How does the Fitstop requirement to use approved suppliers (Item 8) impact the franchisee's ability to control costs, considering the estimated initial investment in Item 7?
Fitstop Franchise · 2024 FDDAnswer from 2024 FDD Document
y in this Item 8.
Approved Suppliers
We have the right to require you to purchase any items or services necessary to operate your Franchised Business from a supplier that we approve or designate – which we refer to as an "Approved Supplier" and may include us or our Affiliate(s). We will provide you with a list of our then-current Approved Suppliers in writing as part of the Manuals or otherwise in writing, and we may update or modify this list as we deem appropriate.
We are not currently the Approved Supplier for any Required Items you must acquire or use in connection with your Franchised Business, except: (i) any technology services we determine to provide as part of any Technology Fee we determine to establish in the future; and (ii) any ongoing Additional and/or Refresher Training, and/or new or replacement Instructor Training, that occurs once you have opened your Franchised Business, and for which we may charge our then-current Training Fee for the kind of training at issue; and (iii) any services we determine to provide as part of our current Fund.
As of the Issue Date, we expect and intend to have Approved Suppliers for the following items you must purchase in connection with your Franchised Business as of the Issue Date of this Disclosure Document: (i) certain furniture, fixtures, equipment and supplies you must purchase to buildout and/or operate your Franchised Business; (ii) site selection and other real estate services (recommended, but not necessarily required); (iii) software and technology we designate for use in connection with the System; (iv) signage furniture, fixtures, equipment, supplies and inventory comprising the Start-Up Equipment and Supplies
Package (detailed more fully in Item 8); (v) other inventory items and paper goods; (vi) branded items and retail merchandise, including certain Approved Products; (vii) certain marketing materials and services, which may include digital marketing and collateral such as flyers, coupons, banners, flags and similar promotional items; (viii) music licensing services (for use at your Premises); and (ix) project management and related services associated with the buildout and design of your Franchised Business (optional, not required).
Except as disclosed in this Item, (i) neither we nor any of our affiliates is currently an Approved Supplier for any other Required Item; and (ii) none of our officers own an interest in any third-party Approved Supplier.
We reserve the right to appoint ourselves, our affiliate(s) and/or any third party as the designated or Approved Supplier for any Required Item in the future, which we will communicate via the Manuals or other prior written notice.
Method of Approving Suppliers or Non-Approved Products
We may, but are not obligated to, grant your request to: (i) offer any products or services in connection with your Franchised Business that are not Approved Products and Services; or (ii) purchase any item or service we require you to purchase from an Approved Supplier from an alternative supplier.
If you wish to undertake either of these actions, you must request and obtain our approval in writing before: (i) using or offering the non-approved product or service in connection with your Franchised Business; or (ii) purchasing from a non-approved supplier. You must pay our then-current supplier or non-approved product or service evaluation fee when submitting your request. If you make such a proposal, we reserve the right to charge you the greater of (a) the costs/expenses we incur in evaluating/testing your proposal, and (b) $1,000 per proposal. We may ask you to submit samples or information so that we can make an informed decision whether the goods, equipment, supplies, services or supplier meet our specifications and quality standards. In evaluating a supplier that you propose to us, we may consider not only the quality of the product at issue, but also the supplier's production and delivery capability, overall business reputation and financial condition. We may provide any alternate supplier you propose with a copy of our then-current specifications for any product(s) you wish the supplier to supply, provided the supplier enters into a confidentiality and non-disclosure agreement in the form we specify. We may also inspect a proposed supplier's facilities and test its products, and request that you reimburse our actual costs associated with the testing/inspection.
We will notify you in writing within 90 days after we receive all necessary information and/or complete our inspection or testing to advise you if we approve or disapprove the proposed service, item and/or supplier. If you do not receive a notification from us within that 90-day period, the proposed service, item and/or supplier is deemed disapproved. The criteria we use in approving or rejecting new suppliers is proprietary, but we may (but are not required to) make it available to you upon request. Each supplier that we approve of must comply with our usual and customary requirements regarding insurance, indemnification and non-disclosure. If we approve any supplier, we will not guarantee the performance of any supply contract with that supplier under any circumstances.
What This Means (2024 FDD)
According to Fitstop's 2024 Franchise Disclosure Document, franchisees are required to purchase certain items and services from approved or designated suppliers, which may include Fitstop or its affiliates. This requirement impacts a franchisee's ability to control costs, as they may not be able to seek out the lowest prices on the open market. Fitstop provides a list of approved suppliers in its manuals and may update this list. As of the FDD issue date, Fitstop expects to have approved suppliers for items such as furniture, fixtures, equipment, supplies, software, technology, signage, marketing materials, music licensing services, and project management services.
While using approved suppliers ensures consistency and quality control within the Fitstop system, it also means franchisees must adhere to the pricing and terms set by these suppliers. Item 8 indicates that franchisees can request approval to use alternative suppliers or non-approved products, but Fitstop is not obligated to grant these requests. If a franchisee seeks to use an alternative supplier or product, they must obtain written approval and may be charged an evaluation fee. This fee is the greater of Fitstop's costs/expenses in evaluating the proposal or $1,000 per proposal. Fitstop may also inspect the proposed supplier's facilities and test its products, with the franchisee responsible for reimbursing the associated costs.
Item 7, which details the estimated initial investment, references the use of approved suppliers for certain required items. The initial investment ranges are based on the assumption that franchisees will use Fitstop's approved suppliers. This suggests that the estimated costs in Item 7 may not reflect the lowest possible prices, but rather the prices charged by Fitstop's approved vendors. Franchisees should carefully review the list of required items and approved suppliers to understand the potential impact on their initial and ongoing costs.
Fitstop also retains the right to negotiate and receive rebates or other financial incentives from the manufacturers and suppliers of any required items or approved products. These rebates are kept by Fitstop, which could potentially create a situation where franchisees are paying higher prices than necessary, with the franchisor benefiting from the difference. Franchisees are required to comply with any pricing policies and guidelines that Fitstop imposes, including maximum prices for approved products or services. This may limit the franchisee's ability to set their own prices and maximize profits.