If you are considering a DQ Treat franchise, don’t get blindsided by these 20 important franchise fees (from the initial franchise fee, to the royalty fee, to 18 other fees found in Items 5 and 6 of DQ Treat’s 2017 FDD).
1. Initial Franchise Fee: $25,000
- You must pay American Dairy Queen (ADQ) a $25,000 initial franchise fee for a single franchise. The franchise fee is due when you submit a franchise application, which is included in the 2017 disclosure document as Exhibit D.
- You do not pay an initial franchise fee if you are a conversion franchisee, an existing franchisee relocating a restaurant under ADQ’s relocation policy, or an existing Orange Julius franchisee converting an Orange Julius location to a DQ Treat location.
- The initial franchise fee is refundable in full without interest only if ADQ does not approve your application or you submit written notification to ADQ to cancel your application prior to ADQ’s final approval.
- The initial franchise fee is refundable in the following instances, minus a cancellation fee of the greater of $5,000 or ADQ’s expenses: (1) if you withdraw your application after ADQ has approved it; (2) if your required training attendees fail to successfully complete the training program and your approval is cancelled; (3) if your site is not designated and ADQ does not consent to the site within 90 days after the date ADQ approves your application; (4) if you have not commenced construction within 180 days from the franchise agreement effective date: or (5) if you have signed the sublease and ADQ or its affiliate and the landlord are unable to agree to a prime lease.
- In these instances, ADQ has the right to cancel any agreements that have been signed with ADQ without opportunity to cure.
- ADQ may charge a reduced, non-refundable initial franchise fee in certain situations, including: (1) when a franchisee is opening a franchise in a previously closed location; (2) certain Captive-venue locations, including those in airports, colleges, and universities, and with certain national food service operators specializing in providing food service in these types of locations; and (3) for operators with multiple DQ locations who have developed one or more new franchises with ADQ in the past five years, who have an ADQ-certified multi-unit operator training program, and have a full-time construction supervisor on staff.
- Neither ADQ nor its affiliates finance any part of the initial franchise fee.
2. Management Training Readiness Assessment Fee: $175 for each training attendee
- You must pay ADQ a fee of $175 for each training attendee to take the management training readiness assessment (“MTRA”). Therefore, the amount ADQ receives from the MTRA your required training attendees attend is $175 to $350, or more depending on how many additional people attend the MTRA.
3. Other Fees and Payments Made to ADQ or Its Affiliates Prior to Opening: will vary under circumstances
- In certain circumstances, you may be required to pay other fees or amounts to ADQ or its affiliates prior to opening. If you pay a reduced or no initial franchise fee, you may be required to pay ADQ fees that otherwise are included in the initial franchise fee, such as training fees, a design intent plans fee, a construction consultation fee, and opening services fees.
- During ADQ’s 2016 fiscal year, the total amount that franchisees paid to ADQ or its affiliates before the opening of their DQ Treat stores was $20,350 to $28,650 under the circumstances described in the 2017 disclosure document.
4. Continuing License Fee: 5% of Gross Sales
- Due Date: On or before the 10th day of each month for the previous month.
5. Sales Promotion Program Fee: up to 6% of Gross Sales of Orange Julius branded products; 5% to 6% of Gross Sales of all other products
- Due Date: On or before the 10th day of each month for the previous month.
- Currently, the sales promotion program fee for Orange Julius branded products is 5% for Street locations and 1.25% for Captive-venue locations.
- ADQ has the right to determine the percentage you must pay within the ranges, without regard to the sales promotion program fees paid by other DQ restaurants and stores. ADQ will let you know at least 90 days in advance of any fee adjustment.
- ADQ may reduce the sales promotion program fee for specialty Captive-venue locations that charge admission or ticket for entrance, such as airports and sports stadiums.
6. Operational Program Fees: will vary under circumstances
- Due Date: When due.
- You must pay fees for any costs associated with administering programs established by ADQ in connection with operational programs and initiatives implemented generally for the DQ system.
7. Lease-Required Sales Promotion Fees: will vary under circumstances
- Due Date: When due.
- In addition to the sales promotion program fees above, you must pay all sales promotion fees and comply with all sales promotion requirements required by your lease or sublease.
- If you are a sublessee of ADQ or one of its affiliates, you must pay to ADQ or its affiliate any additional amounts necessary to meet all lease requirements.
8. Transfer Fee (for franchise agreement): $5,000
- Due Date: When you submit transfer application.
- Effective January 1, 2020, and each 5 years thereafter, the transfer fee increases by $500.
- If ADQ refuses to consent to your proposed transfer or exercises its right of first refusal, ADQ will return the transfer fee, less any actual expenditures or disbursements that ADQ makes in direct connection with processing the proposed transfer.
9. Renewal Fee (for franchise agreement): $1,000 times number of years under renewal term (but not to exceed $10,000)
- Due Date: At time of renewal.
- Any partial year of the renewal term will count as a full year for purposes of calculating the renewal fee. For example, if at the end of the initial term of the franchise agreement, you enter into a renewal franchise agreement with a term of 7 1/2 years, you will be required to pay a renewal fee of $8,000.
10. Audit and Recordkeeping Costs: will vary under circumstances
- Due Date: After audit revealing understatement of Gross Sales by 3% or more.
- If an initial evaluation or audit reveals any understatement of your Gross Sales by 3% or more, you must pay all costs for the audit, including salaries, outside accountant and attorneys’ fees, copying costs, postage, travel, meals, and lodging (“audit costs”), plus audit costs for any additional audits within 2 years after the initial evaluation or audit.
11. Termination Fee (for franchise agreement): one of the following: (1) two times the continuing license fee due for the last 12 months of active operations; (2) if the location did not operate for a full 12 months, 24 times the average monthly continuing license fee when location was open; or (3) if less than 24 months remain on the franchise agreement, the number of months remaining, times the average monthly continuing license fees due for the last 12 months of active operations
- Due Date: Upon termination.
- Applies if ADQ terminates your franchise agreement for default. Does not apply if your initial franchise fee is refunded under the circumstances described in Number 1 above.
12. Interest Expenses: 18% per annum or the maximum contract rate permitted by governing law
- Due Date: When due.
- Applies to past due payments payable to ADQ.
13. Late Fees: $50 per delinquent report or payment
- Due Date: When due.
- ADQ has the right to require you to pay a service charge for each delinquent report or payment.
14. Sublease and Lease Administration Fee: $1,800 to $3,750 annually
- Due Date: When you submit your monthly sublease payments to ADQ or its affiliate.
- If you sublease the store premises from ADQ or an affiliate, you must pay a lease administration fee in equal monthly installments in an annual amount computed on the annual minimum guaranteed rent.
- If the minimum guaranteed rent payable to ADQ or its affiliate during the term of the sublease is increased, your lease administration fee automatically increases.
15. Additional Training Fees: will vary under circumstances
- Due Date: When incurred.
- You must at all times have the required number of trained managers. If you have a trained manager leave, you must replace them with a new manager that has completed ADQ’s training requirements.
16. Insurance: $3,000 to $7,000 for annual premiums
- Due Date: When premiums are due.
- You must maintain liability insurance at a minimum limit of liability that ADQ designates periodically as may be necessary to reflect inflation, risk levels, or other factors that ADQ deems important, but not less than $2,000,000 per occurrence, combined single limit, or such higher amount as a lessor of the restaurant premises may require, and any other insurance required by any agreement related to the franchised business or law, such as fire or extended coverage insurance and workers’ compensation insurance.
17. Gift Card Program Fees: currently, 3% of total gift card redemptions
- Due Date: When incurred.
- Gift card program fees are allocated based on a shared cost model between franchisees and the national marketing fund (“NMF”). Currently, franchisees pay fees equaling 3% of total gift card redemptions, which ADQ estimates will be about $200 per year per location. NMF covers the balance of the gift card program’s costs.
- In the future, the percentage allocation of costs between franchisees and NMF may change.
18. Costs and Attorneys’ Fees: will vary under circumstances
- Due Date: When incurred.
- You must pay ADQ for its costs and attorneys’ fees in obtaining injunctive or other relief for the enforcement of the franchise agreement.
19. Training Materials: $150 to $500
- Due Date: As materials are provided.
- ADQ has the right to produce and require you to periodically purchase certain store training materials for use with your employees. These may include DVDs, CDs, written publications, and other items.
20. Training Cancellation or Trainee Substitution Fee: $100 to $900
- Due Date: Upon cancellation or substitution of new trainee.
- Fees for cancelling training are:
- $150 for cancelling phase 1 and 2 more than 14 days before the training class;
- $750 for cancelling phase 1 and 2 fourteen or less days before the training class;
- $900 for cancelling phase 3 fourteen or less days before the training class.
- If you pay training tuition for the attendee, ADQ will withhold the cancellation fee from your refund. If you pay an initial franchisee fee and the tuition is included, you must pay the cancellation fee to ADQ.
- You must pay a trainee substitution fee of $100 if you substitute a new individual to attend training less than 14 days before a training class.
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