What obligations does a 1 800 Packouts franchisee have regarding pre-opening purchases/leases, as detailed in Item 9, and how do these relate to the restrictions on suppliers outlined in Item 8?
1_800_Packouts Franchise · 2025 FDDAnswer from 2025 FDD Document
| Obligation | Section in Franchise | Item in Disclosure |
|---|---|---|
| Agreement | Document | |
| (b) Pre-opening purchases/leases | 3 | 5, 7, 8, and 11 |
Authorized Products, Services, and Suppliers. We have the right to require that furniture, fixtures, signs, and equipment (the "Operating Assets") and products, supplies, software and other services that you purchase for resale or purchase or lease for use in your Franchised Business: (i) meet specifications that we establish from time to time; (ii) be a specific brand, kind, or model; (iii) be purchased or leased only from us or our affiliates or suppliers or service providers that we have expressly approved; and/or (iv) be purchased or leased only from a single source that we designate (which may include us or our affiliates or a buying cooperative organized by us or our affiliates).
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.
Our affiliate, ProNexis, received $47,500 from franchisee purchases during fiscal year 2022.
What This Means (2025 FDD)
According to the 2025 FDD, 1 800 Packouts franchisees have obligations regarding pre-opening purchases and leases, as detailed in Item 9. Specifically, section (b) of Item 9 indicates that pre-opening purchases/leases are addressed in Section 3 of the Franchise Agreement and Items 5, 7, 8, and 11 of the Disclosure Document. This means franchisees must adhere to guidelines and requirements outlined in these sections when acquiring necessary assets to start their business.
Item 8 of the 1 800 Packouts FDD places restrictions on the sources from which franchisees can obtain products and services. 1 800 Packouts has the right to mandate that franchisees purchase or lease furniture, fixtures, signs, equipment (referred to as "Operating Assets"), products, supplies, software, and other services from specific, approved sources. These requirements ensure that all items meet the franchisor's standards and specifications. Franchisees may be required to purchase from 1 800 Packouts, its affiliates, or expressly approved suppliers, potentially including a single designated source or a buying cooperative organized by 1 800 Packouts or its affiliates.
The FDD estimates that 90% to 100% of the total cost to purchase and lease equipment, inventory, and other items necessary to establish and operate a 1 800 Packouts franchise will be subject to these restrictions. This high percentage underscores the significant control 1 800 Packouts exerts over the franchisee's supply chain. The franchisor or its affiliates may also receive revenue, profits, or other material consideration from franchisee purchases made from them or approved suppliers. For example, ProNexis, an affiliate, received $47,500 from franchisee purchases during fiscal year 2022.
Prospective 1 800 Packouts franchisees should carefully review Items 5, 7, 8, and 11, as well as Section 3 of the Franchise Agreement, to fully understand their obligations regarding pre-opening purchases and leases. Understanding these restrictions and the potential costs associated with them is crucial for assessing the financial feasibility of the franchise. Additionally, franchisees should be aware that 1 800 Packouts reserves the right to change these specifications and designate specific products or services as optional or mandatory, which could impact their operational costs and flexibility.