What are the implications of the restrictions on suppliers for 1 800 Packouts in Item 8, considering the franchisee's pre-opening purchase obligations outlined in Item 9?
1_800_Packouts Franchise · 2025 FDDAnswer from 2025 FDD Document
tions, or standards in writing, which we may transmit to you electronically.
Proportion of Purchases Subject to Specifications. We estimate that the cost to purchase and lease all equipment, inventory and other items and services that we require you to obtain from us or our affiliates, from designated suppliers, or in accordance with our specifications ranges from 90% to 100% of the total cost to purchase and lease equipment, inventory, and other items necessary to establish a Franchised Business and 90% to 100% of the total cost to purchase and lease equipment, inventory, and other items to operate a Franchised Business.
Revenue from Purchases. We or our affiliates may receive revenues or profits or other material consideration from the purchases you make from us, our affiliates, or from other approved suppliers. We intend to earn revenue from your purchase of certain items that we may specify from time to time. We may retain any rebates or other payments we receive from suppliers. Our affiliate, ProNexis, received $47,500 from franchisee purchases during fiscal year 2022.
During our last fiscal year, we did not receive any revenue from the required purchase of products and services by our franchisees. We have not yet established any arrangements with suppliers which would require the supplier to make payments to us based on our purchases, but we reserve the right to do so.
Cooperatives and Purchase Arrangements. We are not involved in any purchasing or distribution cooperatives. We may, but are not obligated to, negotiate purchase arrangements with suppliers for the benefit of franchisees. As of the issuance date of this Disclosure Document, we have negotiated purchase arrangements with suppliers for the benefit of our franchisees for certain packing supplies and vehicles.
Material Benefits. We do not provide any material benefits to franchisees (for example, renewal or granting additional franchises) based upon their purchase of particular products or services or use of particular suppliers.
ITEM 9 FRANCHISEE'S OBLIGATIONS
This table lists your principal obligations under the franchise and other agreements. It will help you find more detailed information about your obligations in these agreements and in other items of this disclosure document.
| Obligation | Section in Franchise | Item in Disclosure |
|---|---|---|
| Agreement | Document | |
| (a) Site selection and acquisition/lease | 3.A | 11 and 12 |
| (b) Pre-opening purchases/leases | 3 | 5, 7, 8, and 11 |
| (c) Site development and other pre- 3 | 3 N/A | N/A |
| opening requirements | ||
| (d) Initial and ongoing training | 4 | 6, 7, and 11 |
| (e) Opening | 3.F | 11 |
| (f) Fees | 9 | 5, 6, and 7 |
| (g) Compliance with standards and 4.G, 10.C, and 10.D | 4.G, 10.C, and 10.D 8 and 11 | 8 and 11 |
| policies/Operations Manual | ||
| (h) Trademarks and proprietary 5 | 13 and 14 | |
| information | ||
| (i) Restrictions on products/services 10.A and 10.B | 8, 11, 12, and 16 | |
| offered | ||
| (j) Warranty and customer service Not Applicable | 16 | |
| requirements | ||
| (k) Territorial development and sales 1.D | 12 | |
| quotas | ||
| (l) On-going product/service purchases | 10.B | 6 and 8 |
| (m) Maintenance, appearance and 10.C | 10.C 8, 11, and 17 | 8, 11, and 17 |
| remodeling requirements | ||
| (n) Insurance | 10.H | 7 and 8 |
| (o) Advertising | 11 | 6, 7, 8, and 11 |
| (p) Indemnification | 8 | 6 |
| (q) Owner’s participation/ 10.G | 10.G 11 and 15 | 11 and 15 |
| management/staffing | ||
| (r) Records/reports | 12 | N/A |
| (s) Inspections/audits | 13 | 6 and 11 |
| (t) Transfer | 14 | 17 |
| (u) Renewal | 2.B | 17 |
| (v) Post-termination obligations | 16 | 17 |
| (w) Non-competition covenants | 7 and 16.D | 15 and 17 |
| (x) Dispute resolution | 17 | 17 |
ITEM 10 FINANCING
We do not offer direct or indirect financing nor do we guarantee your note, lease or other obligations.
ITEM 11 FRANCHISOR'S ASSISTANCE, ADVERTISING, COMPUTER SYSTEMS, AND TRAINING
Except as listed below, we are not required to provide you with any assistance.
Our Pre-Opening Obligations
Before you open the Franchised Business, we or our designee will:
- (1) Review and approve or disapprove the terms of the lease or purchase contract for the premises of the Franchised Business. Your proposed location will be approved based upon factors including adequate parking for your vehicle, including any truck or trailer you use and adequate space for the storage of contents which your operations require you to store for customers. It must also be of adequate size to support your operations and must have high-speed internet access for you and any staff member(s) you retain. Outside of these factors, and the location within your Franchise Territory, we do not consider other factors in approving or disapproving your site. We generally do not own the premises or lease the premises to you. The lease for the Facility must allow for the installation of all equipment and other items necessary to operate the Franchised Business. In addition, the lease shall provide, if required by us, that it be assignable to us or our designee at our option, upon termination or expiration of this Agreement, and shall also contain such terms and provisions as are reasonably approved by us. Currently, we do not specify other required lease terms. There is no time limit for the completion of our review of your lease or purchase contract, but we anticipate completing our review within 10 days of your submission. If we do not approve the terms of the lease or purchase contract and you are unable to locate another site with satisfactory lease or purchase terms in enough time to open the Franchised Business within 180 days after the effective date of the Franchise Agreement, we may terminate the Franchise Agreement, in which case you will forfeit your Initial Franchise Fee. (Franchise Agreement – Section 3.A)
- (2) Review and approve or disapprove plans and specifications and final construction plans complying with our requirements for design, decoration, furnishings, furniture, layout, equipment, fixtures and signs for a Facility.
What This Means (2025 FDD)
According to 1 800 Packouts's 2025 Franchise Disclosure Document, Item 8 outlines significant restrictions on where franchisees can source products and services, which has direct implications for the pre-opening purchases detailed in Item 9. 1 800 Packouts estimates that 90% to 100% of the total cost to establish and operate a franchised business will be spent on items and services that franchisees are required to obtain from 1 800 Packouts, its affiliates, designated suppliers, or according to their specifications. This means franchisees have very little flexibility in choosing suppliers and controlling costs.
1 800 Packouts maintains the right to require that franchisees purchase or lease furniture, fixtures, signs, equipment, products, supplies, software, and other services from specific sources that they have expressly approved. They can also mandate that these items meet specific standards or be a particular brand, kind, or model. While 1 800 Packouts states that they may negotiate purchase arrangements with suppliers for the benefit of franchisees, they are not obligated to do so. Furthermore, 1 800 Packouts reserves the right to receive revenue or profits from franchisee purchases made from approved suppliers, and they may retain any rebates or other payments received from these suppliers.
For a prospective 1 800 Packouts franchisee, these restrictions mean higher initial and ongoing costs, as they are limited in their ability to shop around for the best prices. Franchisees are required to use ProNexis, an affiliate of 1 800 Packouts, for call center, call tracking, and online marketing services. While 1 800 Packouts does have an approval process for alternative suppliers, they do not make their criteria for approving suppliers available to franchisees and may approve or disapprove a supplier or item at their sole discretion. This lack of transparency and control over sourcing can impact a franchisee's profitability and operational flexibility. Franchisees should carefully consider these restrictions and their potential financial impact before investing in a 1 800 Packouts franchise.