What are the implications of the restrictions on suppliers (Item 8) for a Checkersrallys franchisee's ability to source sustainable and ethically produced ingredients?
Checkersrallys Franchise · 2025 FDDAnswer from 2025 FDD Document
ESTRICTIONS ON SOURCES OF PRODUCTS AND SERVICES**
Generally
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.
None of our officers own an interest in any privately-held suppliers, or a material interest in any publicly-held suppliers, of the Checkers or Rally's franchise systems. From time to time, our officers may own non-material interests in publicly-held companies that may be suppliers (or have subsidiaries that may be suppliers) to Restaurants; however, we have an internal "Conflict of Interest Policy" that prohibits officers and employees from using our property, position, or information for improper and unusual personal gain.
Items We Supply or Derive Revenue From
We and our affiliates may receive revenues from required purchases and leases of products and services by franchisees. The revenues are collected by approved suppliers or distribution centers on behalf of the system and are paid to us. Our total revenues for the fiscal year which ended December 30, 2024 were $300,381,238 of which $6,189,551 or 2.1% were revenues from required purchases and leases of products and services by franchisees. Our total revenue from franchisee purchases includes $2,225,520 in gross revenue from subleases with franchisees. We generally collect rent as a pass through for landlords on the underlying lease but may earn a profit. We did not earn any profit from subleases during our 2024 fiscal year. Our intention is not to earn a profit, but instead to use all revenues collected from franchisee and company-owned restaurant purchases of products and services to offset expenses we incur in administering system-wide programs such as people, guest and operations programs, insurance procurement, promotional and price management tools, supply chain programs, brand protection (including quality assurance and food safety) programs and research and development. However, we may earn a profit from franchisees' required purchases and leases of products and services.
What This Means (2025 FDD)
According to Checkersrallys's 2025 Franchise Disclosure Document, franchisees are significantly restricted in their choice of suppliers. To maintain quality and service standards, franchisees must purchase goods, services, supplies, fixtures, equipment, and inventory exclusively from Checkersrallys-approved suppliers. While franchisees are not required to purchase or lease directly from Checkersrallys or its affiliates (though they can be approved suppliers), the initial and ongoing costs associated with these required purchases and leases are estimated to exceed 95% of the franchisee's total initial investment and ongoing operating expenses. This gives Checkersrallys substantial control over the supply chain.
This restriction has important implications for a franchisee's ability to source sustainable and ethically produced ingredients. Unless Checkersrallys approves a supplier that meets these criteria, franchisees are bound to use the approved suppliers, even if they do not align with the franchisee's preferences for sustainability or ethical sourcing. If a franchisee wants to use a non-approved supplier, they must notify Checkersrallys and submit information for approval, potentially incurring fees to cover Checkersrallys's costs for the evaluation. Checkersrallys has the right to modify the list of approved brands and suppliers, and after notification of such a change, franchisees cannot reorder from a supplier that is no longer approved.
Checkersrallys may negotiate purchase arrangements with suppliers for the benefit of all restaurants, and suppliers may provide rebates or allowances based on purchases by Checkersrallys franchisees and company-owned restaurants. These financial relationships could further influence the selection of approved suppliers. While Checkersrallys states that its officers have a Conflict of Interest Policy, the potential for the franchisor to benefit financially from supplier relationships adds complexity to the supplier approval process.
In summary, a Checkersrallys franchisee has limited autonomy in choosing suppliers, which directly impacts their ability to prioritize sustainable and ethically sourced ingredients. Prospective franchisees should discuss the supplier approval process and the possibility of incorporating sustainability criteria with Checkersrallys before investing in the franchise.