How does Aunt Millies Bakeries recognize revenue under scan-based trading (SBT) arrangements?
Aunt_Millies_Bakeries Franchise · 2025 FDDAnswer from 2025 FDD Document
a term shorter than 12-months.
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Revenue Recognition: The Company adopted Accounting Standards Codification Topic 606, Revenues from Contracts with Customers (ASC 606) on October 1, 2020. In accordance with ASC 606, revenue is recognized when control of the promised goods are transferred to customers, in an amount that reflects the transaction price consideration that the Company expects to receive in exchange for those goods.
The Company's industry has used scan-based trading (SBT) technology over several years to share information between the supplier and retailer. An extension of this technology allows the retailer to pay the supplier for product actually purchased by consumers as determined by the retailer's scan system rather than based on the product actually delivered to the retailer. These scan-based trade arrangements result in the Company carrying an inventory at the retailer's location, as well as entering into a shrink share arrangement with the retailer. Control of the inventory does not transfer upon delivery to the retailer because the company controls the risks and rights until the product is scanned at the reseller's register.
Source: Item 23 — RECEIPT (FDD pages 44–196)
What This Means (2025 FDD)
According to Aunt Millies Bakeries' 2025 Franchise Disclosure Document, the company uses scan-based trading (SBT) technology, a system where retailers pay Aunt Millies Bakeries for products actually purchased by consumers, as determined by the retailer's scan system, rather than based on what was initially delivered to the retailer. This arrangement means Aunt Millies Bakeries carries the inventory at the retailer's location and often enters into a shrink share arrangement with the retailer to account for potential losses.
Under these SBT arrangements, Aunt Millies Bakeries does not recognize revenue upon delivery of the product to the retailer. Instead, revenue recognition is deferred until the product is actually purchased by the consumer and scanned at the reseller's register. Aunt Millies Bakeries considers itself the principal in these transactions, meaning they retain control of the risks and rights associated with the inventory until it is sold to the end consumer.
In fiscal years 2024 and 2023, Aunt Millies Bakeries recorded $265,000,000 and $263,000,000, respectively, in sales through SBT. The company also recorded deferred revenue of approximately $2,098,000 and $1,400,000 as of September 30, 2024 and 2023, respectively. This deferred revenue represents income that has not yet been recognized because the products are still in the retailer's inventory and have not been purchased by consumers.