For Chatime franchises, are affiliates allowed to negotiate purchase arrangements with suppliers or vendors for the benefit of the System?
Chatime Franchise · 2025 FDDAnswer from 2025 FDD Document
counting services, and insurance providers. Our affiliates negotiate purchase arrangements with suppliers or vendors for the benefit of the System, which often include volume discounts. Some suppliers, vendors, accounting services, or insurance providers will pay fees to us and/or our affiliates for products or services purchased through these negotiated agreements, and willingness to pay us and/or our affiliates fees may be a condition for approving a supplier, vendor, accounting services, or insurance provider. We and our affiliates may use all amounts received from suppliers or vendors, whether or not based on you and other franchisees' prospective or actual dealings with them, without restriction for any purposes that we and our affiliates deem appropriate. The commissions, rebates, or fees which we may receive from your purchase of products or services from suppliers, vendors, payroll service, real estate and project management services, and accounting services, or insurance providers, may cause the price for such products or services to be higher than market value.
You are required to purchase or lease all of your products, ingredients, goods, supplies, equipment, inventory, insurance, payroll service, real estate and project management services, and accounting services, from us or one of our approved suppliers which may be one of our affiliates.
Our affiliates La Kaffa and Chatime Wholesale LLC are currently the only approved suppliers for certain products and supplies such as ingredients, supplies, and equipment. Officers of the franchisor own an indirect ownership interest in La Kaffa and Chatime Wholesale LLC.
Except for La Kaffa and Chatime Wholesale LLC, there are no approved suppliers in which any of our officers own an interest.
Source: Item 8 — Restrictions on Sources of Products and Services (FDD pages 22–25)
What This Means (2025 FDD)
According to Chatime's 2025 Franchise Disclosure Document, affiliates of Chatime are permitted to negotiate purchase arrangements with suppliers or vendors for the benefit of the entire Chatime system. These arrangements often include volume discounts, which can potentially lower costs for franchisees. However, the FDD also states that some suppliers or vendors may pay fees to Chatime or its affiliates for products or services purchased through these negotiated agreements, and a willingness to pay these fees may be a condition for the supplier's approval.
This arrangement has a potential drawback for franchisees. The commissions, rebates, or fees that Chatime receives from suppliers could cause the price of products or services to be higher than market value. This means that while Chatime affiliates negotiate deals, the franchisee might not always get the absolute lowest price available.
Chatime franchisees are required to purchase the majority (estimated at approximately 85%) of their products, ingredients, goods, supplies, equipment, inventory, insurance, payroll service, real estate and project management services, and accounting services from Chatime or its approved suppliers, which may include Chatime's affiliates. In 2024, Chatime's affiliates had revenue of $396,652.37 from required purchases and leases of products and services by franchisees. This highlights the significant role that these affiliates play in the supply chain and the financial transactions within the Chatime franchise system.
While these negotiated arrangements are intended to benefit the system, prospective franchisees should carefully consider whether the potential for higher-than-market prices outweighs the convenience and consistency of using approved suppliers. It would be prudent to inquire about the specific criteria used to select suppliers and the process for ensuring competitive pricing, despite the fees potentially paid to Chatime or its affiliates.