How does the royalty fee structure for Southern Steer (Item 6) incentivize or disincentivize franchisees from expanding their product offerings or services, considering the restrictions on product sources (Item 8)?
Southern_Steer Franchise · 2025 FDDAnswer from 2025 FDD Document
pment Agreement Exhibit E: Sample Release Exhibit F: State Agency/Agents for Service of Process Exhibit G: State-Specific Addendum Exhibit H: Brand Manual Table of Contents Exhibit I: Deposit Agreement Exhibit J: State Effective Dates and Receipt
ITEM. 6 OTHER FEES
| Type of Fee(1) | Amount | Date Due | Remarks |
|---|---|---|---|
| Royalty | Beginning on the third | Wednesday each | The Royalty is based on Gross |
| month from Your | week for the | Revenues from the previous week | |
| Required Opening Date, 6% of annual Gross Revenues from $1.00 to $1,000,000; 5% from $1,000,001 to $2,000,000; and 4% from $2,000,001 and greater.(2). | preceding week. | for each individual Southern Steer Business You operate. Payments are made via electronic fund transfer ("EFT") or automatic withdrawal. We reserve the right to designate another day of the week for payment. The Gross Revenue calculation is re set each calendar year and is based on each individual Southern Steer Business You operate. | |
| Brand Fund | 1% of weekly Gross | At the time Royalty | Deposited in the brand and |
| Contribution(3) | Revenues. | is paid. | marketing fund ("Brand Fund") controlled by Us. We may increase, reduce, or suspend the Brand Fund Contribution upon prior notice. |
| Type of Fee(1) | Amount | Date Due | Remarks |
| Local Advertising Cooperative Contribution(4) | Up to 1% of monthly Gross Revenues. | Monthly. | Payable if a Local Advertising Cooperative is established and We require You to participate (See Item 11). We do not currently have any Local Advertising Cooperatives established. |
| Supplies and Inventory(5) | Actual Cost. | Upon receipt of supplies or inventory. | You must reimburse Us for all purchases of goods and services We make on Your behalf. |
| Technology Fee | The then current fee. Currently, $507 per month. | Monthly. | The Technology Fee includes the monthly fee paid to our designated suppliers for IFX, email addresses and Google Business page. The Technology Fee may change upon prior notice to You if the vendor changes the fees or We change vendors. |
| POS System Fee | The then current fee. Currently, $800 per month. | Monthly. | The POS System Fee includes the fee paid to our designated supplier for integration and cloud-based support. This fee may change upon prior notice to You if the vendor changes the fees, We change functionality, or We change vendors. |
| Direct Ad TV | The then current fee. Currently, $180 per year. | Annually. | The annual fee covers two direct TV ads. You will pay $15 annually for each additional Direct Ad TV that you elect to use in your Southern Steer Business. |
| Recipe/Safety Fee | The then current fee. Currently, $105 per quarter. | Quarterly. | The Recipe/Safety Fee may change upon prior notice to You if the vendor changes the fees, We change functionality, or We change vendors. |
| Signage Fee | The then current fee. Currently, $350 per year. |
What This Means (2025 FDD)
According to Southern Steer's 2025 Franchise Disclosure Document, the royalty fee structure is designed to incentivize higher revenue generation, while restrictions on product sources could potentially disincentivize franchisees from expanding their offerings beyond approved items. The royalty fee is structured as a percentage of gross revenues, with decreasing percentages as revenue increases. Specifically, the royalty is 6% of annual Gross Revenues from $1.00 to $1,000,000; 5% from $1,000,001 to $2,000,000; and 4% from $2,000,001 and greater. This tiered structure means that as a franchisee's gross revenues increase, the percentage paid in royalties decreases, theoretically encouraging them to maximize sales.
However, Item 8 states that franchisees must purchase goods, services, supplies, food products, etc. from vendors that Southern Steer approves. This restriction limits the franchisee's ability to source products independently, potentially hindering their ability to introduce new or unique offerings that could attract more customers. The FDD also states that Southern Steer can change the food products, beverages, goods, and services that franchisees must offer at their Southern Steer Business. While Southern Steer has the right to approve or disapprove requests to eliminate, add, or substitute food products, beverages, goods, and services, franchisees will be required to add equipment and make alterations at their own expense to equip their Southern Steer Business for the sale of such food products, beverages, goods, and services as Southern Steer may require.
The interplay between the royalty structure and sourcing restrictions presents a mixed bag for franchisees. The decreasing royalty rates incentivize higher sales volumes, but the limited control over product sourcing and offerings could restrict a franchisee's ability to innovate and cater to local preferences. If a franchisee believes a particular product or service not currently approved by Southern Steer would be successful in their market, they would need to seek approval, and there is no guarantee it would be granted.
Therefore, a prospective Southern Steer franchisee should carefully consider whether the potential benefits of the royalty structure outweigh the limitations imposed by the sourcing restrictions. They should also inquire about the process for requesting approval of new products or services and the criteria Southern Steer uses to evaluate such requests. Understanding the flexibility within the system and the potential for introducing new offerings is crucial for assessing the overall attractiveness of the franchise opportunity.