Can Potbelly Sandwich Works limit the number of approved suppliers for Potbelly Sandwich Works franchisees?
Potbelly_Sandwich_Works Franchise · 2025 FDDAnswer from 2025 FDD Document
If we institute any restrictive sourcing program and you want to buy any product brand, ingredient, supply, or service we have not yet approved as meeting our minimum standards and specifications or to buy from a supplier we have not yet approved or designated, you first must notify us and, if requested, send samples and other information we require to determine whether the item, service, or supplier meets our standards and specifications. We may charge you or the supplier a reasonable testing or inspection fee and will decide within 6 months. We periodically will establish procedures for your requests and may limit the number of approved items, services and/or suppliers as we think best. We need not, and have no intent to, approve any of your requests if we already have designated specific items, services and/or suppliers or otherwise have restricted the supply system. We believe it is best to have a limited number of suppliers.
Supplier approval might depend on product safety, quality and sanitation processes, delivery frequency and reliability, service standards, financial capability, customer relations, concentration of purchases with limited suppliers to obtain better prices and service and/or a supplier's willingness to pay us, our affiliates and/or our system to do business with our system.
We and our affiliates have the right to receive payments from suppliers on account of their actual or prospective dealings with us, our affiliates, you, and other franchisees and to use all amounts received without restriction for any purposes we and our affiliates deem appropriate (unless we and our affiliates agree otherwise with the supplier). Supplier approval might be temporary until we evaluate the supplier in more detail. We may inspect a proposed supplier's facilities during and after the approval process to make sure the supplier meets our standards and, as noted above, charge you or the supplier a reasonable inspection fee. If it does not, we may revoke our approval by notifying the supplier and you in writing.
Insurance
Besides these purchases and leases, you must obtain and maintain at your own expense insurance coverage of the types and in the minimum amounts we require and any other insurance coverage that might be required by your state, city or municipality. Such insurance must be obtained from reputable insurers having an A.M. Best rating of A- VII or better. Although we might want more or different types of coverage in the future, required coverage currently includes commercial general liability insurance of $1 million per occurrence and $2 million in the aggregate, including $300,000 in coverage for fire legal liability (if a leased premises). Coverage must be primary and non-contributory to any other coverage we have, provide waiver of subrogation and there should be at least $1 million for personal and advertising injury; $1 million in automobile liability covering all owned (if any), non-owned, and hired vehicles; umbrella liability insurance of at least $2 million per occurrence; employment practices liability of at least $1,000,000, including third-party liability and endorsement naming us as Additional Insured; statutory workers' compensation insurance the law requires, including employer's liability for at least $1 million;
Source: Item 8 — RESTRICTIONS ON SOURCES OF PRODUCTS AND SERVICES (FDD pages 28–34)
What This Means (2025 FDD)
According to Potbelly Sandwich Works' 2025 Franchise Disclosure Document, Potbelly Sandwich Works can indeed limit the number of approved suppliers for its franchisees. Specifically, Potbelly Sandwich Works may limit the number of approved items, services, and suppliers as they see fit. Potbelly Sandwich Works states that it believes it is best to have a limited number of suppliers.
For Potbelly Trade Secret Products and Potbelly Branded Products, suppliers are limited to Potbelly Sandwich Works, its affiliates, and/or other specified exclusive sources. This means franchisees must purchase these items exclusively from these designated sources during the franchise term at prices determined by Potbelly Sandwich Works or its affiliates. These restrictions are in place to protect trade secrets and intellectual property, ensure quality and a reliable supply of products meeting Potbelly Sandwich Works' standards, achieve better purchase and delivery terms, control the use of trademarks, and monitor the manufacturing, packaging, processing, and sale of these items.
For operating assets, services, and items other than Potbelly Trade Secret Products and Potbelly Branded Products, suppliers may, at Potbelly Sandwich Works' option, be limited to Potbelly Sandwich Works, its affiliates, and/or other specified exclusive sources. In such cases, franchisees must purchase these items and services from the designated sources at prices determined by them. Potbelly Sandwich Works retains the absolute right to limit the suppliers with whom franchisees may deal. Currently, franchisees must buy certain meats, cheeses, bread, produce, ready-to-bake items, soups, sauces, canned/jarred items, condiments, dry foods, beverages, and packaging from unaffiliated designated sources. Franchisees must also use designated, unaffiliated vendors for gift, loyalty, rewards, and affinity card processing services, mobile app services, quality assurance services, and music network services. During the Shop's first year of operation, a designated, unaffiliated accounting service must be used to ensure compliant preparation of required reports and financial statements. Potbelly Sandwich Works will identify all designated and approved suppliers in the Operations Manual or other written or electronic communications.