What is the purpose of the Production Fund for a Carls franchise, as detailed in Section 8.B?
Carls Franchise · 2024 FDDAnswer from 2024 FDD Document
her things, of preparing the required records, reports and other information. Franchisee promptly shall reimburse CJR or its designee for all costs and expenses associated with CJR obtaining such records, reports or other information. Franchisee also acknowledges that CJR has the right at any time to communicate directly with Franchisee's lenders, any other creditors, any suppliers and all regulatory authorities regarding Franchisee, Franchisee's business or any aspect of the Franchised Restaurant.
8. ADVERTISING AND PROMOTION
A. Contributions/Expenditures by Franchisee
During the term of this Agreement, Franchisee shall have a weekly advertising and promotion obligation ("APO") in the amount set forth in Section 6.C. and Appendix C. Following written notice to Franchisee, CJR may modify the amount and allocation of the APO subject to the provisions of Section 8.F. Franchisee shall pay, at the same time and in the same manner as the royalty fee, that portion of the APO as CJR may direct to the Production Fund in accordance with Section 8.B. The remainder of the APO shall be paid, at the same time and in the same manner as the royalty fee, to the Media Fund in accordance with Section 8.C.
B. Production Fund
CJR has established, and will maintain and administer a fund for the creation and development of advertising, marketing, social media and public relations, research and related programs, gift card and loyalty programs, activities and materials that CJR, in its sole discretion, deems appropriate ("Production Fund"). Franchisee shall contribute to the Production Fund the amount set forth in Appendix C, as subsequently modified pursuant to Section 8.F. Carl's Jr. Restaurants operated by CJR and its affiliates shall contribute to the Production Fund on the same basis as comparable franchisees.
Source: Item 22 — CONTRACTS (FDD page 80)
What This Means (2024 FDD)
According to Carls's 2024 Franchise Disclosure Document, the Production Fund is established to create and develop advertising, marketing, social media, public relations, research, gift card and loyalty programs, activities, and materials that Carls deems appropriate. Franchisees are required to contribute to this fund, with the specific amount detailed in Appendix C and potentially modified as per Section 8.F. Carls restaurants operated by Carls and its affiliates also contribute to the Production Fund on the same basis as comparable franchisees.
The Production Fund is managed by Carls, which has sole discretion over the creative concepts, materials, endorsements, geographic placement, market, and media allocation of advertising and marketing materials. The fund may cover costs related to preparing and producing video, audio, and written advertising materials, employing advertising agencies, administering regional and multiregional advertising programs (including direct mail and in-app support for third-party delivery platforms), and supporting public relations, market research, and other promotional activities. Franchisees are required to participate in all programs initiated by the Production Fund.
Carls retains significant control over the Production Fund, including the ability to suspend contributions, terminate the fund with 30 days' notice, and transfer monies between the Production Fund and the Media Fund to maximize media effectiveness. While Carls aims to enhance recognition of the Proprietary Marks and patronage of Carls Jr. Restaurants, it is not liable for ensuring that expenditures in any geographic area are proportionate to contributions from restaurants in that area, nor that any restaurant will benefit directly or in proportion to its contribution. This means that a franchisee's contribution to the Production Fund does not guarantee direct or proportional benefits to their specific location.
Carls will provide franchisees with marketing, advertising, and promotional materials at the cost of production, plus any related shipping, handling, and storage charges. Carls will separately account for the Production Fund and the Media Fund, though the funds are not required to be segregated from Carls's other monies. A statement of monies collected and costs incurred by each fund will be prepared annually and furnished to franchisees upon written request. This provides some transparency into how the funds are being managed and spent, although Carls retains considerable discretion in their allocation.