Is a Potbelly Sandwich Works franchisee allowed to have an undisclosed interest in a competitive business?
Potbelly_Sandwich_Works Franchise · 2025 FDDAnswer from 2025 FDD Document
guarantee our performance.
- 1.03 Your Representations. You and your Owners, if applicable, represent and warrant to us that: (a) neither you nor any of your Owners have made any untrue statement of any material fact or have omitted to state any material fact in obtaining the rights granted hereunder; (b) neither you nor any of your Owners have any direct or indirect legal or beneficial interest in any business that may be deemed a Competitive Business, except as otherwise fully and accurately disclosed in your franchise application submitted to us; and (c) the execution and performance of this SDAA will not violate any other agreement to which you or any of your Owners may be bound. You recognize that we have approved your franchise application in reliance on all of the statements you and your Owners have made in connection therewith.
- 1.04 Certain Definitions. The terms listed below have the meanings which follow them and include the plural as well as the singular. Other terms are defined elsewhere in this SDAA in the context in which they arise.
- "Affiliate" Any person or entity that directly or indirectly owns or controls the referenced party, that is directly or indirectly owned or controlled by the referenced party, or that is under common control with the referenced party. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of an entity, whether through ownership of voting securities, by contract or otherwise.
"Competitive Business" – Any (i) any fast-casual restaurant that derives more than 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 SDAA 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.
"Confidential Information" – Our proprietary and confidential information relating to the development and operation of Potbelly Shops, including: (1) site selection criteria and layouts, designs and other plans and specifications for Potbelly Shops; (2) ingredients, recipes and related information concerning any food items we authorize; (3) training and operations materials and manuals; (4) methods, formats, specifications, standards, systems, procedures, food preparation techniques, sales and marketing techniques, knowledge, and experience used in developing and operating Potbelly Shops; (5) marketing, promotional and advertising research and programs for Potbelly Shops; (6) identity of suppliers, and knowledge of specifications and pricing for authorized food products, materials, supplies and equipment, we authorize;
Source: Item 23 — RECEIPTS (FDD pages 79–355)
What This Means (2025 FDD)
According to Potbelly Sandwich Works's 2025 Franchise Disclosure Document, franchisees and their owners must disclose any direct or indirect legal or beneficial interest in any business that may be deemed a Competitive Business in their franchise application. Failure to do so would be a misrepresentation to Potbelly Sandwich Works.
During the term of the Franchise Agreement, franchisees, their owners, and their spouses are restricted from having a direct or indirect controlling interest in a Competitive Business. They are also restricted from having a non-controlling interest in a Competitive Business, with a limited exception of owning less than 2% equity ownership in a publicly traded Competitive Business. Franchisees are also prohibited from performing services for a Competitive Business or engaging in activities that could harm the goodwill associated with the Potbelly Sandwich Works brand.
Potbelly Sandwich Works defines a "Competitive Business" as any fast-casual restaurant deriving more than 20% of its revenue from the sale of specific types of sandwiches, smoothies, milkshakes, ice cream, and other frozen confection items, or any business granting franchises or licenses to others to operate such a business. The FDD names specific brands that are considered Competitive Businesses, including 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. This definition is crucial for prospective franchisees to understand, as it outlines the scope of prohibited competitive activities.
These restrictions are typical in franchise agreements to protect the brand's market position and prevent conflicts of interest. Prospective Potbelly Sandwich Works franchisees should carefully review these restrictions and disclose any existing or potential interests in competitive businesses during the application process to avoid future conflicts with the franchisor.