Can 1 800 Packouts require franchisees to purchase items from 1 800 Packouts or its affiliates in the future?
1_800_Packouts Franchise · 2025 FDDAnswer from 2025 FDD Document
OURCES OF PRODUCTS AND SERVICES**
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).
You must offer all services and products we prescribe for a Franchised Business and must not offer or sell any services or products other than services and products that we have approved in writing. We may change these specifications periodically, and we may designate specific products or services as optional or mandatory. You must offer all products or services that we designate as mandatory. You may sell products only in the varieties, forms, and packages that we have approved. You must maintain a sufficient supply of required products to meet the inventory standards we prescribe in the Manuals (or to meet reasonably anticipated customer demand, if we have not prescribed specific standards).
Relationship With Suppliers. Our affiliate, ProNexis, provides call center, call tracking, and online marketing services and support and is an approved supplier of such services and of telephone numbers to our franchisees. Except as disclosed, neither we nor our affiliates currently are approved suppliers or the only approved suppliers of any products or services to franchisees, though we reserve the right to require you to purchase items from us or our affiliates in the future. None of our officers owns any interest in any supplier with whom you are currently required or recommended to do business.
You may be required to obtain certain services, including call center, call tracking, telephone number, and a number of software services set forth in the Operations Manual or in similar shared documents, drives, folders, intranet resources, etc., some from our Affiliate(s) and others from third parties, and for some of whom we will collect the funds. When such a service is set forth in the Operations Manual as a mandatory service, you must obtain it from an approved or designated vendor outlined in such manual.
Source: Item 8 — RESTRICTIONS ON SOURCES OF PRODUCTS AND SERVICES (FDD pages 27–29)
What This Means (2025 FDD)
According to 1 800 Packouts's 2025 Franchise Disclosure Document, 1 800 Packouts retains the right to mandate that franchisees purchase or lease specific items from them or their affiliates in the future. 1 800 Packouts can require franchisees to purchase furniture, fixtures, signs, equipment, products, supplies, software, and other services from 1 800 Packouts, its affiliates, or expressly approved suppliers. They can also require that these items be purchased or leased only from a single designated source, which may include 1 800 Packouts or its affiliates.
This policy gives 1 800 Packouts significant control over the sources from which franchisees obtain necessary goods and services. While neither 1 800 Packouts nor its affiliates are currently approved or the only approved suppliers for all products or services, 1 800 Packouts explicitly reserves the right to implement such requirements in the future. This means a franchisee may be obligated to purchase items from 1 800 Packouts or its affiliates at some point during the franchise term.
For a prospective franchisee, this underscores the importance of understanding the potential financial implications of such a requirement. While 1 800 Packouts states that it intends to earn revenue from franchisee purchases of certain items, the FDD does not specify which items or the potential profit margins. It is important to note that during fiscal year 2024, 1 800 Packouts received $77,430.36 from franchisees' required purchases, representing 1.78% of their total revenue, with their affiliate, ProNexis, receiving $65,357.06 from these purchases. Franchisees should evaluate whether these required purchases are competitively priced and represent fair market value.
Furthermore, 1 800 Packouts estimates that the cost for franchisees to purchase and lease equipment, inventory, and other items and services that they require to be obtained from them, their affiliates, or designated suppliers ranges from 90% to 100% of the total cost to establish and operate the franchised business. This high percentage highlights the significant financial impact of these purchasing requirements on a franchisee's investment and ongoing operational expenses. Franchisees should carefully consider this factor when assessing the overall profitability and financial viability of a 1 800 Packouts franchise.