Is it possible that a Chatime franchisee might pay higher prices to an approved supplier than to an unapproved supplier?
Chatime Franchise · 2025 FDDAnswer from 2025 FDD Document
We may grant you approval to obtain food products, supplies, equipment (including point-of-sale and back office computer systems), and materials for your Chatime Store and services to your Chatime Store from other sources as long as they meet our specifications, standards, and requirements. Every supplier must demonstrate that it can meet all System specifications, standards, and requirements and has adequate capacity to supply our franchisees' quantity and delivery needs to our satisfaction. Before approving any supplier, we may take into consideration, without limitation (i) consistency with products or name brands already in the System, (ii) economies of scale achieved by larger volumes, and (iii) certain other benefits that a supplier may offer such as new product development capability. When approving a supplier, we take into consideration the System as a whole; some franchisees may pay higher prices to an approved supplier than they might pay to an unapproved supplier.
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, it is possible that a franchisee may pay higher prices to an approved supplier than to an unapproved supplier. Chatime considers the System as a whole when approving a supplier. This means that the benefits to the overall Chatime system, such as consistency and economies of scale, may outweigh the potential for individual franchisees to find cheaper options elsewhere.
This arrangement is not uncommon in franchising, where franchisors prioritize standardization and quality control across all locations. While a franchisee might find a cheaper, non-approved supplier, using that supplier would violate the franchise agreement. Chatime franchisees are required to purchase or lease all products, ingredients, goods, supplies, equipment, inventory, insurance, payroll service, real estate and project management services, and accounting services from Chatime or one of its approved suppliers, which may include Chatime affiliates.
Chatime also benefits financially from these approved supplier relationships. The FDD states that Chatime may receive promotional allowances, volume discounts, commissions, rebates, and other payments from suppliers and vendors. Furthermore, some suppliers may pay fees to Chatime for products or services purchased through negotiated agreements, and a willingness to pay these fees may be a condition for becoming an approved supplier. These commissions, rebates, or fees may cause the price for such products or services to be higher than market value.
Prospective Chatime franchisees should carefully consider the implications of these purchasing restrictions. While the franchisor argues that these arrangements ensure quality and consistency, they may also limit the franchisee's ability to control costs and maximize profits. It is important to factor in the potential for higher prices when evaluating the overall financial viability of a Chatime franchise.