What are the ongoing royalty fees for Checkersrallys (Item 6), and how do these relate to the franchisee's obligation to operate the restaurant according to the franchisor's standards (Item 8)?
Checkersrallys Franchise · 2025 FDDAnswer from 2025 FDD Document
to customers in good faith.
2025 Growth Incentive
If you: (i) sign a Franchise Agreement (and pay the standard initial franchise fee) on or before December 30, 2025; (ii) open the Franchised Restaurant to the general public within 18 months of signing the Franchise Agreement; (iii) the Franchised Restaurant complies with the current reimaging requirements; and (iv) you, your owners, or your and their affiliates are Restaurant Net Positive (defined above) at the time the Franchised Restaurant opens, then we will waive the royalty fee payable under the Franchise Agreement until the earlier of: (a) the total value of the royalty fee abatement (calculated based on the standard royalty fee due under the Franchise Agreement) equals $75,000 or (b) the Franchised Restaurant has operated for twenty-four (24) months.
You must remain in full compliance with your Franchise Agreement to be eligible for any of the development incentives listed above. You will provide us any documentation that we may require proving your compliance with the deadlines included above. To receive the benefit of these reduced royalty amounts, you must sign our required form of 2025 Growth Incentive Addendum to the Franchise Agreement (attached as Exhibit B-2 to this Franchise Disclosure Document).
2025 Reimage Incentive
If you meet the following criteria: (i) you are signing a franchise agreement on or before June 30, 2025; (ii) you complete a full scope reimage (as approved in advance by us) that complies with our current reimaging requirements by December 30, 2025; and (iii) you, your owners, and your and their affiliates are in full compliance with the franchise agreement and any other agreement between us and you or them, then from the date the Franchised Restaurant opens following the reimage continuing through until the end of the twelfth month of operation following reopening, your royalty will be 2% of Net Sales. Beginning in the thirteenth month following the reopening and for the remainder of the term of the Franchise Agreement, your royalty will be 4% of Net Sales. To receive the benefit of these reduced royalty amounts, you must sign our required form of 2025 Reimage Incentive Addendum to the Franchise Agreement (attached as Exhibit B-6 to this Franchise Disclosure Document).
NOTE 3: We require you to spend 4.5% of your Net Sales on advertising and marketing your Franchised Restaurant, which includes your NPF contribution, your contribution to a regional or local advertising cooperative, and amounts you spend marketing your Franchised Restaurant in your local market or that we require you to contribute to an advertising purchasing collective that we establish and control. Your advertising expenditures may exceed 4.5% of your Net Sales if you are a member of a regional or local advertising cooperative whose required contribution rate, when added to your NPF contribution rate, exceeds 4.5%. Your advertising expenditures also may exceed 4.5% of your Gross Sales if in addition to your NPF contribution rate and your regional or local advertising cooperative contribution, you elect to spend an additional amount marketing your Franchised Restaurant in your local market.
NOTE 4: The current NPF contribution rate is 2.65% of your Net Sales. As noted in Item 1, the Western Licensees operate under a different form of agreement. The Western License Agreement provides that the Western Licensees must pay a 1% royalty, but each Western Licensee has no obligation to contribute to NPF or to an advertising cooperative. We are not obligated to provide certain advertising and marketing support to Western Licensees.
What This Means (2025 FDD)
According to Checkersrallys's 2025 Franchise Disclosure Document, the standard royalty fee is detailed within Item 6, though the specific percentage is not disclosed in the provided excerpts. However, the document does mention a potential royalty fee waiver under a "2025 Growth Incentive" program. If a franchisee meets specific conditions, such as signing the Franchise Agreement by December 30, 2025, opening the restaurant within 18 months, complying with reimaging requirements, and being "Restaurant Net Positive," Checkersrallys may waive the royalty fee. This waiver lasts until the total value of the waived royalties reaches $75,000 or the restaurant operates for 24 months, whichever comes first.
Item 8 emphasizes the franchisee's obligation to maintain high and uniform standards of quality and service. Franchisees must operate their restaurants in strict conformity with Checkersrallys's methods, standards, and specifications. This includes purchasing goods, services, supplies, fixtures, equipment, and inventory only from approved suppliers. While franchisees are not required to purchase or lease anything directly from Checkersrallys or its affiliates (unless they are approved suppliers), the initial and ongoing costs associated with these required purchases and leases are estimated to be significant, exceeding 95% of the total initial investment and ongoing operating expenses, respectively.
The Operations Manual, which Checkersrallys can modify at its discretion, contains mandatory and suggested standards, specifications, and operating procedures. Compliance with these standards is crucial for maintaining the brand's quality and consistency. The franchisor may also issue instructions or communications concerning aspects or modifications to the system through various media, including bulletins, emails, and intranet sites. Therefore, the ongoing royalty fees, while not explicitly stated, are indirectly linked to the franchisee's adherence to Checkersrallys's operational standards, as maintaining compliance is essential for the restaurant's success and potential eligibility for incentives like the royalty fee waiver.