What business activities are Potbelly Sandwich Works franchisees restricted from operating?
Potbelly_Sandwich_Works Franchise · 2025 FDDAnswer from 2025 FDD Document
You acknowledge that we have granted you the Franchise in consideration of and reliance upon both your agreement to deal exclusively with us in the sandwich preparation and frozen confection categories of the foodservice industry. You therefore agree that, during the Term, neither you, any of your direct or indirect owners, nor any of such owners' spouses will:
- (a) have any direct or indirect controlling interest as an owner whether of record, beneficial, or otherwise – in a Competitive Business (defined below), wherever located or operating;
- (b) have any direct or indirect non-controlling interest as an owner whether of record, beneficial, or otherwise – in a Competitive Business, wherever located or operating (except that less than a two percent (2%) equity ownership interest in a Competitive Business whose stock or other forms of ownership interest are publicly traded on a recognized United States stock exchange will not violate this clause);
- (c) perform services as a director, officer, manager, employee, consultant, representative, or agent for a Competitive Business, wherever located or operating;
- (d) divert or attempt to divert the Shop's business or customers to a Competitive Business; or
- (e) engage in any other activity that might injure the goodwill of the Marks and Franchise System.
The term "Competitive Business" means (i) any fast-casual restaurant that derives more than twenty percent (20%) of its revenue from the sale of (a) baked, oven-style, conveyor oven-style, or un-baked "sub-style" sandwiches, submarine, hoagie, Italian beef, or hero-type sandwiches, pita sandwiches, flatbread sandwiches, or cheese-steak sandwiches, or (b) smoothies, milkshakes, ice cream, and other frozen confection items, or (ii) any business granting franchises or licenses to others to operate the type of business specified in clause (i) (other than a Potbelly Shop operated under a franchise agreement with us). Competitive Business for purposes of this Agreement shall include, but not be limited to, Blimpie, Corner Bakery Café, Firehouse Subs, Jersey Mike's, Jimmy John's, McAlister's Deli, Panera Bread, Quizno's, Schlotzky's, Subway, Tropical Smoothie Café and Which Wich.
Source: Item 22 — CONTRACTS (FDD page 79)
What This Means (2025 FDD)
According to Potbelly Sandwich Works' 2025 Franchise Disclosure Document, franchisees face several restrictions regarding competitive business activities. During the term of the franchise agreement, franchisees, their direct or indirect owners, and their spouses are prohibited from having a direct or indirect controlling interest in a "Competitive Business." A Competitive Business is defined as any fast-casual restaurant deriving more than 20% of its revenue from baked, oven-style, or un-baked sub-style sandwiches, or from smoothies, milkshakes, ice cream, and other frozen confection items. This restriction also extends to businesses that grant franchises or licenses for these types of restaurants. Specific examples of competitive businesses include Blimpie, Corner Bakery Café, Firehouse Subs, Jersey Mike's, Jimmy John's, McAlister's Deli, Panera Bread, Quizno's, Schlotzky's, Subway, Tropical Smoothie Café and Which Wich.
Franchisees are also restricted from holding a non-controlling interest in a Competitive Business, although an exception exists for ownership of less than 2% equity in a publicly traded Competitive Business. Furthermore, franchisees cannot perform services as a director, officer, manager, employee, consultant, representative, or agent for a Competitive Business. They are also prohibited from diverting or attempting to divert the Potbelly Shop's business or customers to a Competitive Business, or engaging in any activity that might harm the goodwill of the Potbelly Sandwich Works brand and franchise system.
These restrictions are in place to protect Potbelly Sandwich Works' market position and confidential information. After the termination or expiration of the franchise agreement, additional restrictions apply, including a covenant not to compete for a period of two years within specified distances from the franchisee's former location or other Potbelly Sandwich Works locations. These measures ensure that franchisees remain committed to the success of the Potbelly Sandwich Works system and do not use their knowledge or resources to benefit competing businesses, thereby safeguarding the brand's interests and the broader franchise network.