What does COGS mean for a Cream franchise, according to Item 19?

According to Cream's 2025 Franchise Disclosure Document, COGS, or Cost of Goods Sold, is defined as the landed cost of ice cream products and other food, merchandise, beverage products, and ingredients. This definition is important for prospective franchisees as it clarifies what expenses are included when calculating the cost of goods sold, which directly impacts the gross profit and overall financial performance of a Cream shop. Understanding this definition allows franchisees to accurately assess their operational costs and profitability.

For Cream shops that purchase products from Cream's parent company, the FDD states that the price is imputed. This means that the price is estimated as if the shops were not owned by the parent company or its affiliates. This imputation aims to provide a fair and consistent basis for calculating COGS across all Cream locations, regardless of ownership structure. This ensures that franchisees are evaluated on a level playing field when comparing financial performance.

Item 19 of the FDD uses COGS to calculate gross profit, which is a key indicator of a Cream shop's financial health. By subtracting COGS from net sales, franchisees can determine their gross profit, both in dollar amount and as a percentage of net sales. This information is crucial for franchisees to monitor their shop's performance, identify areas for improvement, and make informed business decisions. The FDD provides further financial performance representations based on quartiles, allowing franchisees to benchmark their COGS against other Cream shops.