Under what circumstances can Crab N Spice require a franchisee to participate in advertising or promotional campaigns?
Crab_N_Spice Franchise · 2024 FDDAnswer from 2024 FDD Document
- 9.5 Required Spending. Franchisee shall spend at least 2% of Gross Sales each month on marketing the Business.
Upon request of CNS Franchising, Franchisee shall furnish proof of its compliance with this Section.
- 9.4 Marketing Cooperatives. CNS Franchising may establish market advertising and promotional cooperative funds ("Market Cooperative") in any geographical areas.
If a Market Cooperative for the geographic area encompassing the Location has been established at the time Franchisee commences operations hereunder, Franchisee shall immediately become a member of such Market Cooperative.
If a Market Cooperative for the geographic area encompassing the Location is established during the term of this Agreement, Franchisee shall become a member of such Market Cooperative within 30 days.
CNS Franchising shall not require Franchisee to be a member of more than one Market Cooperative.
If CNS Franchising establishes a Market Cooperative:
- (a) Governance.
Each Market Cooperative will be organized and governed in a form and manner, and shall commence operations on a date, determined by CNS Franchising.
CNS Franchising may require the Market Cooperative to adopt bylaws or regulations prepared by CNS Franchising.
Unless otherwise specified by CNS Franchising, the activities carried on by each Market Cooperative shall be decided by a majority vote of its members.
- (c) Approval.
No advertising or promotional plans or materials may be used by a Market Cooperative or furnished to its members without the prior approval of CNS Franchising pursuant to Section 9.1.
- (11) Requiring the franchisee to participate in any (A) advertising campaign or contest; (B) promotional campaign; (C) promotional materials; or (D) display decorations or materials; at an expense to the franchisee that is indeterminate, determined by a third party, or determined by a formula, unless the franchise agreement specifies the maximum percentage of gross monthly sales or the maximum absolute sum that the franchisee may be required to pay.
Source: Item 22 — CONTRACTS (FDD pages 50–51)
What This Means (2024 FDD)
According to the 2024 Crab N Spice Franchise Disclosure Document, franchisees are generally required to participate in advertising and promotional campaigns. Specifically, franchisees must spend at least 2% of gross sales each month on marketing the business. Crab N Spice can request proof of compliance with this spending requirement.
In addition to the mandatory marketing spend, Crab N Spice may establish market advertising and promotional cooperative funds, called "Market Cooperatives," in certain geographic areas. If a Market Cooperative exists for the franchisee's location, the franchisee must become a member. The activities of the Market Cooperative are decided by a majority vote of its members unless Crab N Spice specifies otherwise. However, all advertising and promotional plans or materials must receive prior approval from Crab N Spice.
Furthermore, a Maryland Rider to the franchise agreement states that Crab N Spice cannot require a franchisee to participate in any advertising or promotional campaign at an expense to the franchisee that is indeterminate, determined by a third party, or determined by a formula, unless the franchise agreement specifies the maximum percentage of gross monthly sales or the maximum absolute sum that the franchisee may be required to pay. This suggests that while participation can be mandated, there are limitations on how the costs can be determined to protect the franchisee from potentially uncapped or unpredictable expenses. Franchisees should carefully review their franchise agreement and any local riders for specific details on advertising and promotional obligations.