What happens if a Punch King Fitness franchisee wants to propose a new supplier?
Punch_King_Fitness Franchise · 2024 FDDAnswer from 2024 FDD Document
products or services.
To approve a supplier, we require a sample of the product(s), information regarding the product or service's quality standards, availability, terms and conditions of purchase, and other information we may request. If desired, we may request a physical inspection of the supplier's place of business or manufacturing facility. Upon submitting samples and information required for approval, we will notify you within 30 days of our approval or disapproval of a supplier. As a condition of approval, we require reimbursing any costs or expenses we incur in approving the supplier. We may revoke the approval of any supplier upon 30 days' written notice to franchisees.
We estimate that assuming the estimated minimum initial costs to begin operations and other financial obligations are within the ranges described in Item 7 of this disclosure document, the proportion of your purchases and leases of goods and services from approved suppliers or of products that meet our specifications to be approximately 90% of all the purchases and leases in establishing your Punch King Fitness Franchised Business and approximately 25% of your ongoing costs of operating your Punch King Fitness Franchised Business.
Neither Punch King Fitness, Inc. nor its affiliates derived any revenue, rebates, or other material consideration from required purchases and leases to Punch King Fitness franchisees or suppliers in the calendar year 2023.
King Lei, our CEO; Jeff Wallace, our Director Of Operations; and Mauricio Mejia, our President, have ownership interests in our affiliate, Punch King, LLC, the sole exclusive supplier of Punch King Punching bags, training equipment, protective gear, flooring, and hanging rack system to Punch King Fitness franchisees.
Source: Item 8 — RESTRICTIONS ON SOURCES OF PRODUCTS AND SERVICES (FDD pages 22–25)
What This Means (2024 FDD)
According to Punch King Fitness's 2024 Franchise Disclosure Document, if a franchisee wants to propose a new supplier, they must provide a sample of the product(s), information regarding the product or service's quality standards, availability, and terms and conditions of purchase. Punch King Fitness may also request additional information or a physical inspection of the supplier's facility. Punch King Fitness will then notify the franchisee of their approval or disapproval within 30 days. As a condition of approval, the franchisee must reimburse Punch King Fitness for any costs or expenses incurred in approving the supplier. Punch King Fitness can revoke the approval of any supplier with 30 days' written notice to franchisees.
This process highlights the control Punch King Fitness maintains over its supply chain. While franchisees can suggest new suppliers, the approval process is at the discretion of Punch King Fitness, and the franchisee bears the financial burden of the evaluation. This is a fairly common practice in franchising, as franchisors want to ensure consistent quality and standards across all locations. However, the requirement to reimburse Punch King Fitness for approval costs could be a significant expense for the franchisee, especially if the supplier is ultimately not approved.
The FDD also states that approximately 90% of the initial purchases and leases and 25% of ongoing operating costs must be from approved suppliers or products meeting Punch King Fitness's specifications. This indicates that franchisees have limited flexibility in sourcing products and services outside of the approved channels. King Lei, Jeff Wallace, and Mauricio Mejia, who are the CEO, Director of Operations, and President of Punch King Fitness, respectively, have ownership interests in Punch King, LLC, which is the sole exclusive supplier of Punch King punching bags, training equipment, protective gear, flooring, and hanging rack systems.
Prospective franchisees should carefully consider these restrictions and the potential costs associated with proposing new suppliers. It would be prudent to inquire about the typical costs incurred in the supplier approval process and the criteria used to evaluate potential suppliers to make an informed decision.