Can Red Wagon Club change the list of designated and approved suppliers?
Red_Wagon_Club Franchise · 2024 FDDAnswer from 2024 FDD Document
/span>Standards and Specifications
To ensure that our standards and specifications of quality, service, and system development are maintained, we have developed, and may further develop, standards and specifications for the development and operation of RWC Businesses (the "System Standards"). You are required to offer and sell all products and services that we periodically specify and to offer and sell only those products and services that we periodically approve. We will provide you our then-current specifications for all required furniture, fixtures, equipment, products, material, and supplies used in the development or operation of an RWC Business and the Technology System (collectively, the "Operating Assets"), as well as for the manner in which RWC Businesses are operated and the terms and conditions under which services are offered. We may designate, approve, or develop standards and specifications for manufacturers, distributors, and suppliers of products and services to your RWC Business, which may be us or our affiliates (collectively, "suppliers"). Our standards and specifications may impose minimum requirements including, for example, as to quality, cost, delivery, performance, design and appearance, delivery capabilities, terms, and conditions under which they are sold to you, and financing terms. We may change, delete, or modify any of our System Standards, and those changes might require that you make additional expenditures. You are required to purchase only the items that we approve or that meet our standards and specifications and, as described below, to purchase those items only from suppliers that we approve or otherwise allow.
Designated and Approved Suppliers
You must operate your RWC Business in strict conformity with your Franchise Agreement, the System Standards, and the methods, standards, specifications, and sources of supply that are designated in the Operations Manual. You must purchase the products and services we periodically designate only from the suppliers we prescribe and only on the terms and according to the specifications we approve. A complete list of designated and approved suppliers is maintained in the Operations Manual, which we may periodically update.
Approval of suppliers may be conditioned on requirements relating to product quality, prices, consistency, reliability, financial capability, labor relations, client relations, frequency of delivery, concentration of purchases, standards of service, including prompt attention to complaints, or other criteria and may be temporary, pending our continued evaluation of the supplier. We are not required to divulge our standards and specifications for products and services to you or any supplier, but we may, primarily through the Operations Manual, make standards and specifications for certain items available to you, and we may communicate standards and specifications to our approved suppliers for the items they sell from time to time. If we determine that divulging standards and specifications will jeopardize the confidentiality of our intellectual property rights, we may elect to approve products or services that we determine meet our standards and specifications without communicating those standards and specifications to you or suppliers.
We may concentrate purchases with one or more suppliers to obtain lower prices, advertising support and/or services for any group of RWC Businesses, whether franchised or operated by us or our affiliates. We may also designate a single supplier for any product, service, Operating Asset, or other material, or approve a supplier only for certain products or services. We and/or our affiliates do not currently, but may in the future derive revenue or other material benefits based on your purchases (including from charging you for products and services we or our affiliates provide to you and from promotional allowances, rebates, volume discounts and other payments, services, or consideration we receive from suppliers that we designate or approve for some or all of our franchise owners). No such arrangements currently exist. Because we started offering franchises at the Issuance Date of this Disclosure Document and are in our first fiscal year, neither we nor our affiliates have derived any revenue from franchisees' required purchases in a prior fiscal year.
Currently, one of our officers owns an interest in designated suppliers of (i) bookkeeping services, (ii) marketing services, and (iii) marketing materials. Except as set forth above, neither we nor our affiliates currently own an interest in any supplier of products or services to our franchisees, but we may do so in the future.
Source: Item 8 — RESTRICTIONS ON SOURCES OF PRODUCTS AND SERVICES (FDD pages 19–22)
What This Means (2024 FDD)
According to Red Wagon Club's 2024 Franchise Disclosure Document, Red Wagon Club can change, delete, or modify any of their System Standards, which might require franchisees to make additional expenditures. Franchisees must purchase products and services from suppliers that Red Wagon Club prescribes and only on the terms and according to the specifications they approve. A complete list of designated and approved suppliers is maintained in the Operations Manual, which Red Wagon Club may periodically update.
Red Wagon Club may, with or without cause, revoke their approval of any supplier or product at any time upon written notice to the franchisee, and they may periodically reinspect the facilities, products, or services of any approved supplier. Supplier or product approval might be temporary until Red Wagon Club evaluates the supplier or product in more detail. Red Wagon Club may refuse to consider and/or approve any proposed alternative supplier or product for any reason whatsoever and are likely to reject a request for a new supplier without conducting any investigation if they have already designated an exclusive supplier for that product or service.
Approval of suppliers may be conditioned on requirements relating to product quality, prices, consistency, reliability, financial capability, labor relations, client relations, frequency of delivery, concentration of purchases, standards of service, including prompt attention to complaints, or other criteria and may be temporary, pending Red Wagon Club's continued evaluation of the supplier. Red Wagon Club may concentrate purchases with one or more suppliers to obtain lower prices, advertising support and/or services for any group of RWC Businesses, whether franchised or operated by them or their affiliates. They may also designate a single supplier for any product, service, Operating Asset, or other material, or approve a supplier only for certain products or services.
For a prospective franchisee, this means that Red Wagon Club has significant control over the supply chain and can change suppliers or products at any time. This could lead to additional costs for the franchisee if they are required to switch to a more expensive supplier or product. It also means that the franchisee has limited ability to choose their own suppliers, even if they can find a better price or product elsewhere. The franchisee is required to seek approval for alternative suppliers, a process that may take up to 6 months, and Red Wagon Club's criteria for approving suppliers is confidential and not made available to franchisees.