How does Carls Jr. collect and spend monies paid by franchisees for advertising and promotion?
Carls_Jr Franchise · 2025 FDDAnswer from 2025 FDD Document
mmunications, email communications or other communications. (Franchise Agreement, §12.C.)
- 6. Conduct inspections of the Franchised Restaurant and evaluations of the products sold and services rendered as we deem appropriate or necessary. (Franchise Agreement, §12.D.; Co-Brand Location Addendum, § 7)
Advertising
During the term of the Franchise Agreement, you will have an advertising and promotion obligation ("APO"), paid on a weekly basis, in the amount set forth in an appendix to the Franchise Agreement. You will pay that portion of the APO as we direct to the Production Fund described in the next paragraph. The remainder of the APO shall be paid, at the same time and in the same manner as the royalty fee, to a Media Fund. Currently, approximately 1.0% of Gross Sales is paid to the Production Fund and 5% of Gross Sales is paid to the Media Fund. CJR reserves the right to reallocate or change the APO split. There is no franchisee advertising council that advises CJR on advertising policy.
Our predecessor has established, and we will maintain and administer, a fund for the creation and development of advertising, marketing and public relations, research and related programs, gift card and loyalty programs, activities and materials that we, in our sole discretion, deem appropriate ("Production Fund"). Vendors and suppliers also may contribute to the Production Fund. We or our designee direct all advertising, marketing, and public relations programs and activities financed by the Production Fund with sole discretion over the creative concepts, materials and endorsements used in those programs and activities, and the geographic, market and media placement and allocation of advertising and marketing materials. We usually work with an advertising agency in developing advertising for print, radio, Internet and television and leverage internal and contract creative services.
Our predecessor also has established, and we will maintain and administer, a fund for all working media costs ("Media Fund"). We or our designee direct all advertising, marketing, and public relations programs and activities financed by the Media Fund with sole discretion over the creative concepts,
materials and endorsements used in those programs and activities, and the geographic, market and media placement and allocation of advertising and marketing materials.
CJR will administer the Production Fund and the Media Fund (at times referred to as the "Funds"). The Production Fund and Media Fund are not trust or escrow accounts, and CJR has no fiduciary obligation to franchisees with respect to them. CJR or its designee has the right to terminate (and subsequently restart) the Production Fund or the Media Fund or establish different advertising funds. CJR may incorporate any advertising fund and may have a separate entity manage any advertising fund. In the fiscal year ended January 27, 2025, of the total monies spent by the Funds, 11% was spent for production; 74% was spent for media placement; 1% was spent on research/marketing consulting fees; and 14% was spent for miscellaneous expenses, including administrative expenses. No money was spent by the Funds to solicit new franchisees.
You may, during the period beginning 30 days before the scheduled opening of your Franchised Restaurant and continuing for 90 days after your Franchised Restaurant first opens for business ("Grand Opening Period"), conduct such grand opening advertising as CJR and you deem appropriate. CJR will reimburse you up to $5,000, in accordance with our Grand Opening Policy as may be in effect from time to time, for grand opening advertising during the Grand Opening Period, if those expenditures were preapproved by CJR and comply with the requirements of your Franchise Agreement for local advertising and you provide written proof to CJR of the advertising and the cost for that advertising no later than 90 days after your Franchised Restaurant first opens for business.
Local advertising and promotion materials may be purchased from any CJR-approved source.
Source: Item 11 — FRANCHISOR'S ASSISTANCE, ADVERTISING, COMPUTER SYSTEMS, AND TRAINING (FDD pages 42–55)
What This Means (2025 FDD)
According to the 2025 Carls Jr. Franchise Disclosure Document, franchisees have an advertising and promotion obligation (APO) paid weekly, with the amount detailed in an appendix to the Franchise Agreement. Franchisees pay a portion of this APO, as directed by Carls Jr., into the Production Fund. The remaining portion of the APO is paid to the Media Fund at the same time and manner as the royalty fee. Currently, approximately 1.0% of Gross Sales is allocated to the Production Fund, while 5% of Gross Sales is allocated to the Media Fund; however, Carls Jr. reserves the right to reallocate or change this split.
Carls Jr. maintains and administers the Production Fund for the creation and development of advertising, marketing, public relations, research, gift card and loyalty programs, activities, and materials. Carls Jr. has sole discretion over these programs, working with advertising agencies for print, radio, Internet, and television advertising. Similarly, Carls Jr. maintains and administers the Media Fund for all working media costs, retaining sole discretion over advertising, marketing, and public relations programs financed by the Media Fund.
Carls Jr. maintains separate bookkeeping accounts for all advertising funds and prepares an unaudited report of the funds' operations annually, available to franchisees upon written request. Restaurants operated by Carls Jr. contribute to the advertising funds at an equivalent rate to franchised restaurants. However, Carls Jr. is not obligated to ensure that advertising expenditures benefit any particular franchisee directly or on a pro rata basis. Carls Jr. also has the right to reallocate the APO and increase it, but not by more than 0.5% of Gross Sales in any 12-month period, with a maximum APO of 7% of Gross Sales. There is no franchisee advertising council that advises Carls Jr. on advertising policy.
Generally, Carls Jr. aims to spend all advertising payments during the taxable year in which they are received, or in the following year if not spent in the initial year. The Production Fund and Media Fund are not trust or escrow accounts, and Carls Jr. has no fiduciary obligation to franchisees regarding these funds. Carls Jr. has the right to terminate or restart these funds or establish different advertising funds and may incorporate any advertising fund or have a separate entity manage it.