Does 7 Brew deduct non-usage fees from unredeemed gift cards?
7_Brew Franchise · 2025 FDDAnswer from 2025 FDD Document
iming and uncertainty of revenues and cash flows are affected by economic factors.
Gift Card Program
The franchisees sell gift cards that are redeemable for 7 Brew® products. The Company manages the gift card program by collecting all funds from the activation of gift cards. A liability for unredeemed gift cards is included in Accounts payable and accrued expenses in the accompanying Balance Sheets.
The gift cards do not have expiration dates, and the Company does not deduct non-usage fees from unredeemed gift cards. The likelihood of redemption may be determined to be remote for certain gift cards due to long periods of inactivity resulting in the Company recognizing revenue from unredeemed gift cards, breakage revenue. The Company completed its initial breakage assessment as of December 29, 2024 by analyzing redemption patterns, utilizing historical redemption rates, to determine a portion of gift cards not expected to be redeemed. As a result of this assessment, the Company recognized breakage income of $1.5 million during the year ended December 29, 2024, which is recorded within Continual service fees, royalty fees, and other revenue on the Statements of Operations. No breakage revenue was previously recognized for the y
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 82)
What This Means (2025 FDD)
According to 7 Brew's 2025 Franchise Disclosure Document, 7 Brew does not deduct non-usage fees from unredeemed gift cards. The funds from gift card activations are collected by the company, and a liability for unredeemed gift cards is recorded on the balance sheets.
7 Brew's gift cards do not have expiration dates. However, the company may recognize revenue from unredeemed gift cards, termed "breakage revenue," if the likelihood of redemption is deemed remote due to long periods of inactivity. As of December 29, 2024, 7 Brew completed its initial breakage assessment, analyzing redemption patterns and historical rates to determine the portion of gift cards not expected to be redeemed.
As a result of this assessment, 7 Brew recognized breakage income of $1.5 million during the year ended December 29, 2024. This income is recorded within continual service fees, royalty fees, and other revenue on the Statements of Operations. No breakage revenue was recognized for the years ended December 31, 2023, or December 25, 2022, and there was no gift card liability at December 26, 2021. This means that while franchisees don't have to worry about fees on unredeemed cards, 7 Brew can eventually recognize the revenue from those cards if they are unlikely to be used.