What is the purpose of the Potbelly Brand Fund for Potbelly Sandwich Works?
Potbelly_Sandwich_Works Franchise · 2025 FDDAnswer from 2025 FDD Document
We maintain the Potbelly Brand Fund (the "Brand Fund") for the purpose of collecting and administering funds to be used for advertising, customer research, marketing technology, agencies, and other activities that promote the Potbelly brand in order to deliver sales at our shops. Company-operated and franchised shops both contribute to the Brand Fund based on a percentage of sales.
We manage these advertising and marketing expenses through the Brand Fund using the funds contributed by our shops. We manage these funds separately from our general operating expenses, but we are not obligated to maintain the funds in separate accounts or entities. We may spend more or less in any fiscal period than the amounts contributed to the Brand Fund, and we may choose to roll over any unused contributions to the following fiscal period or return them to our shops.
Brand Fund contributions made by company-operated shops are eliminated from the consolidated financial statements. Franchisee contributions are included within franchise royalties and fees in the consolidated statements of operations.
The Brand Fund is to maximize recognition, and enhance system protection, of the Marks and increase patronage of Potbelly Shops. Although we will try to use the Brand Fund to develop Marketing materials and execute Marketing activities and programs benefiting all Potbelly Shops, we need not ensure that Brand Fund expenditures in or affecting any geographic area are proportionate or equivalent to Brand Fund contributions by Potbelly Shops operating in that geographic area or that any Potbelly Shop benefits directly or in proportion to its Brand Fund contributions from the development of Marketing materials or the execution of Marketing activities and programs. (In other words, the Brand Fund need not spend any specific amount in your market area.) We may use collection agents and institute legal proceedings at the Brand Fund's expense to collect Brand Fund contributions. We also may forgive, waive, settle, and compromise all claims by or against the Brand Fund. We assume no other direct or indirect liability or obligation to you for collecting amounts due to, maintaining, directing, or administering the Brand Fund.
We may at any time defer or reduce a franchisee's Brand Fund contributions and, upon 30 days' prior written notice to you, reduce or suspend Brand Fund contributions and operations for one or more periods of any length and terminate (and, if terminated, reinstate) the Brand Fund. If we terminate the Brand Fund, we will at our option spend all remaining Brand Fund monies on
permitted Marketing or distribute all unspent monies to Brand Fund contributors in proportion to their respective Brand Fund contributions during the preceding year.
Recognizing the value of advertising and marketing to the goodwill and public image of Potbelly Shops, you must contribute to the Brand Fund the amounts that we periodically require. You currently must contribute to the Brand Fund 3% of the Shop's weekly Total Revenue. We may, upon 90 days' prior notice to you, increase your required Brand Fund contribution by up to an additional 1% of the Shop's Total Revenue for a total of up to 4% of the Shop's Total Revenue. (Your total required marketing expenditures, including the required minimum Local Marketing Spend and required Area Cooperative expenditures (described below) will not exceed a total of 5% of the Shop's Total Revenue.) Potbelly Shops that we and our affiliates own are not contractually obligated to contribute to the Brand Fund. However, affiliate-owned Potbelly Shops currently intend to contribute to the Brand Fund on the same percentage basis as franchisees.
Source: Item 11 — FRANCHISOR'S ASSISTANCE, ADVERTISING, COMPUTER SYSTEMS, AND TRAINING (FDD pages 37–49)
What This Means (2025 FDD)
According to Potbelly Sandwich Works's 2025 Franchise Disclosure Document, the Brand Fund exists to collect and administer funds used for advertising, customer research, marketing technology, agencies, and other activities that promote the Potbelly brand. The ultimate goal is to increase sales at Potbelly shops. Both company-operated and franchised shops contribute to the Brand Fund, with contributions based on a percentage of sales. Currently, franchisees must contribute 3% of the Shop's weekly Total Revenue to the Brand Fund. Potbelly Sandwich Works can increase this contribution by up to an additional 1%, for a total of up to 4% of the Shop’s Total Revenue, with 90 days prior notice.
Potbelly Sandwich Works has sole control over the marketing strategies and materials funded by the Brand Fund. They manage the Brand Fund separately from their general operating expenses, although they are not obligated to keep the funds in separate accounts. The Brand Fund can be used for various marketing-related expenses, including creating materials, maintaining a system website, and conducting market research. During the 2024 fiscal year, 75.5% of Brand Fund expenditures were spent on media placement, 9.2% on production expenses, 8.8% for general and administrative expenses, 4.3% on marketing technology platforms and the remaining 2.2% was spent on "other" which included customer research and gift cards.
The Brand Fund aims to maximize recognition and enhance the protection of Potbelly Sandwich Works's trademarks, as well as increase customer traffic to Potbelly shops. While Potbelly Sandwich Works tries to develop marketing that benefits all shops, they don't guarantee that the amount spent in a specific area will be proportional to the contributions from shops in that area. Potbelly Sandwich Works can also defer, reduce, or suspend Brand Fund contributions, or even terminate the Brand Fund altogether. If the Brand Fund is terminated, any remaining money will either be spent on marketing or distributed back to the contributors.
In addition to Brand Fund contributions, franchisees are also required to spend a minimum of 1% of their Shop's Total Revenue each year on local marketing efforts. This local marketing spend, combined with the Brand Fund contribution, cannot exceed a total of 5% of the Shop's Total Revenue. This ensures that franchisees are actively involved in promoting their individual locations while also contributing to the overall brand promotion efforts managed by Potbelly Sandwich Works.