How does Cinnabon recognize breakage income from unredeemed gift cards?
Cinnabon Franchise · 2025 FDDAnswer from 2025 FDD Document
Certain subsidiaries administer gift card programs on behalf of the franchise systems. The Company records a liability in the period in which a gift card is issued, and this liability is the sole responsibility of those subsidiaries. As gift cards are redeemed, the liability is reduced and cash is paid to the redeeming SBR.
The Company recognizes breakage income from gift cards in proportion to actual gift card redemptions based on historical redemption rates.
Source: Item 23 — Receipts (FDD pages 114–399)
What This Means (2025 FDD)
According to Cinnabon's 2025 Franchise Disclosure Document, the company recognizes breakage income from gift cards. Breakage income refers to the revenue Cinnabon recognizes from gift cards that are never fully redeemed by customers.
Specifically, Cinnabon recognizes this breakage income in proportion to actual gift card redemptions. This recognition is based on historical redemption rates. In simpler terms, Cinnabon estimates how many gift cards will likely go unredeemed based on past trends. As customers redeem gift cards, Cinnabon recognizes a corresponding portion of the estimated breakage as income.
For a prospective franchisee, this accounting practice is important because it affects Cinnabon's reported revenue and profitability. While the franchisee is required to participate in the gift card program, the revenue from unredeemed cards is not passed on to the franchisee. Understanding how Cinnabon accounts for gift card breakage can provide insight into the financial performance of the overall franchise system, but will not impact the franchisee's net sales, as the initial sales of gift cards are excluded from net sales calculations.