellow Mushroom restaurants in July 1974 and started offering Mellow Mushroom restaurant franchises around May 1987. Currently, subsidiaries of Home-Grown Industries of Georgia, Inc. operate 3 Mellow Mushroom restaurants. Red Bud Manufacturing, LLC, a wholly-owned subsidiary, serves as the exclusive manufacturer and supplier of certain proprietary products for the Mellow Mushroom system.
Financial Overview
Investment Range
$1,710,000 - $4,756,500
Franchise Fee (Low)
$50,000
Franchise Fee (High)
$50,000
Royalty %
5%
Marketing %
2%
Equipment Costs (Low)
$1,215,000
Equipment Costs (High)
$2,995,000
Working Capital
$50,000
Audited Financials
Yes
Offers Financing
No
Audit Opinion
Going concern qualification
Financial Health Notes
Mellow Mushroom's financial condition, as noted in the FDD's special risks section, calls into question the franchisor's financial ability to provide services and support to franchisees. The company reported a net income of $12,657,101 in 2023, a significant improvement from a net loss of $6,560,534 in 2022. As of September 30, 2023, Mellow Mushroom had positive working capital of $9,190,739. The auditor's report indicates that management is required to evaluate conditions that raise substantial doubt about the company's ability to continue as a going concern, reinforcing the financial concerns highlighted in the FDD.
Financing Details
Mellow Mushroom does not offer any direct or indirect financing to franchisees. The company also does not guarantee any notes, leases, or other obligations of its franchisees.
Performance Metrics
Total US Locations
161
Franchised Units
158
Corporate Units
3
Avg Square Footage
4,750
Franchising Since
1987
Legal & Compliance Analysis
Recent Litigation
No
Bankruptcy
No
Litigation Summary
Mellow Mushroom has no litigation history to report. Item 3 of the Franchise Disclosure Document states that no litigation is required to be disclosed.
Bankruptcy History
Mellow Mushroom has no bankruptcy history to report. Item 4 of the Franchise Disclosure Document states that no bankruptcy is required to be disclosed.
Agreement Terms
Initial Term
15 years
Renewal Term
5 years
Renewal Conditions
To renew, Mellow Mushroom franchisees must be in good standing, maintain possession of their current premises, or secure an acceptable substitute site. They are required to remodel and/or expand the restaurant to meet Mellow Mushroom's then-current standards, which includes updating the art package based on the restaurant's current square footage. Franchisees must also sign the franchisor's then-current franchise agreement and other ancillary documents, which may include a general release (if allowed by state law), and pay a successor-franchise fee of $10,000. The terms of the new agreement may differ materially from the original, potentially including a modified or no Exclusive Territory.
Training & Support Program
Franchisor Assistance
Before opening, Mellow Mushroom assists franchisees with site acceptance, recommends or approves architects and general contractors, and provides design packages for the restaurant and its art package. It also identifies required fixtures, furniture, equipment, and technology systems. Franchisees receive access to the web-hosted e-learning site 'Schoox' (Operations Manual) and the 'Mellow Connect' information platform. Mellow Mushroom provides initial training for the Managing Owner and up to two managers at its Atlanta, Georgia facility and a designated training restaurant. During the opening period, the franchisor offers up to three weeks of on-site support. Ongoing assistance includes periodic inspections, additional guidance and refresher training, updates to the Operations Manual, modifications to standards and specifications, permission to use trade secrets and marks, administration of the Brand Development Fund for advertising and marketing, oversight of layout plans for relocations, review of franchisee-developed advertising, and selling proprietary products. The franchisor may also recommend or establish pricing requirements.
Initial Training Hours
249
Training Location
Atlanta, Georgia and a designated training restaurant
Ongoing Support
After opening, Mellow Mushroom provides ongoing support through periodic inspections and offers additional guidance and training if deemed necessary. Franchisees have continuous access to the Operations Manual, which is subject to periodic modifications, reflecting changes in system standards and operating procedures. The franchisor permits the use of its trade secrets and Marks. Refresher training courses are periodically offered. Mellow Mushroom administers the Brand Development Fund for advertising, marketing, and brand-enhancement programs, and oversees layout plans if a restaurant is relocated. The franchisor reviews and approves franchisee-developed advertising and promotional materials and sells proprietary products to franchisees. Mellow Mushroom may also recommend or establish pricing requirements for the restaurant's products and services.
Franchise Requirements
Ideal Candidate Profile
Mellow Mushroom seeks qualified franchisees who are prepared to develop and operate multiple restaurants according to a predetermined schedule. The Managing Owner, an owner of the franchisee entity, must commit their full time and best efforts to the construction, development, and operation of the restaurant. For franchisees operating three or more Mellow Mushroom restaurants, the company requires the hiring or appointment of a full-time Area Manager to oversee all restaurant operations and a dedicated marketing resource to manage marketing activities.
Industry Experience Required
No
Management Experience Required
No
Sales Experience Required
No
Technical Skills Required
No
Operational Details
Location Type
retail
Owner Participation
full-time
Territory Type
exclusive
Staff Count
125
Territory Size Requirements
For a single Mellow Mushroom restaurant, the exclusive territory is a 1-mile radius from the restaurant's front entrance. For franchisees acquiring development rights for multiple restaurants, the territory (Area) is typically defined as a city, cities, or counties. The size of this Area is primarily based on the number of restaurants the franchisee commits to develop, demographics, and site availability.
Staffing Notes
Mellow Mushroom requires that each restaurant be under the direct supervision of a Managing Owner or a Qualified General Manager who has completed the franchisor's training. The Managing Owner or Qualified General Manager must dedicate sufficient time and attention to their duties. For franchisees operating three or more restaurants, an Area Manager is required to oversee all Mellow Mushroom restaurant operations, and a dedicated marketing resource must manage marketing activities. An Area Manager cannot also serve as a single-restaurant manager and must successfully complete the franchisor's required training program within 60 days of hire. Franchisees are required to have one Area Manager for every three to six Mellow Mushroom restaurants they own. Franchisees are solely responsible for all labor relations and employment practices, including hiring, training, and supervision of their employees, and must clearly communicate to employees that the franchisee is their sole employer.