For Cinnaholic, what constitutes a 'Competitive Business' in terms of revenue derived from cinnamon roll sales?
Cinnaholic Franchise · 2025 FDDAnswer from 2025 FDD Document
For purposes of this Agreement, the term "Competitive Business" means any business operating, or granting franchises or licenses to others to operate, a bakery or other food service business (a) engaged in the retail or wholesale production or sale of baked goods (including, but not limited to, all cinnamon rolls and other baked goods) and (b) that derives more than 50% of its revenue from sales of cinnamon rolls (other than another CINNAHOLIC® Bakery operated by Developer under license from Franchisor). Neither Developer nor the other Bound Parties will be prohibited from owning securities in a Competitive Business if they are listed on a stock exchange or traded on the over-the-counter market and represent 5% or less of the number of shares of that class of securities which are issued and outstanding.
Source: Item 23 — RECEIPT (FDD pages 62–269)
What This Means (2025 FDD)
According to Cinnaholic's 2025 Franchise Disclosure Document, a 'Competitive Business' is defined in the context of restrictive covenants that apply to the franchisee (referred to as 'Developer') and related parties. Specifically, a 'Competitive Business' is any business that operates a bakery or other food service, engaged in the retail or wholesale production or sale of baked goods, including cinnamon rolls. The key factor is that the business must derive more than 50% of its revenue from the sale of cinnamon rolls. This definition excludes other Cinnaholic bakeries operated under a license from the franchisor.
This definition is important because it triggers certain restrictions on the franchisee during the term of the agreement and for one year after its termination or transfer. During the agreement, the franchisee and related parties are prohibited from having any direct or indirect interest in a Competitive Business, regardless of its location, or performing services for such a business. After the agreement ends, these restrictions apply only to Competitive Businesses located within a five-mile radius of any Cinnaholic bakery.
For a prospective Cinnaholic franchisee, this means they cannot own or work for a business that heavily relies on cinnamon roll sales, either during their franchise agreement or for one year after, especially near a Cinnaholic location. This clause aims to protect Cinnaholic's market share and prevent franchisees from using the knowledge gained from the Cinnaholic system to benefit a competing business. The FDD also notes that owning securities in a Competitive Business is allowed if they are listed on a stock exchange or traded on the over-the-counter market and represent 5% or less of the number of shares of that class of securities which are issued and outstanding.