What is the restriction on other businesses that can be operated by the Potbelly Sandwich Works franchisee?
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 specific restrictions regarding involvement with competitive businesses during the term of their franchise agreement. The agreement prohibits the franchisee, their direct or indirect owners, and their spouses from having a direct or indirect controlling interest in a Competitive Business, regardless of its location. A Competitive Business is defined as any fast-casual restaurant deriving more than 20% of its revenue from specific types of sandwiches (baked, 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 from smoothies, milkshakes, ice cream, and other frozen confection items. This also includes any business that grants franchises or licenses to others to operate such a business.
The restrictions extend to non-controlling interests as well, with an exception for ownership of less than 2% equity in a publicly traded Competitive Business on a recognized U.S. stock exchange. Franchisees are also prohibited from performing services as a director, officer, manager, employee, consultant, representative, or agent for a Competitive Business. Additionally, franchisees cannot divert or attempt to divert business or customers from the Potbelly Sandwich Works shop to a Competitive Business, or engage in any activity that might harm the goodwill of the Potbelly Sandwich Works brand and franchise system.
These restrictions ensure that franchisees remain fully committed to the Potbelly Sandwich Works brand and do not use their knowledge or resources to benefit competing businesses. The FDD lists specific examples of businesses considered competitive, 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 comprehensive list provides clarity for franchisees regarding potential conflicts of interest and the types of businesses they are restricted from being involved with during the term of their franchise agreement.