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Considering a Panda Express Franchise? Don’t Overlook These 13 Important Franchise Fees

by Franchise Chatter on November 1, 2016

in Asian Restaurant Franchise, Franchise Fees

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Panda Express Photo by ltcarter

If you are considering a Panda Express franchise, don’t get blindsided by these 13 important franchise fees (from the initial license fee, to the royalty fee, to 11 other fees found in Items 5 and 6 of Panda Express’s 2016 FDD).

  • All fees are non-refundable and payable to Citadel Panda Express, Inc. unless otherwise noted.
  • Amounts due Panda Express are payable by wire transfer or another method or in another manner as stated in the Manuals.
  • Panda Express may elect to waive and/or credit, reduce, or defer payment of any and all fees and charges of any kind related to a license and/or licensee on a case-by-case basis as it considers appropriate and as permitted by law.
  • Panda Express may negotiate different fee amounts and other terms with you as it considers appropriate.

1.  Initial License Fee:  $25,000

  • When payable:  Your Initial License Fee is fully earned and payable within 5 days of your receipt of Panda Express’s written authorization for a Unit Location you propose. No Initial License Fee is due until Panda Express gives you a written authorization for a Unit Location, regardless of when the License Agreement is executed.
  • The Initial License Fee offered for new licensees is $25,000, including for captive venue locations.
  • All licensees must pay an Initial License Fee, even if the licensee is a joint venture company formed with Panda Express’s Affiliate.
  • Panda Express may negotiate different fee amounts and other terms as it considers appropriate, subject to applicable law. Initial License Fees received in the U.S. in 2015 were $10,000 to $30,000, with the $10,000 amount having been previously negotiated with a multi-unit licensee. The $30,000 amount was an initial license fee due under the previous version of the license agreement.
  • The fee is entirely non-refundable.
  • Other than the Initial License Fee, no fees or payments for goods or services are received by Panda Express or any of its Affiliates before the Restaurant opens.

2.  Royalty Fee

  • For Unit Locations except airports and military venues: The percentage royalty fee ranges from 5% to 8% of Gross Volume per Royalty Period.
  • For Unit Locations inside airports: The percentage royalty fee ranges from 5% of Gross Volume to 30% of net profits plus 5% of Gross Volume per Royalty Period.
  • For Unit Locations in military venues:  The percentage royalty fee ranges from 5% to 11% of Gross Volume per Royalty Period.
  • When payable:  The 15th day of each month for all Royalty Periods completed in the preceding calendar month. The current Royalty Period is a four week period.
  • You and Panda Express will determine the applicable percentage when you request approval for a location.
  • Each Royalty Period, you pay the franchisor your negotiated percentage royalty fee, unless it is less than the minimum Royalty amount, which is currently $4,000. If it is less, then you must pay the minimum Royalty amount for that Royalty Period unless otherwise negotiated between you and Panda Express.
  • Payments for each Unit Location start with the Royalty Period in which operations first begin.
  • No minimum Royalty is due for a specific Restaurant in any Royalty Period in which the Restaurant is closed due to a force majeure event.
  • The minimum Royalty for a specific Restaurant is prorated for any Royalty Period in which the Restaurant is closed because of holidays or breaks at the venue location, which has been approved by the owner or lessor of the venue (such as a spring break or summer break period at a university site).
  • Panda Express can adjust the minimum Royalty amount once a year according to the change in the prior year’s Consumer Price Index. Panda Express has to give you advance written notice before an adjustment can be made.
  • Panda Express has in the past deferred receipt of Royalties during the 1st year of operations (which are later due and payable in subsequent years) for Restaurants in certain military locations, and may choose to do so currently.
  • “Gross Volume” includes all charges and/or revenues that are received or earned by you and/or your Affiliate:
  • A. by, at, or in connection with any Panda Express Restaurant operated by you including beverage sales, whether they are a part of a Panda Express combination plate or being purchased through a Panda Express register;
  • B. from sales of Panda Express products in violation of the License Agreement at locations outside a Restaurant;
  • C. from proceeds of any business interruption insurance, less the actually paid deductible amount;
  • D. from mail, fax, and telephone orders and/or any orders received through other electronic or other means and filled on or from a Restaurant;
  • E. from all deposits not refunded to purchasers;
  • F. from orders for Panda Express items taken, although filled outside a Restaurant; and
  • G. in connection with any similar business operated in violation of the Franchise Agreement.
  • All sales and/or billings, whether collected or not, will be included in Gross Volume, with no deduction for credit card or other charges.
  • Gross Volume does not include sales tax collected and paid when due to the appropriate taxing authority, and actual customer refunds, adjustments, and credits.
  • Panda Express can adjust the percentage Royalties and the minimum Royalty amount for future Unit Locations. Panda Express will notify you of any modification to the Royalty percentage and/or minimum Royalty amount to be applied to a future Unit Location when its sends you its written authorization for a proposed location.
  • No adjustment would apply retroactively to any Restaurant authorized or operating at the time of the adjustment (except for any applicable inflation adjustment), unless you and Panda Express mutually amend the License Agreement.

3.  Initial Training Fees:  There is no fee for initial training and Panda Express does not limit the number of persons who can attend as of the date of the 2016 Disclosure Document; but under the License Agreement, Panda Express can charge up to $1,000 for each attendee beyond 8, per Unit Location.

  • When payable:  Before training or as incurred.
  • You must pay Panda Express $50-$100 for uniforms for each crew member who attends.
  • You are responsible for all fees, transportation, salary, living, incidental, and other expenses of attendance for all training programs.
  • Panda Express can adjust the initial training fee cap once a year according to changes in the prior year’s Consumer Price Index.
  • Before opening or operating any Restaurant, your General Manager, Assistant Manager(s), Wok Specialists, Prep Cooks, and Service Associates for that Unit Location must attend and successfully complete the applicable initial training program.

4.  Remedial Training Fees and Fees for On-Site Consultations Requested by You:  $500 per whole or partial 8-hour day

  • When payable:  Before training or as incurred.
  • Panda Express can charge a fee for remedial training provided to you and/or your personnel. You are responsible for Panda Express’s personnel’s expenses, including travel, lodging, food, and incidental expenses.
  • Panda Express can adjust the amount of the remedial training fee once a year according to changes in the prior year’s Consumer Price Index.

5.  Inspections/Quality Control Programs:  currently $125 per quarterly cleaning inspection

  • When payable:  As incurred.
  • The current inspection program(s) are conducted by a third party company and are subject to change.
  • Panda Express or PRG are billed by the third party for charges for all Restaurants, and licensees reimburse Panda Express or PRG as applicable for their portion of the related cost.
  • The cost is the same for your Restaurant(s) as for Panda Express Restaurants owned by Panda Express or its Affiliate.
  • Panda Express can add new inspection programs and quality control measures at a future date.

6.  Transfer Fee:  $10,000 per transferred Unit Location, plus Panda Express’s out-of-pocket costs associated with the transfer, including attorneys’ fees

  • When payable:  Payable upon application for transfer.
  • This amount is due even if transfer is not completed for any reason.
  • If you own multiple locations, the cumulative transfer fee will not exceed $30,000 per transfer transaction.
  • Panda Express can adjust the Unit transfer fee and the cumulative transfer fee once a year according to changes in the prior year’s Consumer Price Index.

7.  Inspection or Audit Costs:  the Royalties on the understated amount, with interest, plus the cost of inspection or audit, if applicable

  • When payable:  On demand.
  • Reasonable audit/inspection costs are payable if the amount of the understatement exceeds 3%.

8.  Interest on Late Payments:  10% per annum, or, if lower, the maximum lawful rate

  • When payable:  On demand.

9.  Successor Unit Location Fee:  $10,000 per Restaurant

  • When payable:  When you elect a successor operating term for a specific Unit Location.
  • Panda Express can adjust the successor Unit Location fee amount once a year according to changes in the prior year’s Consumer Price Index.

10.  Management Fees and Costs:  7% of Gross Volume, per Restaurant managed by Panda Express, plus its costs

  • When payable:  If you don’t cure an operating default, and Panda Express elects to manage your Restaurant(s).
  • The combined percentage Royalty and management fee will not exceed 13%.
  • Panda Express can discontinue providing management services on no less than 10 days’ notice.

11.  Gift Card Program Participation Fees (Optional):  currently, card cost of between $0.14 and $0.535 per card, and a transaction fee of between $0.045 and $0.128 per transaction, depending on volume, plus their share of technical support, set-up, and administrative costs

  • When payable:  As incurred, if you elect to participate in the gift card program.
  • You are not required to participate in this program as of the date of the 2016 Disclosure Document.

12.  Tax Payments:  unknown

  • When payable:  On demand.
  • You must reimburse Panda Express for any gross receipts taxes, value added taxes, sales taxes, use taxes, personal property taxes, or any other taxes it pays on your behalf or it incurs because of payments you make. You must also pay withholding tax if required under law.

13.  Quarterly Promotional and Marketing Campaign Materials:  $300-$1,000 per year

  • When payable:  As incurred.
  • You must purchase approved campaign materials from Panda Express’s marketing department.

If you are looking for information on the estimated initial investment for a Panda Express franchise, check out this post:   Franchise Costs:  Detailed Estimates of Panda Express Franchise Costs

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