Can Extreme Art Studio or its affiliates derive revenue from franchisee purchases from approved suppliers?
Extreme_Art_Studio Franchise · 2024 FDDAnswer from 2024 FDD Document
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Studio Business may require you, your owners and their respective spouses to sign a personal guarantee.
2.2 OPERATING ASSETS.
You agree to use in operating the Franchised Business only those products, signs, inventory, supplies and equipment ("Operating Assets") that we approve for Extreme Art Studio Businesses as meeting our standards and specifications for customer service, quality, design, appearance, function and performance. We will advise you on necessary pre-opening procedures and assist you with inventory ordering of products, equipment and supplies through our affiliate or other suppliers. If you operate an Extreme Art Studio Business, you must submit construction plans and specifications to us for our approval before you begin construction at the Studio. You may, but are not required to use our approved construction management supplier to manage the entire build out and construction of your Studio. If you elect to use the approved construction management supplier, you will pay any construction management fee directly to our supplier. You will, at your own cost and expense, purchase and install all furnishings, fixtures, equipment, supplies and signage in conformance with the Franchise Operations Manual and our standards and specifications. You agree to place or display at the Franchised Business the Operating Assets as required by us from time to time.
Source: Item 22 — CONTRACTS (FDD page 49)
What This Means (2024 FDD)
According to the 2024 Extreme Art Studio Franchise Disclosure Document, franchisees must use products, signs, inventory, supplies, and equipment that Extreme Art Studio approves. Extreme Art Studio will advise franchisees on pre-opening procedures and assist with ordering products, equipment, and supplies through their affiliate or other suppliers.
If a franchisee chooses to use Extreme Art Studio's approved construction management supplier, they will pay any construction management fee directly to that supplier. Extreme Art Studio also reserves the right to change or add approved suppliers or vendors at any time. They can also enter into a master license agreement with any software or technology supplier and sublicense the software or technology to the franchisee, in which case Extreme Art Studio may charge the franchisee for all amounts that they must pay to the licensor based on the franchisee's use of the software or technology.
These stipulations mean that Extreme Art Studio or its affiliates could potentially receive revenue or fees from franchisee purchases made from approved suppliers, especially in cases where Extreme Art Studio has an affiliate relationship with the supplier or when they act as a reseller of software or technology licenses. This is a fairly common practice in franchising, as it allows the franchisor to maintain quality control and potentially generate additional revenue streams. However, it also means that franchisees may not have the freedom to choose the lowest-cost supplier, as they are obligated to use approved vendors.