For Chop5 Salad Kitchen, what does 'source-restricted' mean in the context of goods and services?
Chop5_Salad_Kitchen Franchise · 2024 FDDAnswer from 2024 FDD Document
Source-Restricted Purchases and Leases - Generally
You must purchase or lease certain "source-restricted" goods and services for the development and operation of your Restaurant. By "source-restricted", we mean the good or service must meet our specifications and/or must be purchased from an approved or designated supplier (in some cases, an exclusive designated supplier, which may be us or an affiliate). The Manual includes our specifications and supplier list. We notify you of changes to our specifications and suppliers by email, updates to the Manual or other means of communication.
Supplier Criteria
Our criteria for evaluating a supplier include standards for quality, delivery, performance, design, appearance and price of the product or service as well as the dependability, reputation and financial viability of the supplier. Upon request, we will provide you with any objective specifications pertaining to our evaluation of a supplier or product, although certain important subjective criteria (e.g., product appearance, taste, design, functionality, etc.) are important to our evaluation but cannot be described in writing.
If you wish to purchase or lease a source-restricted item from a non-approved supplier, you must send us a written request for approval and submit all additional information we request. We may require that you send us samples from the supplier for testing. We may also require that we be allowed to inspect the supplier's facility.
We will use best efforts to notify you of our decision within 45 days after we receive your request for approval and all additional information and samples we require. If we fail to issue our written approval within the 45-day period, we are deemed to have disapproved the proposed supplier. We may periodically re-inspect the facilities and products of an approved supplier and revoke our approval if the supplier fails to meet our then-current criteria. You must reimburse us for all costs we incur to review products and suppliers you propose.
Current Source-Restricted Items
We estimate nearly 70% to 95% of the total purchases and leases to establish your Restaurant and 35% to 60% of ongoing operating expenses will consist of source-restricted goods or services, as further described below.
Source: Item 8 — RESTRICTIONS ON SOURCES OF PRODUCTS AND SERVICES (FDD pages 20–23)
What This Means (2024 FDD)
According to Chop5 Salad Kitchen's 2024 Franchise Disclosure Document, "source-restricted" goods and services are those that franchisees are required to purchase or lease from approved or designated suppliers, which may include Chop5 Salad Kitchen or its affiliates. These goods and services must meet Chop5 Salad Kitchen's specifications, as detailed in their Manual, which is updated via email or other communication methods. The franchisor estimates that 70% to 95% of the total purchases and leases to establish a Restaurant and 35% to 60% of ongoing operating expenses will consist of source-restricted goods or services.
The criteria for supplier approval include standards for quality, delivery, performance, design, appearance, and price, as well as the supplier's dependability, reputation, and financial viability. While objective specifications are available upon request, subjective criteria such as product appearance, taste, design, and functionality also play a significant role in the evaluation process. Franchisees can request approval for non-approved suppliers, but Chop5 Salad Kitchen may require samples for testing and facility inspections, with the franchisee bearing all associated costs.
Chop5 Salad Kitchen aims to notify franchisees of their decision within 45 days of receiving the request and all necessary information. Failure to issue written approval within this period is deemed a disapproval. The franchisor may periodically re-inspect approved suppliers and revoke approval if they no longer meet the current criteria. Examples of source-restricted items include site selection services, project management services, and certain components of technology systems, such as the Toast point-of-sale system, which must be licensed exclusively from Toast.
Prospective franchisees should be aware that Chop5 Salad Kitchen reserves the right to designate themselves or an affiliate as an approved or designated supplier in the future, potentially generating profit from these purchases. While there are currently no such arrangements, the franchisor may receive rebates or other benefits from suppliers based on franchisee purchases, without any obligation to pass these on to franchisees. Franchisees should carefully consider these restrictions and potential revenue streams for the franchisor when evaluating the franchise opportunity.