Item 6 Analysis for Pilar Coffee Bar Franchise

Franchise Disclosure Document Item 6: Other Fees

📘 Overview

Item 6 of the Franchise Disclosure Document (FDD) reveals the full range of ongoing and incidental fees a franchisee will be required to pay throughout the life of the agreement. These fees can significantly impact your bottom line, especially when they’re layered, vague, or not tied to measurable value.

For Pilar Coffee Bar, Item 6 paints a picture of a system with dense, recurring obligations, numerous financial penalties, and a structure that allows the franchisor to extract revenue through both fixed fees and enforcement mechanisms.

📄 What Was Disclosed

The 2025 FDD lists dozens of required fees under both the Franchise Agreement and Development Agreement. Some key highlights include:

🔹 Franchise Agreement Fees

• Royalty Fee: 6% of Gross Sales, with a $175/week minimum

• Brand Fund Contribution: 3% of Gross Sales, $100/week minimum

• Local Advertising: At least 3% of Gross Sales, plus reporting requirements

• Regional Cooperative Advertising: 3% (if required), overlaps with local ad requirement

• Technology Fee: $150/month plus third-party tech costs

• Anniversary Marketing Fee: $6,000, withdrawn 2 months before 1-year mark

• Additional Training: $1,000/day per trainee, plus travel, lodging, meals

• Annual Conference: Required attendance, with all expenses on the franchisee

• Transfer Fee: 50% of then-current franchise fee

• Renewal Fee: $5,000

• Non-Compliance Penalties: Up to $100,000 or 3× last year’s royalty

🔹 Development Agreement Fees

• Marketing Fee: $500/month for lead generation

• Sales Program Fee: ~$80/month

• Email User Fee: ~$13/month

• Training Fees: Same $1,000/day per trainee model

• Non-Compliance Damages: 3× last 12 months of commissions or $100,000

• Transfer & Renewal Fees: 20% of purchase price or development fee

❌ What’s Missing (And Why It Matters)

🔸 No Caps or Limits

There are no stated caps on fee increases or third-party costs. This means:

• Technology fees can increase without limit

• Required vendors may raise prices

• “Evaluation fees” for alternate suppliers are open-ended

🛑 Why it matters: Franchisees have no cost certainty. Your operational expenses can balloon year over year.

🔸 Minimal Justification for Fixed Fees

There’s no breakdown of:

• What the $6,000 Anniversary Marketing Fee buys

• How Brand Fund contributions are used

• What franchisees receive in exchange for the $150/month tech fee

🛑 Why it matters: Fees without documented value are red flags for franchisor profit centers.

🔸 Heavy Enforcement Mechanisms

Fees include:

• $100 late/reporting fee

• 1.5% monthly interest on unpaid fees

• Indemnification for all legal costs

• Post-termination expenses at the franchisee’s sole cost

• Default = up to $100K in penalties

🛑 Why it matters: These clauses give the franchisor extraordinary leverage, especially during disputes or downturns.

🔎 Independent Review

From a compliance perspective, Pilar Coffee Bar’s Item 6 meets the technical requirements of FTC disclosure. But from a fairness and transparency perspective, several concerns emerge:

• Vague justifications for fees

• Stacked advertising costs (local, brand fund, regional co-op)

• Recurring tech charges without open vendor options

• Uncapped training and enforcement penalties

These structures disproportionately benefit the franchisor and expose the franchisee to cumulative financial stress, particularly if revenues don’t scale quickly.

🚨 Reality Check Summary

Pilar Coffee Bar’s Item 6 is not just a list of fees, it’s a framework for extracting revenue from the franchisee at every operational stage.

Whether it’s through marketing, compliance, training, or renewal, franchisees are expected to consistently pay, while the franchisor retains the discretion to charge, change, and enforce at will.

When every slip-up triggers a penalty and every service has a price, the relationship becomes transactional, not supportive.

✅ Recommendations for Prospective Franchisees

• Build a monthly financial model using all recurring fees

• Request documentation on how brand fund and anniversary fees are spent

• Ask to speak to franchisees about actual costs beyond what’s disclosed

• Negotiate protections (in writing) for capped technology or ad costs

• Have an attorney review the indemnification and non-compliance clauses

EDIT

🔎 Reality Check Update: Technology Fee Red Flag

Thanks to Keith Miller at Franchisee Advocacy for identifying a critical compliance issue in Pilar Coffee Bar’s Item 6 disclosure: the Technology Fee is listed as “to be determined” or subject to increase upon notice, without a fixed maximum or clearly defined calculation method.

This is not a valid disclosure under the FTC Franchise Rule. Item 6 must specify:

• The amount of each fee, or

• The formula used to calculate it, or

• If a fee is determined by the franchisor or a third party, the method and factors considered.

Leaving the Technology Fee open-ended and subject to increase “upon notice” provides no meaningful financial expectation for prospective franchisees and fails to meet basic transparency standards. Franchisees deserve to know the full cost of ownership, especially in an era where tech platforms, POS systems, and app integrations often carry significant recurring fees.

Why It Matters

Tech fees often seem minor, but they add up over time and open-ended language allows franchisors to unilaterally increase those costs at will. A franchisor could effectively create a new revenue stream at the franchisee’s expense, with no cap or oversight.

If Pilar Coffee Bar can’t, or won’t, define a ceiling or method for calculating its tech fees, prospective franchisees should be cautious. Lack of specificity here may reflect a broader pattern of vague or flexible fees elsewhere in the agreement.

Bottom Line

Ambiguous fees are a red flag. Pilar’s current disclosure of the Technology Fee does not meet the requirements of the Franchise Rule and may prevent franchisees from understanding their true financial obligations. Prospective buyers should demand an amended disclosure or, at minimum, written clarification of all variable fees, including maximums and calculation methods, before moving forward.

This report is based on publicly available documents, court filings, and the franchisor’s Franchise Disclosure Document (FDD) as filed with the State of Illinois. Interpretations, observations, and conclusions drawn herein represent the informed opinions of Franchise Reality Check™and are intended to encourage deeper due diligence by prospective franchisees. This content should not be construed as legal, financial, or investment advice. Prospective investors should consult with a qualified franchise attorney and CPA before making any franchise purchase decisions.

As with previous Items in the Pilar Coffee FDD, we asked ChatGPT why a franchisor would choose to structure their Item 6 disclosures the way Pilar Coffee Bar has. This is the response:

“A franchisor might structure Item 6 the way Pilar Coffee Bar has—for very calculated and strategic reasons. While the disclosure technically complies with the FTC Franchise Rule, the structure favors the franchisor at nearly every turn. Here's why they might do it:

💸 1. Maximize Recurring Revenue Streams

By layering multiple fixed and percentage-based fees—royalty, brand fund, technology, local and regional marketing, anniversary marketing, etc.—the franchisor ensures steady income regardless of franchisee profitability.

Why?
A diversified fee structure protects the franchisor’s cash flow even if unit economics are weak. This can be especially appealing to investors or private equity owners who value predictable, contract-driven revenue.

🧾 2. Monetize Every Operational Touchpoint

Fees for additional training, technology, annual conferences, brand compliance, and even post-termination de-identification are ways to turn basic franchise support into chargeable services.

Why?
Instead of reinvesting royalty income into franchisee support, the franchisor shifts those costs directly onto franchisees, turning every point of contact into a profit opportunity.

⚠️ 3. Enforce Control Through Financial Penalties

The presence of large, punitive penalties—such as $100,000 non-compliance damages or 3× royalty clawbacks—creates a deterrent structure that makes franchisees easier to manage or pressure into compliance.

Why?
This gives the franchisor significant legal and financial leverage. If a franchisee wants to challenge a policy or exit early, they face steep financial consequences, disincentivizing resistance or litigation.

📊 4. Inflate System Revenue for Valuation or Sale

Franchisors collecting multiple layers of revenue (e.g., $6,000 anniversary fees, $150/month tech fees, supplier kickbacks) can report higher system-wide revenue than if they relied on royalties alone.

Why?
This may make the franchise system appear more profitable or attractive to buyers, investors, or potential acquirers—even if unit-level economics are fragile.

🔐 5. Limit Refunds and Franchisee Leverage

The repeated “non-refundable” language and discretionary control over how and when fees apply ensure that franchisees cannot recoup costs, even if things go wrong.

Why?
It insulates the franchisor from financial accountability, reducing refund exposure and litigation risk.

🚨 What This Reveals About the Business Model

• The primary customer is likely the franchisee, not the end consumer

• The franchisor appears structured more for fee extraction than unit-level profitability

• The relationship is transactional, not collaborative

This is often a sign of a sales-driven franchise system—one that profits from expansion and onboarding fees, rather than long-term operational success.”