Mandatory Products and Royalty Discounts: Where Item 8 and Item 11 Collide

When most people think about investing in a franchise, they imagine a trusted blueprint for success. A franchisor promises guidance, operational systems, and proven products that make the brand recognizable and profitable. These obligations are disclosed in the Franchise Disclosure Document (FDD), particularly in Item 11, which details the franchisor’s support, and Item 8; which explains what products or services franchisees are required to buy, and from whom.

But what happens when those promises of support become tools for exerting control over a franchisee’s spending, and even their financial survival?

A recent situation in the I Heart Mac & Cheese franchise system illustrates how Items 8 and 11 can collide in ways that prospective franchisees, and existing ones, absolutely must understand.

The Cheese Sauce Shake-Up

Earlier this year, franchisees in the I Heart Mac & Cheese system received several announcements from corporate leaders about a switch to a new “all-natural” cheese sauce. On the surface, it seemed like a positive upgrade: improved taste, better shelf life, and significant cost savings; up to 20–35% compared to the existing sauce.

But a closer look at internal emails reveals something more complex, and far more instructive for anyone analyzing a franchise system.

Item 8: Mandated Products and Hidden Leverage

Under Item 8 of the FDD, franchisors must disclose:

• Which products or services franchisees are required to purchase

• Whether franchisees can source those items elsewhere

• Whether the franchisor or its affiliates earn revenue or rebates on those sales

• Any conditions tied to the purchase of those products

In the case of I Heart Mac & Cheese, the cheese sauce is a required product, a core menu item that franchisees must buy from designated suppliers. That’s not unusual in franchising. Mandated products ensure consistency and brand integrity. But these mandates can quickly become problematic when:

✅ The franchisor changes suppliers or product formulations unexpectedly
✅ Franchisees have no say in the change, yet bear the financial consequences
✅ New products contain ingredients that may not align with marketing claims (e.g., “all-natural”)
✅ The franchisor uses financial pressure to enforce compliance

“All-Natural”… But Not Entirely

Franchisees were told the new cheese sauce was “all-natural.” But the disclosed ingredients tell a different story. Alongside natural ingredients like cheddar cheese and spices, the sauce contains:

• Maltodextrin (a processed starch additive)

• Modified corn starch

• Disodium phosphate (a synthetic emulsifier)

• Silicon dioxide (an anti-caking agent)

• “Natural flavors” (a legally vague term that can include chemical solvents)

Calling this product “all-natural” is, at best, marketing spin, and at worst, potentially misleading under regulatory standards. Franchisees worried about ingredient quality, customer perception, or dietary restrictions could find themselves forced to serve a product that doesn’t match consumer expectations.

Item 11: Support or Control?

Item 11 of the FDD describes the franchisor’s promises of support: training, operational manuals, supply chain assistance, and more. It’s meant to ensure franchisees receive the tools they need to run their businesses successfully.

But sometimes, “support” becomes a way to exercise strict operational control.

In I Heart Mac & Cheese’s internal communications, corporate described developing:

• Standard Operating Procedures (SOPs) for preparing the new powdered sauce

• Training materials for franchisees

• Centralized ordering systems

All of that falls under Item 11 support. But the same announcements revealed a more concerning tactic.

Royalty Discounts… or Financial Pressure?

Instead of simply offering a discount on old inventory or lower pricing on the new sauce, corporate tied compliance directly to royalty rates:

• Franchisees who order the required amount of cheese sauce qualify for a reduced royalty rate of 2.5% (down from the standard 5%).

• Those who do not comply must continue paying the full 5% royalty.

This isn’t just a discount, it’s effectively a penalty avoidance system. Franchisees who fail to meet mandated ordering volumes are punished financially.

Why would corporate resort to such tactics? One likely reason is financial: the cheese sauce is produced through an affiliate controlled by Stephen Giordanella, then distributed to franchisees via Sysco, often at a steep markup. Franchisees have reported paying nearly $300 for a single 5-gallon bucket. Offering a direct discount on the old inventory sitting in Sysco’s warehouses would have meant cutting into the profits Giordanella’s affiliated entity was earning on every sale. Instead, tying royalty reductions to cheese sauce purchases allowed the franchisor to move product quickly without sacrificing that revenue stream.

Another reason is that some franchisees were likely making their own cheese sauce in-house rather than purchasing the mandated product. Internal communications hint that the franchisor intends to audit product usage by cross-referencing inventory with sales data. This suggests corporate suspects that:

• Franchisees are under-ordering the required sauce on purpose.

• Some operators may be producing a homemade version to cut costs and protect razor-thin margins.

From the franchisor’s perspective, this undermines brand consistency and quality control. But from a franchisee’s perspective, it may have been a survival tactic in the face of high product costs and low margins.

Such tactics raise several red flags:

✅ Franchisees may feel compelled to over-order products they don’t actually need, just to avoid higher royalty fees.
✅ Financial leverage replaces collaborative support.
✅ The franchisor is effectively using royalties, a separate contractual obligation, as a stick to enforce supply compliance.

This blurring of support (Item 11) and supply mandates (Item 8) highlights the hidden power dynamic in franchising. While a franchisor has every right to protect brand consistency, using royalties as an enforcement tool can edge into coercive territory, and may even trigger legal scrutiny around potential tying arrangements under antitrust laws.

Bottom line: The royalty reduction wasn’t just an incentive to adopt the new sauce. It was a calculated move to force franchisees back into the mandated supply chain and stop them from circumventing official products, even if their in-house alternatives were helping them stay afloat.

Why This Matters to Franchisees

This case offers critical lessons for anyone evaluating a franchise system:

✅ Item 8 and Item 11 Are Deeply Linked
Don’t read these items in isolation. Mandated products (Item 8) and the franchisor’s promised support (Item 11) can become powerful levers to control your business…and your wallet.

✅ Look Beyond the Label
“Natural” claims don’t always mean what you think. Ask for ingredient lists. Know what you’re serving your customers.

✅ Beware Financial Pressure Tactics
If a franchisor ties lower royalties to required purchases, ask tough questions:

• Is this disclosed in the FDD?

• Is the purchasing truly mandatory?

• Are there markups or rebates benefiting the franchisor?

✅ Protect Your Margins
Cost savings on products are only savings if the product meets customer expectations and doesn’t drive hidden costs, such as retraining staff, changing recipes, or handling customer complaints.

Final Thoughts

Franchising is a relationship built on mutual trust. Item 11 promises help. Item 8 spells out what you must buy. When those collide (as in the cheese sauce saga) they reveal who truly controls the franchise, and who pays the price when things change.

And this isn’t just one isolated incident.

The same operations team and beneficial owners behind I Heart Mac & Cheese also run Pilar Coffee Bar, another franchise brand that has already shown similar patterns. Franchisees under these intertwined brands often face the same leadership, the same operational playbooks; and, potentially, the same risks. That’s why it’s so critical for prospective franchisees to recognize that issues in one brand may be foreshadowing similar challenges in related brands sharing the same ownership.

What Franchisees Should Do

Before signing any agreement, or agreeing to new product rollouts, prospective and current franchisees must ask:

• Who benefits financially from product changes?

• How transparent is the franchisor about supplier relationships?

• Could mandatory product shifts impact my operations or customer trust?

• What happens if I say no?

Because as the examples of I Heart Mac & Cheese and Pilar Coffee Bar show, the line between franchisor support and franchisor control can blur quickly; and sometimes, it’s the same people on both sides of that line.

The cheese sauce story isn’t just about one brand. It’s a cautionary tale about how quickly franchisor support can morph into franchisor control and how that risk can extend across multiple brands under the same corporate umbrella.

Have you experienced a similar supply mandate in your franchise system? Share your story with us. Franchise Reality Check is here to help you decode the fine print…and protect your investment.

The information provided in this blog post is for educational and informational purposes only and does not constitute legal, financial, or business advice. The discussion of specific franchise systems, including I Heart Mac & Cheese and Pilar Coffee Bar, is based on publicly available information, documents, and communications shared with Franchise Reality Check™, and reflects the author’s analysis and opinions. No representation is made as to the completeness or accuracy of information related to any particular brand or company. Readers are encouraged to conduct their own due diligence and seek professional advice specific to their circumstances before making any franchise investment or business decisions. Reference to any company, brand, or franchise system does not imply affiliation with, or endorsement by, Franchise Reality Check™.