How does Costa Vida Fresh Mexican Grill recognize revenue from gift card breakage?
Costa_Vida_Fresh_Mexican_Grill Franchise · 2025 FDDAnswer from 2025 FDD Document
The Company sells gift cards to various parties and reports sold gift cards as liabilities. Franchisees will recognize revenue as gift cards are redeemed. Breakage of gift cards is recognized by the redemption pattern method where breakage is recognized on a pro-rata basis determined by the historical redemption pattern of the outstanding gift cards redeemed. For 2024, 2023, and 2022 the breakage rate was 13%. The Company does not recognize breakage revenue, instead amounts are recognized in the MAF fund.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 66)
What This Means (2025 FDD)
According to Costa Vida Fresh Mexican Grill's 2025 Franchise Disclosure Document, the company recognizes revenue from gift card breakage using the redemption pattern method. This means that breakage, which refers to the value of gift cards that are never redeemed, is recognized on a pro-rata basis. This pro-rata basis is determined by analyzing the historical redemption patterns of outstanding gift cards that have been redeemed.
For the years 2024, 2023, and 2022, Costa Vida Fresh Mexican Grill reported a breakage rate of 13%. However, it's important to note that the company does not recognize this breakage revenue directly. Instead, these amounts are allocated to the Marketing and Advertising Fund (MAF).
For a prospective Costa Vida Fresh Mexican Grill franchisee, this means that a portion of the unredeemed gift card value is used to support marketing and advertising initiatives for the brand, rather than being recognized as direct revenue by the company. This policy could influence the overall financial performance and marketing strategies of the franchise system.