How does the Gold Star franchise agreement define a 'Similar Business'?
Gold_Star Franchise · 2025 FDDAnswer from 2025 FDD Document
Notwithstanding the foregoing, the COMPANY may (x) establish or license another to establish one or more Special Purpose Outlets (as defined below) within the Protected Territory and (y) sell or otherwise distribute within the Protected Territory products similar to or the same as those offered by the Restaurant through alternative channels of distribution (including without limitation grocery and convenience stores and internet, direct mail and catalog sales); provided, however, that in the event that the Retail Location is a Special Purpose Outlet, the COMPANY will not operate or license another to operate an additional Restaurant in the same building as the Special Purpose Outlet.
Source: Item 23 — Receipts (FDD pages 53–163)
What This Means (2025 FDD)
Based on the 2025 Gold Star Franchise Disclosure Document, the agreement does not explicitly define the term 'Similar Business.' However, it does address the company's ability to sell similar products through alternative channels of distribution within the franchisee's protected territory. Gold Star retains the right to sell products similar to those offered in the restaurant through channels like grocery stores, convenience stores, internet sales, direct mail, and catalogs. This means that while a franchisee is granted a protected territory for a traditional Gold Star restaurant, the company can still distribute similar products through other avenues within that same territory.
This has significant implications for a prospective franchisee. While the franchisee is protected from another traditional Gold Star restaurant opening in their territory (with the exception of Special Purpose Outlets), they are not protected from competition from Gold Star's own products sold through other distribution channels. This could potentially impact the franchisee's sales and profitability, as customers may choose to purchase Gold Star products from these alternative sources instead of visiting the restaurant.
It is important for potential franchisees to carefully consider this aspect of the franchise agreement and how it might affect their business. Understanding the extent to which Gold Star intends to utilize these alternative distribution channels within the protected territory is crucial. A prospective franchisee should discuss with Gold Star the company's plans for these alternative channels and how they might impact the franchisee's business. Further clarification on what constitutes 'products similar to or the same as those offered by the Restaurant' would also be beneficial to fully understand the scope of this clause.
In summary, while the Gold Star franchise agreement offers a protected territory, it's essential to recognize that this protection does not extend to similar products sold through alternative distribution channels. This aspect of the agreement should be carefully evaluated and discussed with Gold Star to fully understand its potential impact on the franchisee's business.