What is the financial impact of purchasing from designated or approved suppliers on the ongoing costs of operating an Aw Papa Ray's Pizza Restaurant?
Aw Franchise · 2025 FDDAnswer from 2025 FDD Document
ancellation, or expiration of the policy.
The purchase of products from designated suppliers, approved suppliers or in accordance with specifications and standards will represent approximately 60% to 65% of your initial purchases and leases in opening the Papa Ray's Pizza Restaurant and 25% to 55% of your ongoing purchases and leases in operating the Papa Ray's Pizza Restaurant.
During our fiscal year ended December 31, 2024, we did not receive any revenue from purchases by franchisees.
We do not provide any material benefits (for example, renewal or additional franchises) to franchisees based on the franchisee's use of designated or approved suppliers. However, you must comply with the requirements to purchase from designated or approved supplier to be in compliance with your franchise agreement.
We negotiate arrangements with suppliers for the benefit of franchisees. We currently receive rebates from two suppliers based on a percentage of certain purchases by our franchisees.
There are currently no purchasing or distribution cooperatives.
You must submit the proposed lease for your site to us for approval before you sign it. We may require that the lease (i) be collaterally assigned to us by a collateral assignment agreement in a form and substance reasonably acceptable to us in order to secure performance of your liabilities and obligations to us and (ii) contain certain terms and conditions as described in the franchise agreement.
All advertising and promotional materials used by you in promoting the Papa Ray's Pizza Restaurant must be completely factual, in good taste, and must conform to the highest standards of ethical advertising.
Source: Item 8 — RESTRICTIONS ON SOURCES OF PRODUCTS AND SERVICES (FDD pages 19–21)
What This Means (2025 FDD)
According to Aw's 2025 Franchise Disclosure Document, purchasing from designated or approved suppliers significantly impacts the ongoing costs of operating a Papa Ray's Pizza Restaurant. The FDD states that these purchases account for approximately 25% to 55% of a franchisee's ongoing expenses. This means that a substantial portion of a franchisee's revenue will be directed towards these approved suppliers for items like ingredients, food products, paper goods, packaging, uniforms, signs, direct mail marketing, and menu printing.
Aw mandates that franchisees purchase specific items from approved suppliers to maintain quality and consistency across the franchise system. While this ensures brand uniformity, it also limits a franchisee's ability to negotiate prices or source cheaper alternatives. The FDD mentions that Aw negotiates arrangements with suppliers for the benefit of franchisees and currently receives rebates from two suppliers based on a percentage of certain purchases by franchisees. However, the exact amount of these rebates and how they are distributed to franchisees is not specified.
If a franchisee wishes to use an unapproved supplier, they must submit a written request for approval, which may involve a non-refundable fee to cover Aw's costs for the determination. Aw will then notify the franchisee of their decision within 30 days of receiving the request and all necessary materials. While Aw sets criteria for approving suppliers, these criteria are not disclosed to franchisees. This lack of transparency could make it difficult for franchisees to find and propose alternative suppliers. Aw also reserves the right to revoke approval of any approved supplier, adding another layer of uncertainty for franchisees.
Prospective franchisees should carefully consider the implications of these purchasing restrictions on their profitability. It would be prudent to inquire about the typical range of ongoing costs associated with these mandatory purchases, the specific criteria used to evaluate and approve suppliers, and the details of any rebates or other financial benefits that franchisees may receive from Aw's negotiated supplier arrangements. Understanding these factors will help franchisees accurately assess the financial impact of these requirements on their business.