What are the implications of the restrictions on suppliers (Item 8) for a Checkersrallys franchisee's ability to control costs, considering the estimated initial investment (Item 7)?
Checkersrallys Franchise · 2025 FDDAnswer from 2025 FDD Document
To ensure that high and uniform standards of quality and service are maintained, you are required to operate your Franchised Restaurant in strict conformity with our methods, standards and specifications and you are required to purchase goods, services, supplies, fixtures, equipment and inventory only from suppliers we have approved. You are not required to purchase or lease anything from us or any of our affiliates; however, we and our affiliates can be approved suppliers for items. Currently, we are not an approved supplier for any items except that we may from time to time sell used modular restaurants and restaurant equipment to Checkers and Rally's franchisees. We estimate the initial cost of all of required purchases and leases of goods, services, supplies, fixtures, equipment and inventory to be in excess of 95% of your total initial investment (see Item 7). We estimate the ongoing cost of these required purchases and leases to be in excess of 95% of your total ongoing operating expenses.
We may formulate and modify, at our sole discretion, specifications and standards we impose on franchisees and suppliers. Specifications and standards are issued to franchisees through the Operations Manual (defined below) and to suppliers by written notice. The "Operations Manual" is our confidential operations manual, as we may amend at any time, which may consist of one or more manuals or communications, containing our mandatory and suggested standards, specifications and operating procedures relating to the development and operation of Restaurants and other information relating to your obligations as a franchisee and operator of a Restaurant. The term "Operations Manual" also includes all instructions or communications we or our representatives may transmit to you or a substantial number of franchisees, whether in writing or through other media, concerning aspects or modifications to the System, standards, specifications and operating procedures, including bulletins, emails, limited access intranet sites, videotapes, audio tapes, or any other electronic medium. We attempt to negotiate purchase arrangements with suppliers (including price terms) for the benefit of all Restaurants, including those owned by franchisees. We do not provide material benefits (e.g., renewal or additional franchises) to a franchisee based on his use of designated or approved suppliers.
There are no franchisee purchasing or distribution cooperatives.
What This Means (2025 FDD)
According to Checkersrallys's 2025 Franchise Disclosure Document, franchisees are required to purchase goods, services, supplies, fixtures, equipment, and inventory only from suppliers approved by Checkersrallys. This requirement is in place to maintain uniform standards of quality and service across all franchised restaurants. The FDD states that the estimated initial cost of these required purchases and leases constitutes over 95% of the total initial investment, and the ongoing cost represents over 95% of the total ongoing operating expenses. This heavy reliance on approved suppliers significantly limits a franchisee's ability to independently seek out potentially lower-cost alternatives.
While Checkersrallys may negotiate purchase arrangements with suppliers, including price terms, for the benefit of all restaurants, franchisees are still bound to these approved sources. This means a franchisee cannot negotiate better deals on their own, potentially missing out on cost-saving opportunities. The initial investment for a Checkersrallys franchise varies based on the restaurant building costs, restaurant equipment and technology, soft costs, signage, and inventory. For example, one version of Item 7 lists the total estimated initial investment (exclusive of real estate) as ranging from $383,370 to $1,320,538. Another version lists it as $123,630 - $725,538. Given that over 95% of both the initial and ongoing costs are tied to approved suppliers, the impact of these restrictions on a franchisee's financial performance is substantial.
The franchisee's ability to manage costs is therefore heavily dependent on Checkersrallys's ability to negotiate favorable terms with its approved suppliers. Any increase in prices from these suppliers will directly impact the franchisee's profitability. While the FDD mentions that Checkersrallys aims to use revenues collected from franchisee purchases to offset expenses related to system-wide programs, there is a possibility that Checkersrallys may earn a profit from these purchases, further affecting franchisee costs.
Prospective franchisees should carefully evaluate the list of approved suppliers, their pricing, and the terms negotiated by Checkersrallys. Understanding the dynamics between Checkersrallys and its suppliers is crucial to assessing the potential profitability and cost control measures available to a franchisee. It would be prudent to discuss with existing franchisees their experiences with supplier costs and any strategies they employ to mitigate these expenses within the confines of the approved supplier network.