How does 7 Brew manage the gift card program?
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, the company manages the gift card program by collecting all funds from the activation of gift cards sold by franchisees, which are redeemable for 7 Brew products. The funds collected are recorded as a liability for unredeemed gift cards and are included in Accounts payable and accrued expenses on the company's Balance Sheets. This means that 7 Brew holds the responsibility for managing the financial aspects of the gift card program, while franchisees handle the sales of the gift cards. The gift card liability on December 29, 2024 was $6,514,150, $2,894,549 on December 31, 2023, and $922,165 on December 25, 2022. There was no gift card liability at December 26, 2021.
The 7 Brew gift cards do not have expiration dates, and the company does not deduct non-usage fees from unredeemed gift cards. However, 7 Brew may recognize revenue from unredeemed gift cards, termed "breakage revenue," if the likelihood of redemption is determined to be remote due to long periods of inactivity.
In 2024, 7 Brew completed its initial breakage assessment by analyzing redemption patterns and historical redemption rates to determine the 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 years ended December 31, 2023, or December 25, 2022.
For a prospective franchisee, this indicates that 7 Brew takes on the administrative burden of managing gift card liabilities and potential breakage revenue. Franchisees need to be aware of how gift card sales and redemptions impact the overall financial reporting and should understand the criteria 7 Brew uses to determine breakage revenue, as this can affect the reported revenue for the franchise system.