How does the royalty fee structure for a Del Taco franchise (Item 6) incentivize or disincentivize the franchisee from offering games and devices?
Del_Taco Franchise · 2025 FDDAnswer from 2025 FDD Document
During the initial term of this Agreement, Franchisee shall pay Del Taco a continuing royalty fee in an amount equal to five percent (5%) of the Restaurant's Net Sales ("Royalty Fees").
Franchisee shall pay the Royalty Fees monthly by the fifteenth (15th) day of each month, based on the Net Sales of the Restaurant for the immediately preceding month, or for such other period as Del Taco may specify in the Manuals or otherwise in writing.
For Net Sales resulting from the operation or conduct of games or coin or token-operated devices such as pay telephones; cash, credit or debit machines (including automated teller machines); newspaper stands; and any type of vending machines, including, without limitation, electronic devices of all types (collectively, "Games and Devices"), Franchisee agrees to pay to Del Taco, during the term of this Agreement, a royalty of forty percent (40%) of Net Sales from Games and Devices ("Royalty for Games and Devices").
The Royalty for Games and Devices is net of any tax, including excise tax, or other fee imposed upon Del Taco due to the collection of the Royalty for Games and Devices, and shall be paid monthly on the fifteenth (15th) day of each month, based on the Net Sales of the Restaurant from Games and Devices for the immediately preceding month, or for such other period as Del Taco may specify in the Manuals or otherwise in writing.
What This Means (2025 FDD)
According to Del Taco's 2025 Franchise Disclosure Document, the royalty fee structure significantly disincentivizes franchisees from offering games and devices. Del Taco franchisees typically pay a continuing royalty fee of 5% of the Restaurant's Net Sales. However, for Net Sales resulting from the operation or conduct of games or coin or token-operated devices, the franchisee must pay a royalty of 40% of Net Sales from Games and Devices. This substantial increase in the royalty fee for revenue generated from games and devices makes it much less attractive for a franchisee to invest in and operate these types of offerings within their Del Taco restaurant.
The term "Games and Devices" includes a broad range of items, such as pay telephones, cash, credit or debit machines (including automated teller machines), newspaper stands, and any type of vending machines, including electronic devices of all types. The 40% royalty applies to the net sales from these items. This royalty is net of any tax, including excise tax, or other fee imposed upon Del Taco due to the collection of the Royalty for Games and Devices.
This royalty structure is notably different from the standard royalty applied to food and beverage sales. The much higher royalty rate on games and devices suggests that Del Taco does not view these offerings as core to its business model and prefers franchisees to focus on the primary food service operations. This could be due to various factors, such as the operational complexity of managing these devices, potential brand image concerns, or a desire to maintain a consistent customer experience focused on food quality and service.
For a prospective franchisee, this means carefully evaluating the potential revenue from games and devices against the significantly higher royalty rate. While these offerings might generate some additional income, the franchisor's share is considerable, potentially making them unprofitable or less attractive compared to focusing on core menu items and sales strategies. A franchisee would need to conduct a thorough cost-benefit analysis to determine if incorporating games and devices into their Del Taco location is a worthwhile investment.