Does Carvel derive revenue from franchisee purchases and leases, and if so, how?
Carvel Franchise · 2025 FDDAnswer from 2025 FDD Document
contract is allocated to the franchise right and recognized over the term of the franchise agreement.
Franchise revenues consists of revenues from franchising activities and are recognized based on the terms of the underlying agreements.
Development fees are recorded as deferred franchise revenue when received and are recognized as revenue on a straight-line basis over the term of each underlying franchise agreement satisfying the development obligation, commencing when the SBR is opened.
Franchise fees are recorded as deferred revenue when received and are recognized as revenue on a straight-line basis over the term of each respective franchise agreement, commencing when the SBR is opened.
Certain franchisees are required to purchase ice cream mix from a certain subsidiary's approved distributors, who in turn source the ice cream mix from that subsidiary's approved manufacturers. Ice cream mix revenues are recognized upon the sale of ice cream mix based upon the respective agreements with the manufacturers, distributors, and the franchisees.
Company SBR revenues are recognized at the point of sale to the end customer, which is when the SBRs' performance obligation is satisfied.
Source: Item 23 — Receipts (FDD pages 100–353)
What This Means (2025 FDD)
According to Carvel's 2025 Franchise Disclosure Document, Carvel generates revenue from franchisees through several avenues, including the sale of ice cream mix and leasing or subleasing properties. Franchisees are often required to purchase ice cream mix from approved distributors who source it from Carvel's approved manufacturers. Carvel recognizes revenue upon the sale of this ice cream mix, based on agreements with manufacturers, distributors, and franchisees. This represents a direct revenue stream tied to the franchisees' operational needs.
In addition to product sales, Carvel also earns revenue through leasing properties to franchisees. The company leases SBR (Store Based Restaurant) and corporate office locations, some of which are subleased to franchisees. Carvel recognizes base rental revenue on a straight-line basis over the lease term. Contingent rental revenue, which may depend on the franchisee's sales performance or other factors, is recognized as it is earned. This indicates that Carvel benefits financially from providing real estate solutions to its franchisees.
Furthermore, Carvel collects franchise fees, which are initially recorded as deferred revenue and then recognized as revenue on a straight-line basis over the term of the franchise agreement, starting when the SBR opens. Development fees associated with satisfying the development obligations are also treated similarly. These fees represent compensation for the franchise rights and support provided to franchisees. These multiple revenue streams highlight the various ways Carvel financially benefits from its franchise network.