What are the potential long-term financial implications of the royalty fees (Item 6) for a Checkersrallys franchisee, considering the potential for changes in technology and automation?
Checkersrallys Franchise · 2025 FDDAnswer from 2025 FDD Document
Royalty rates are generally 4% of net sales but the rates may vary based on restaurants qualifying under certain development or reimaging programs.
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.
b. Royalty: Section 6.02 is revised to the extent necessary to reflect that the royalty fee payable shall be equal to two percent (2%) of Net Sales; and
What This Means (2025 FDD)
According to Checkersrallys's 2025 Franchise Disclosure Document, the standard royalty fee is generally 4% of net sales. Net sales include all revenue from food, beverages, and other products and services, whether from cash, credit, or other transactions, but exclude sales taxes collected and refunds or discounts provided to customers. This royalty is a recurring expense for the life of the franchise agreement.
For a Checkersrallys franchisee, the long-term financial implications of this royalty fee are significant. As technology and automation evolve, franchisees may need to invest in new systems to remain competitive. These investments could reduce net sales, impacting the amount of royalty paid. Conversely, if technology increases efficiency and sales, the royalty payments will also increase proportionally. The royalty fee is payable to Checkersrallys, and is generally billed bi-monthly or bi-weekly with payment due within 10 days of the billing.
It's important to note that Checkersrallys does offer a growth incentive program. If a franchisee signs an agreement by December 30, 2025, opens within 18 months, meets reimaging requirements, and is 'Restaurant Net Positive', Checkersrallys will waive the royalty fee until the earlier of $75,000 in waived fees or 24 months of operation. However, this is a limited-time incentive and requires strict compliance with the franchise agreement. Also, for franchisees operating from a Non-Traditional Site, the royalty fee is reduced to 2% of Net Sales.
Prospective franchisees should carefully consider how these royalty fees will affect their long-term profitability, especially in light of potential technology investments and market changes. Understanding the conditions for any royalty reduction programs is also crucial for financial planning.