Are Carbones Pizzeria franchisees required to contribute royalties to an advertising fund?
Carbones_Pizzeria Franchise · 2025 FDDAnswer from 2025 FDD Document
, 2024.
Company Restaurant Sales
The Company earns revenue from sales at the Company owned restaurant and is recognized at the time of sale.
Advertising
In accordance with signed franchise agreements, franchisees contribute royalties to an advertising fund. The fund is to be used to maximize public recognition of Carbone's Pizzeria. The Company expenses advertising costs as incurred. Advertising expenses are included in sales and marketing expenses for the years ended October 31, 2024 amounted to $237,855.
Income Taxes
The Company accounts for income taxes under asset and liability method. This approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences attributed to temporary differences between the financial reporting basis and the respective tax basis of these assets and liabilities
Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which the differences are expected to be recovered or settled.
Source: Item 22 — CONTRACTS (FDD page 30)
What This Means (2025 FDD)
According to the 2025 FDD, Carbones Pizzeria franchisees are required to contribute royalties to an advertising fund. This contribution is mandated by the signed franchise agreements. The purpose of this advertising fund is to enhance public recognition of the Carbones Pizzeria brand.
The franchisor, M & T Pizza Incorporated, manages this fund and aims to maximize the brand's visibility through various advertising initiatives. The advertising costs incurred are expensed as they happen and are included within the broader category of sales and marketing expenses. For the year ending October 31, 2023, these advertising expenses totaled $278,545, while for the year ending October 31, 2024, they amounted to $237,855. In 2022, advertising and promotion expenses were approximately $506,000.
For a prospective Carbones Pizzeria franchisee, this means that a portion of their royalty payments will be allocated specifically to advertising and marketing efforts managed by the franchisor. While the FDD excerpts confirm this contribution is mandatory, they do not specify the exact percentage or formula used to calculate the advertising royalty. Understanding the specific amount or percentage of sales dedicated to the advertising fund is crucial for assessing the overall cost structure of the franchise.
It is common in the franchise industry for franchisees to contribute to an advertising fund, as this collective effort helps to build brand recognition and attract customers to individual franchise locations. However, the specific terms can vary widely, so prospective franchisees should clarify the exact contribution requirements and how the funds are managed to ensure transparency and alignment with their business goals.