David Bradley Chocolatier
I was putting together a blog post on our sister site (FranBest) about a new franchisor (David Bradley Chocolatier ) who just sold its first franchise, when I noticed that the company website states that there is a $25,000 franchise fee, 2% marketing fee, and no royalty. Later it states that 95% of the franchisee’s inventory will be supplied by the company’s plant in Windsor.
The prospect of “no royalties” may seem like a great boon to a prospective franchise owner, but that isn’t necessarily so. Keep in mind that a franchise fee is not generally considered a profit center for most franchisors, as it often must help recoup franchise marketing and sales commissions, as well as initial training and support programs. The marketing funds, by nature, must be spent on local, regional or systemwide marketing and are not franchisor revenue. Most franchisors depend upon a royalty stream to fund ongoing franchise support, system improvements, product development, and profit. If a company isn’t deriving sufficient revenue from its franchise stores, it cannot afford quality support and will probably focus on areas that are profitable, such as direct selling and/or company-owned stores.
If a franchisor is not deriving revenue from royalties, where do they plan to make their money? In David Bradley Chocolatier’s case, I would suspect that it is from marking up the required confections the franchisees must purchase from the Windsor plant. This is an area that you, as prospective franchisee, should look into thoroughly. What pricing on inventory will they assure you? Can they raise prices on you at their discretion? Will you be able to price your chocolates competitively and still remain profitable? What are the minimum inventory requirements you must meet? How much of the inventory is perishable?
There have been numerous lawsuits regarding required purchases from franchisors. Quiznos franchisees are suing their franchisor, claiming the franchisor marks up required purchases to the point where franchisees cannot be price-competitive. The UPS Store franchisees are suing the franchisor over the rates they are charged for shipping. A famous ice cream chain was sued when franchisees claimed they could buy their own brand of ice cream cheaper in supermarkets than they could from the franchisor.
I’m not saying that this is the case with David Bradley Chocolatier… It may be the
sweetest deal ever. I don’t have their legal documents, and haven’t seen their purchase agreements. I’m just saying that when looking at a franchise that requires 95% of your purchases to be from the franchisor, be sure you thoroughly understand, and are comfortable with, the buying program and pricing structure.
For more information on David Bradley Chocolatier, read the FranBest story, and visit their website.
Photo Credits: David Bradley Chocolatier
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