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Considering a Chili’s Grill & Bar Franchise? Don’t Overlook These 30 Important Franchise Fees

by Franchise Chatter on November 21, 2016

in Casual-Dining Restaurant Franchise, Franchise Fees, Restaurant Franchise

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Don't Invest in a Franchise Until You Check Out This List

Chili's Restaurant Photo by carlossalinas

If you are considering a Chili’s Grill & Bar franchise, don’t get blindsided by these 30 important franchise fees (from the initial franchise fee, to the royalty fee, to 28 other fees found in Items 5 and 6 of Chili’s 2016 FDD).

1.  Initial Development Fee

  • When you sign a Development Agreement for more than 1 restaurant, you must pay Chili’s a nonrefundable development fee. The development fee will be determined by mutual agreement before you sign the Development Agreement and is based on the size of the territory, the number of restaurants to be developed, demographic data and trends like density and growth rates, and other variable conditions.
  • The development fee could range from $20,000 to $500,000, depending on the conditions stated above. For Chili’s fiscal year ended June 29, 2016, development fees were generally $20,000 per Restaurant to be developed under the Development Agreement.
  • The development fee is determined uniformly but is not uniform for all franchisees due to the variable conditions stated above.

2.  Initial Franchise Fee

  • At or before the date on which you begin construction of a Chili’s Restaurant, you must pay Chili’s an initial franchise fee of $40,000. Chili’s may reduce or waive the initial franchise fee under certain circumstances in its sole discretion.
  • The initial franchise fee is nonrefundable except in the following circumstances:
  • (1) If your Development Agreement grants you the right to establish more than 1 Restaurant, and, if you are in compliance with the Development Agreement and all other agreements with Chili’s and you open your Chili’s Restaurants at least 90 days before the opening dates set forth in the Development Schedule, you will be entitled to a $10,000 credit against the initial franchise fee, which Chili’s may directly pay to you or apply as a monthly credit against your royalty fee and/or technical services fee.
  • (2) If you fail to secure the required liquor licenses by the date the Restaurant is otherwise ready (and/or required) to open for business, then Chili’s may terminate the Franchise Agreement on 10 days prior written notice. If it does, it will refund your initial franchise fee (without interest), less any expenses and/or damages it has incurred.
  • Except as described above, Chili’s is not obligated to return any portion of the initial franchise fee if the Franchise Agreement is terminated by you or it for any reason.

3.  Initial Training Fee

  • Chili’s will provide initial training for your Managing Owner, Operating Partner, and up to 5 managers per Restaurant for your first 2 Chili’s Restaurants at no cost to you except the expenses incurred by your personnel attending the initial training program, including transportation and wages.
  • Chili’s estimates that your costs and expenses to attend the initial training program will range from $60,000 to $350,000.
  • If the opening date of your Restaurant is moved after your personnel have completed initial training, Chili’s may require your personnel to repeat the initial training program. If Chili’s does, you must pay it a training fee at its then-current rates (currently, $3,500 per trainee), as well as paying the expenses of your personnel.
  • Chili’s may also require you to pay a training fee if it trains the Managing Owner, Operating Partner, and/or managers for your third and subsequent Restaurants or any replacements.
  • All training costs are nonrefundable. Training fees and costs are determined uniformly but may vary among franchisees based on the circumstances described above.

4.  Opening Team

  • Chili’s may send an opening team to your Restaurant to help with the opening if it believe it is necessary, considering factors such as your previous restaurant experience and the size and location of your Restaurant. If Chili’s does, its certified trained representatives will be at the Restaurant for a period of approximately 20 total days before and after the opening date.
  • You must reimburse Chili’s for its reasonable expenses incurred in providing the opening team, including costs of transportation, lodging, meals, and wages. Costs may vary depending on factors like the number of opening team members, the distance they must travel, and the time period they are at the Restaurant.
  • Historically, the cost of Chili’s opening teams have ranged between $65,000 and $100,000 for a Chili’s Grill & Bar, Chili’s Special Venue, and Chili’s Smalltown Prototype.
  • Although Chili’s do not always require an opening team, if it does, the types of costs assessed are uniform.

5.  Construction/Design Evaluation and Market Data

  • Chili’s provides 1 construction/design evaluation of your first Restaurant or first non-prototype Restaurant and 1 construction/design evaluation of your second Restaurant at no charge except reimbursement of its reasonable expenses, including the cost of travel, lodging, and meals.
  • If Chili’s initiates further evaluations, it will bear the cost of the evaluation unless it has initiated the evaluation because of reasonable concerns with your construction/design process, in which case you must reimburse it for its reasonable expenses.
  • If you ask Chili’s and it performs an additional evaluation, then you must pay it a reasonable fee (currently, $1,200) for the evaluation, as well as reimbursing it for its reasonable expenses.
  • Chili’s costs for construction/design evaluations vary depending on the amount of time and personnel utilized in the actual evaluation. During its last fiscal year, construction/design evaluation costs ranged from $0 to $2,500.
  • Chili’s may also choose to make available to you at a reasonable cost reports containing demographic and market data and real estate analyses. In determining the cost for these reports, Chili’s takes into account the nature, type, and amount of information requested as well as the administrative time necessary to organize the information and third party resources. Each report costs between $0 to $2,500, which would be payable to a third party.

6.  Royalty Fee:  1.25% of Gross Sales

  • Due Date:  Payable by the 10th of each month.
  • The Royalty Fee payment must be accompanied by a Monthly Financial Statement.
  • “Gross Sales” includes the total value of all services and products provided by and/or from the Restaurant and all revenue from any sale of all services and products and all other income of every kind and nature related to the Restaurant (including, the full value of on-premise sales, off-premise sales, catering sales, internet sales, sales from tabletop and other digital media, complimentary sales, coupon sales, sales to employees, employee meals, and any other type of sale related to the Restaurant), whether for cash or credit (and regardless of collection in the case of credit), with no deductions or exclusions whatsoever, except federal, state, or municipal sales taxes you collect from customers and pay to the appropriate taxing authority.

7.  Technical Services Fee:  2.75% of Gross Sales

  • Due Date:  Payable by the 10th of each month.
  • The Technical Services Fee must be accompanied by a Monthly Financial Statement.
  • The Technical Services Fee is paid as consideration for your right to use the System and receive certain services under the Franchise Agreement.

8.  Advertising Production Fee:  0.5% of Gross Sales

  • Due Date:  Payable by the 10th of each month.
  • You must pay the Production Fee regardless of the advertising program Chili’s designates.
  • Production Fees are used to maintain, direct, administer, and prepare advertising and promotional activities, including creative costs.

9.  Local Advertising Program (LAP) Fee:  minimum – 2.5% of Gross Sales

  • Due Date:  As incurred by you, with quarterly reports to Chili’s.
  • If Chili’s requires you to participate in LAP, you must spend at least 2.5% of Gross Sales on local advertising and may spend more if you choose.

10.  Regional Advertising Program (RAP) Fee:  maximum – 4% of Gross Sales

  • Due Date:  Payable by the 10th of each month.

11.  National Advertising Program (NAP) Fee:  currently, 3.19% of Gross Sales; maximum – 4% of Gross Sales

  • Due Date:  Payable by the 10th of each month.

12.  Supplemental Marketing Programs:  currently, 0.15% of Gross Sales

  • Due Date:  Payable by the 10th of each month.

13.  Replacement and Supplemental Training:   currently, $3,500, plus costs of your personnel attending training

  • Due Date:  On demand.
  • Chili’s may charge a training fee if it trains a replacement Managing Owner, Operating Partner, or manager or if your personnel attend supplemental training.

14.  Product Testing Fee:  approximately $1,500 per product annually, typically charged to the supplier; additional product testing may be required due to specification non-compliance

  • Due Date:  30 days after billing.
  • If Chili’s has not previously approved a supplier and/or an item you wish to use, you must apply to it for approval and pay the cost of the test.

15.  Supplier Facility Inspection:  currently, approximately $1,025 per day, plus travel expenses normally charged to the supplier or distributor

  • Due Date:  30 days after billing.
  • If Chili’s has not previously approved a supplier, distributor, and/or item you wish to use, you must apply to it for approval and pay the cost of the facility inspection.
  • Multiple day inspections may be necessary for larger facilities.

16.  Licensing Fees:  currently, none

  • Due Date:  As invoiced.
  • You may be required to pay a license fee for any computer or point-of-sale system Chili’s makes available to you.

17.  Restaurant Inspection:  varies

  • Due Date:  On demand.
  • If you fail within a reasonable time to correct any deficiencies that Chili’s identifies during its inspection, you must pay a reasonable fee to it if it must assist in the correction of these deficiencies.

18.  Mandatory Sanitation and Food Safety Program (SAFE):  currently, approximately $262 per visit if you do not receive a passing grade; there is no charge for a grade of 0 (perfect score) to 1

  • Due Date:  30 days after billing.
  • Participation in the Brinker (Safe Sanitation and Food Evaluation) restaurant assessment program is required.
  • Unannounced assessments will be conducted at least twice per year.
  • All restaurants are required to participate in food safety training in the first quarter of the fiscal year.
  • Chili’s reserves the right to include the rules, terms, and conditions of the assessment program in the CFM and modify the rules, terms, and conditions of the assessment program from time to time.

19. Transfer:  Franchise/Development Agreements – $5,000 or any greater amount necessary to reimburse Chili’s for its expenses with a single transfer maximum of $25,000

  • Due Date:  Before transfer.
  • No fee is charged to an individual or partnership franchisee that transfers its rights to a wholly-owned corporation.

20.  Offering:  Franchise/Development Agreements – $10,000

  • Due Date:  30 days after billing.
  • This covers Chili’s cost to review the proposed offering of your securities.

21.  Audit:  cost of audit, including travel, lodging, wages, and legal and accounting costs

  • Due Date:  On demand.
  • Payable only if Chili’s finds that you have underpaid or understated any amount owed to it by at least 2%.

22.  Interest:  lesser of 8% per annum or maximum legal rate (the maximum legal rate in California is 10% per annum)

  • Due Date:  On demand.
  • Payable on all overdue amounts.

23.  Indemnification:  Franchise/Development Agreements – will vary depending on loss

  • Due Date:  On demand.
  • You must indemnify Chili’s for all losses and expenses it incurs because of your actions.

24.  Enforcement Costs:  Franchise/Development Agreements – will vary

  • Due Date:  When determined.
  • In any judicial or other proceeding, the prevailing party will be entitled to recover its reasonable costs and expenses (including court costs, attorneys’ fees, and discovery costs) from the other party.
  • In any other situation in which Chili’s must enforce your obligations under the Agreements, you must pay its costs and expenses.

25.  Liquidated Damages for Unauthorized Solicitation of Employees:  Franchise/Development Agreements – three times the employee’s salary, plus Chili’s enforcement costs

  • Due Date:  On demand.
  • If you employ one of Chili’s (or another of its franchisee’s or developer’s) employees in violation of your Agreement with it, it may require you to pay liquidated damages

26.  Liquidated Damages for Failure to Meet Development Schedule:  $10,000 per month; maximum period: 1 year

  • Due Date:  Monthly during any period of non-compliance.
  • If you are not in compliance with your development schedule, Chili’s may, at its sole option, grant you a period of forbearance, if you pay liquidated damages to compensate it for lost royalties and other fees.
  • Chili’s will not terminate the Development Agreement during this forbearance period as long as liquidated damages are paid; however, if you are still not in compliance after this forbearance period, then it may terminate the Development Agreement.

27.  Relocation or Reconstruction:  minimum royalty and technical services fee agreed by you and Chili’s

  • Due Date:  Monthly during period Restaurant is not in operation.
  • If your Restaurant is closed more than 30 days through no fault of your own, Chili’s may approve you to relocate or reconstruct the Restaurant, and may charge an agreed minimum monthly royalty and technical services fee while the Restaurant is closed.

28.  Successor Fee:  100% of Chili’s then-current Franchise Fee

  • Due Date:  When the successor Franchise Agreement is signed.
  • Chili’s may offer to you a successor franchise if you meet its qualifications to remain a franchisee for one 20 year successor term.
  • The successor fee is in addition to any costs for remodeling that Chili’s may require as a condition of entering into a successor Franchise Agreement with it after the term of your Franchise Agreement expires.

29.  Decor Items, Certain Furniture, and Fixtures:  currently, the prices that Chili’s charges its company-owned Restaurants for the items, including a 15% administration fee; prices are subject to change with prior written notice

  • Due Date:  Prior to placing order.
  • Chili’s is an approved supplier of decor items, including certain furniture and fixtures. You may establish buying relationships with other approved suppliers.

30.  Gift Cards:  approximately $1,500 per year/per Restaurant

  • Due Date:  As invoiced.
  • You must participate in and bear certain costs associated with Chili’s gift card program.
  • First Data Prepaid Services (“First Data”) (formerly known as Valuelink) is Chili’s third party gift card provider.
  • First Data may bill you for certain items related to startup, but generally First Data will bill Chili’s and Chili’s will bill you monthly. Chili’s billing will include a reconciliation of certain costs and benefits of program participation.

If you are looking for information on the estimated initial investment for a Chili’s Grill & Bar franchise, check out this post:   Franchise Costs:  Detailed Estimates of Chili’s Grill & Bar Franchise Costs

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