What happens if a Fat Shack franchisee fails to meet the minimum sales quota?
Fat_Shack Franchise · 2025 FDDAnswer from 2025 FDD Document
If Franchisee fails to meet the Minimum Sales Quota in any Sales Quota Year, FSI will notify Franchisee. For each of the four quarters during the then current Sales Quota Year, Franchisee must provide FSI with quarterly financial records sufficient to demonstrate that it will meet or exceed the Minimum Sales Quota for the then current Sales Quota Year. If Franchisee fails to reach a level of Gross Sales in any two of the four quarters in the then current Sales Quota Year, or fail to reach the Minimum Sales Quota for any two Sales Quota Years during the term of this Agreement, then FSI has the right to terminate this Agreement in accordance with Section 19.2.v. In lieu of terminating this Agreement, FSI may require Franchisee to pay FSI the Royalty, the Marketing and Promotion Fee, and any other applicable fees, based on the greater of the Minimum Sales Quota amounts or Franchisee's actual Gross Sales for each Sales Quota Year that Franchisee has not met its Sales Quota requirements. FSI may also require Franchisee, it's Managing Owner, and/or its General Manager to obtain additional training from FSI or any third party FSI may select, the costs of which shall be at Franchisee's sole expense, or abide by such other restrictions and requirements FSI may demand, or both. FSI has the right, in its sole discretion and on a case-by-case basis, to waive the obligation of Franchisee or any other franchisee of FSI to meet the Minimum Sales Quota requirement or to pay any fees or make expenditures calculated based on the applicable Minimum Sales Quota requirement. Franchisee acknowledges that FSI is entering into this Agreement with the expectation that it will receive the Royalty based on the greater of Franchisee's actual Gross Sales or the Minimum Sales Quota over the full term of this Agreement.
Source: Item 23 — Receipts (FDD pages 53–223)
What This Means (2025 FDD)
According to Fat Shack's 2025 Franchise Disclosure Document, failing to meet the minimum sales quota can lead to several consequences. If a franchisee doesn't meet the Minimum Sales Quota in any Sales Quota Year, Fat Shack will notify them. The franchisee must then provide quarterly financial records to demonstrate their ability to meet or exceed the Minimum Sales Quota for the current Sales Quota Year.
If the franchisee fails to reach the required Gross Sales level in any two of the four quarters within that Sales Quota Year, or fails to meet the Minimum Sales Quota for any two Sales Quota Years during the agreement's term, Fat Shack has the right to terminate the Franchise Agreement. However, instead of terminating the agreement, Fat Shack may choose to require the franchisee to pay royalties, marketing and promotion fees, and any other applicable fees based on the greater of the Minimum Sales Quota amounts or the franchisee's actual Gross Sales for each Sales Quota Year that the franchisee did not meet the quota.
Additionally, Fat Shack may require the franchisee, its Managing Owner, and/or its General Manager to undergo additional training, at the franchisee's expense. Fat Shack may also impose other restrictions and requirements. The document states that Fat Shack has the discretion to waive the Minimum Sales Quota requirement or any fees or expenditures calculated based on it, on a case-by-case basis. Fat Shack emphasizes that it enters into the agreement expecting to receive royalties based on the greater of the franchisee's actual Gross Sales or the Minimum Sales Quota over the full term of the agreement.