What are the implications of the restrictions on suppliers (Item 8) for the quality and consistency of the Checkersrallys brand, as reflected in its trademarks (Item 13)?
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.
What This Means (2025 FDD)
According to Checkersrallys's 2025 Franchise Disclosure Document, Item 8 outlines significant restrictions on where franchisees can source products and services. These restrictions are in place to maintain high and uniform standards of quality and service across all franchised restaurants, which directly impacts the consistency and reputation of the Checkersrallys brand, protected by its trademarks. Franchisees are required to purchase goods, services, supplies, fixtures, equipment, and inventory only from suppliers approved by Checkersrallys. The FDD notes that 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, respectively.
Checkersrallys retains the authority to modify specifications and standards for both franchisees and suppliers, communicating these changes through the Operations Manual and written notices. This control allows Checkersrallys to ensure that all restaurants adhere to the brand's standards regarding appearance, function, cleanliness, and operation. While Checkersrallys attempts to negotiate favorable purchase arrangements with suppliers for the benefit of all restaurants, franchisees are not offered material benefits for using designated or approved suppliers. Franchisees are permitted to propose new suppliers or brands, but Checkersrallys has the right to approve or disapprove them based on whether they meet the company's specifications and standards. Checkersrallys may charge fees to cover the costs of evaluating proposed suppliers and can revoke approval of any supplier by notifying the supplier and the franchisee in writing.
The restrictions on suppliers and the control Checkersrallys maintains over standards and specifications are crucial for protecting the brand's trademarks. By ensuring that all franchisees use approved suppliers and adhere to specific operational guidelines, Checkersrallys aims to deliver a consistent customer experience across all locations. This consistency is essential for maintaining the value and recognition of the Checkersrallys brand. While these restrictions provide brand protection, franchisees should be aware that they have limited flexibility in sourcing products and services and are heavily reliant on Checkersrallys's approved supplier network. Franchisees should also consider that Checkersrallys and its affiliates may receive revenue from franchisee purchases from approved suppliers.