What are the potential long-term financial implications of the royalty fees (Item 6) for a Checkersrallys franchisee, considering the potential for changes in labor costs and minimum wage laws?
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.
What This Means (2025 FDD)
According to Checkersrallys's 2025 Franchise Disclosure Document, royalty fees are a percentage of net sales, typically around 4%. Net sales include all revenue from food, beverages, and services, excluding sales taxes and documented refunds or discounts. These royalty fees are ongoing for the term of the franchise agreement. Therefore, any increase in operating costs, such as labor, could significantly impact a franchisee's profitability.
If labor costs rise due to minimum wage increases or other factors, a Checkersrallys franchisee's profit margin could be squeezed. Since royalty fees are calculated as a percentage of gross sales rather than net profit, the franchisee must pay the same percentage regardless of increased labor expenses. This could reduce the amount of revenue available to cover these rising costs, potentially impacting the franchisee's ability to invest in the business, pay down debt, or take an income.
Checkersrallys does offer a growth incentive program that could temporarily waive royalty fees. If a franchisee signs a Franchise Agreement by December 30, 2025, opens within 18 months, meets reimaging requirements, and is Restaurant Net Positive, Checkersrallys will waive royalty fees until the total waived equals $75,000 or the restaurant operates for 24 months. While this incentive can provide short-term relief, franchisees need to carefully consider the long-term impact of royalty fees in conjunction with potential increases in labor costs and other operating expenses.
Prospective Checkersrallys franchisees should conduct thorough financial modeling, including various scenarios for labor cost increases, to assess the long-term financial viability of the franchise. Understanding the relationship between royalty fees, labor costs, and overall profitability is crucial for making an informed investment decision.