What are the implications of Bonchon not offering an exclusive territory in Item 12, considering the required purchases from approved suppliers in Item 8?
Bonchon Franchise · 2025 FDDAnswer from 2025 FDD Document
You will not receive an exclusive territory. You may face competition from other franchisees, from outlets that we own, or from other channels of distribution or competitive brands that we control. We will grant you a designated location (the "Restaurant Location") in a specific protected territory (the "Protected Territory") within which you must operate your Bonchon Restaurant.
You must offer for sale in your Business all menu items and services we specify, and only those menu items and services we specify. You must purchase proprietary and other designated products (currently Bonchon logoed packaging items, logo-imprinted paper goods, cooking utensils, sweet sugar, brushes, and our proprietary sauces, seasonings and spice blends) from the source that we designate. Currently, our designated supplier, Sysco Foodservice, is the only approved supplier of our (i) proprietary sauce (including any "limited time only sauce" that we may promote from time to time) and (ii) Bonchon logoed packaging items, but we may change the designated supplier(s) of our proprietary sauce and logoed packaging items from time to time in our Confidential Operations Manual. Bonchon LLC is currently the only approved supplier of the other designated products you are required to purchase. You must purchase all other menu items, ingredients, condiments, inventory, signs, furnishings, supplies (including, cleaning supplies), fixtures and equipment from our designated or approved suppliers.
We estimate that the required purchases described above are 37.0% to 55.0% of the cost to establish a franchised Bonchon Business and approximately 24.0% to 34.0% of operating expenses.
What This Means (2025 FDD)
According to Bonchon's 2025 Franchise Disclosure Document, franchisees do not receive an exclusive territory. Item 12 states that a franchisee "may face competition from other franchisees, from outlets that we own, or from other channels of distribution or competitive brands that we control." This means Bonchon can establish company-owned restaurants or grant additional franchises nearby, potentially impacting a franchisee's market share and revenue. The franchisee is confined to a Protected Territory, but Bonchon and its affiliates are not restricted from operating or franchising other Bonchon businesses outside of, but near, that territory. The size of the Protected Territory depends on market area factors like population density and drive times, typically ranging from 0.25 to 3 miles in radius, but only 0.1 miles for Remote Kitchen Restaurants.
Furthermore, Item 8 details that franchisees must purchase specific products from designated or approved suppliers. These required purchases include proprietary items like Bonchon logoed packaging, sauces, seasonings, and spice blends, as well as other menu items, ingredients, and supplies. Bonchon estimates these required purchases account for 37.0% to 55.0% of the cost to establish a franchise and approximately 24.0% to 34.0% of operating expenses. Bonchon may also receive revenue from suppliers through various means like promotional allowances and discounts based on the purchases made by Bonchon Restaurants.
The combination of non-exclusivity and required purchases from approved suppliers has several implications for franchisees. Without an exclusive territory, a Bonchon franchisee could face direct competition from other Bonchon outlets, potentially reducing sales. Simultaneously, the franchisee is obligated to buy a significant portion of their supplies from Bonchon-approved sources, which may or may not offer the most competitive prices. This could squeeze profit margins if a franchisee's sales are impacted by nearby competition but their supply costs remain fixed.
Prospective franchisees should carefully consider these factors. The lack of an exclusive territory increases the risk of competition, while the required purchases limit a franchisee's ability to control costs by seeking alternative suppliers. It is important to evaluate the potential market area, the likelihood of additional Bonchon locations opening nearby, and the potential impact on profitability given the required purchasing arrangements. Franchisees should discuss these issues thoroughly with Bonchon and existing franchisees to fully understand the potential risks and rewards.