What are the potential long-term financial implications of the royalty fees (Item 6) for a Checkersrallys franchisee, considering the potential for economic downturns and decreased consumer spending?
Checkersrallys Franchise · 2025 FDDAnswer from 2025 FDD Document
e to the NPF, all fees currently are uniformly imposed.
NOTE 2: The term "Net Sales" means all revenue derived from operating the Franchised Restaurant, including the aggregate of all sales amounts from food, beverages and other products sold and services rendered at the Premises or otherwise rendered in connection with your Franchised Restaurant, and all monies derived from sales at or away from the Franchised Restaurant, whether from cash, check, credit or debit card, barter exchange, trade credit, or other credit transactions, but: (1) excluding all federal, state or municipal sales, use or service taxes collected from customers and paid to the appropriate taxing authority; and (2) reduced by the amount of any documented refunds, credits, allowances, adjustments, promotional discounts, and charge-backs the Franchised Restaurant provides 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.
What This Means (2025 FDD)
According to Checkersrallys's 2025 Franchise Disclosure Document, royalty fees are a crucial aspect of the franchise agreement, and understanding their implications, especially during economic downturns, is vital for prospective franchisees. Generally, Checkersrallys franchisees pay royalties that are 4% of net sales, although this rate can vary based on specific development or reimaging programs. Net sales include all revenue from food, beverage, and other product sales, as well as services rendered at the franchised restaurant, whether from cash, credit, or other transactions. However, net sales exclude sales taxes collected and refunds or discounts provided to customers. These royalties are typically billed bi-monthly or bi-weekly, with payment due within 10 days of the billing.
During economic downturns or periods of decreased consumer spending, a Checkersrallys franchisee's net sales may decline, directly impacting the amount of royalty fees owed. Even if a franchisee experiences lower revenues, the royalty fee, calculated as a percentage of those reduced sales, must still be paid. This can strain the franchisee's financial resources, potentially affecting their ability to cover operational costs, invest in improvements, or maintain profitability. The franchisor monitors franchisees' compliance with the franchise agreement and sublease terms, placing them in default status if they fail to comply. When a franchisee is in default, Checkersrallys closely monitors royalties to determine if they are collectible, and uncollectible amounts are written off, indicating the potential for financial strain on both sides.
To mitigate the impact of royalty fees during challenging economic times, Checkersrallys offers a "2025 Growth Incentive." If a franchisee signs a Franchise Agreement by December 30, 2025, opens the restaurant within 18 months, complies with reimaging requirements, and is Restaurant Net Positive, Checkersrallys will waive the royalty fee until the royalty fee abatement equals $75,000 or the restaurant has operated for 24 months, whichever comes first. This incentive can provide significant financial relief during the initial years of operation, helping new franchisees navigate potential economic uncertainties. However, remaining in full compliance with the Franchise Agreement is essential to maintain eligibility for this incentive.
Prospective Checkersrallys franchisees should carefully consider the long-term financial implications of royalty fees, especially in the context of potential economic fluctuations. Understanding the terms of the royalty fee structure, including the definition of net sales and the availability of incentives like the 2025 Growth Incentive, is crucial for making informed financial projections and business decisions. Franchisees should also discuss with Checkersrallys what support or flexibility may be available during economic downturns to help manage royalty fee obligations and maintain the financial health of their franchise.