Is Benihana contractually obligated to remit payments received from suppliers to its franchisees?
Benihana Franchise · 2024 FDDAnswer from 2024 FDD Document
compensation.
We sometimes negotiate arrangements with certain vendors to pay rebates or apply price discounts on account of purchases by company-owned and franchised restaurants. As of the issuance date of this Disclosure Document, certain approved suppliers make payments to us based in part on franchisee purchases. Some suppliers make payments to us on a per-unit basis, ranging from $0.50 to $5.50 per unit purchased, depending on the supplier, the specific product, and the total unit volume purchased that. Another supplier provides payments in the nature of rebates of 5.0% of net purchases. During our fiscal year ending March 31, 2024, we received $29,709.25 from these suppliers on account of franchisee purchases. We remitted to franchisees 100% of those payments made by suppliers on account of franchisee purchases. We are not contractually obligated to remit any payments to franchisees and reserve the righ
Source: Item 8 — RESTRICTIONS ON SOURCES OF PRODUCTS AND SERVICES (FDD pages 28–33)
What This Means (2024 FDD)
According to Benihana's 2024 Franchise Disclosure Document, while Benihana has historically remitted payments from suppliers to franchisees, it is not contractually obligated to do so. During the fiscal year ending March 31, 2024, Benihana received $29,709.25 from suppliers based on franchisee purchases and remitted 100% of these payments to the franchisees. However, the FDD explicitly states that Benihana reserves the right to retain all such payments in the future. This means that a prospective franchisee cannot rely on receiving these supplier payments as a guaranteed source of income.
The payments Benihana receives from suppliers are based on negotiated arrangements, including rebates or price discounts on purchases made by both company-owned and franchised restaurants. Some suppliers make payments on a per-unit basis, ranging from $0.50 to $5.50 per unit, while another provides rebates of 5.0% of net purchases. These arrangements are subject to change, and Benihana has the discretion to alter or discontinue them.
For a potential Benihana franchisee, this highlights the importance of understanding the financial relationship between Benihana, its suppliers, and its franchisees. While the remittance of supplier payments can be a benefit, the lack of a contractual obligation means that Benihana could change this practice at any time, impacting the franchisee's potential profitability. It would be prudent for prospective franchisees to inquire about the likelihood of these payments continuing and to factor this uncertainty into their financial projections.