Item 8 Analysis for Pilar Coffee Bar Franchise
Franchise Disclosure Document Item 8: Restrictions on Sources of Products and Services
🧭 Overview
Item 8 of Pilar Coffee Bar’s 2025 Franchise Disclosure Document outlines the franchisor’s control over what franchisees must buy and who they must buy it from, a significant factor in both startup costs and long-term profitability.
Franchisees are required to purchase or lease a wide range of goods and services from “Approved Suppliers”, including Pilar and its affiliates. These include POS systems, uniforms, branded inventory, architectural services, and ingredients. Pilar also retains full discretion to change suppliers, revoke approvals, and deny alternative vendor requests, while charging evaluation fees to consider new vendors.
The franchisor reserves the right to earn revenue on franchisee purchases and currently collects a rebate of up to 3% from Katom Equipment. Pilar estimates that 70–90% of startup costs and 35–50% of ongoing operating costs are tied to these Required Purchases, excluding lease payments.
🚫 What’s Missing and Why It Matters
Although Pilar provides a decent level of disclosure regarding its supplier restrictions, a few notable omissions and vague areas deserve attention:
No List of All Approved Suppliers: While Pilar states it maintains a supplier list, it does not include the full list in the FDD or Exhibits. This limits a franchisee’s ability to verify competitive pricing or evaluate supplier relationships during due diligence.
No Specific Financial Breakdown of Rebates or Profits: Pilar confirms it may receive rebates or other payments from suppliers but provides only one example (Katom at 3%). As Pilar grows in units, a line-item accounting of what was received from all vendors will be critical information to understanding the franchisor’s financial incentives.
Franchisor-Owned Supply Chain Entities Not Clearly Disclosed: Pilar claims its officers do not have ownership in Approved Suppliers other than Pilar itself, but that doesn’t fully clarify whether any undisclosed affiliate companies are profiting indirectly from the franchisee supply chain.
🔍 Key Insights
Evaluation Fee Barrier: Franchisees must pay a $500 evaluation fee plus out-of-pocket costs for Pilar to even consider alternative vendors, a built-in disincentive to sourcing alternatives that may be cheaper or higher quality.
Vague Revocation Process: Supplier approvals can be revoked at any time, for any reason, with no recourse. That’s significant risk if a cost-effective vendor is later blacklisted.
No Franchisee Cooperative Buying Power: Pilar states it has no purchasing cooperatives, meaning franchisees lack collective leverage to negotiate pricing, even though the franchisor can.
Discretion Over Standards: Pilar can modify standards at will, forcing franchisees to absorb new compliance costs without input or control.
High Percent of Controlled Spend: With up to 90% of startup and 50% of ongoing expenses tied to Required Purchases, franchisee margins are tightly controlled by franchisor-approved pricing.
✅ Reality Check Summary
Pilar Coffee Bar’s Item 8 paints a clear picture: control over your wallet lies squarely with the franchisor. With up to 90% of your startup spend and half your ongoing operational costs funneled through mandated channels, and the franchisor reserving the right to profit off those requirements, your ability to manage costs is sharply limited.
While some sourcing restrictions are common in franchising, the lack of transparency around rebates, limited vendor flexibility, and absence of a franchisee-led purchasing program all stack the deck in the franchisor’s favor.
📌 Due Diligence Tips:
Ask for the full list of Approved Suppliers.
Request real franchisee invoices to compare pricing.
Confirm who owns or profits from each supply chain vendor.
Get in writing how often supplier lists change and how decisions are made.
If cost control and transparency are important to you, Item 8 deserves a close second look.
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.
We decided to do this section a little differently this time. Instead of asking ChatGPT to provide reasons why a franchisor would structure their Item 8 disclosure the way Pilar has we asked ChatGPT to analyze Pilar’s Item 8 against every I Heart Mac and Cheese Item 8 from 2017 to 2023. This is the response:
“🔍 A Tale of Two Franchises
While Pilar Coffee Bar and I Heart Mac & Cheese operate as distinct brands, both are managed by the same individuals and follow a nearly identical franchise system structure. Their Item 8 disclosures over the years reveal a consistent pattern of expanding supplier restrictions, revenue entanglements, and a lack of transparency. The 2023 IHMAC FDD, in particular, demonstrates the most aggressive monetization of the franchisee supply chain to date.
🔁 Structural Parallels
The Item 8 language and framework in Pilar Coffee Bar’s 2025 FDD closely mirror those found in I Heart Mac & Cheese FDDs dating back to 2017. In both systems:
Franchisees are required to purchase a wide range of items and services—including POS systems, uniforms, signage, and food ingredients—from suppliers designated or approved by the franchisor. These suppliers may include the franchisor or affiliated entities.
An evaluation fee of $500, plus reimbursement of any out-of-pocket costs, is imposed on franchisees who want to propose an alternative vendor. This creates a barrier that discourages sourcing flexibility.
The franchisors explicitly retain the right to profit from all required purchases made by franchisees. These profits may come in the form of rebates, commissions, or other compensation from vendors.
The percentage of spending controlled by the franchisor is nearly identical across both systems: 70% to 90% of startup costs, and 35% to 50% of ongoing operating expenses—excluding rent.
Neither franchise system discloses a full list of approved suppliers within the FDD, making it difficult for prospective franchisees to assess pricing, quality, or conflicts of interest.
No franchisee purchasing cooperative is offered, leaving individual franchisees with little or no leverage to negotiate favorable terms.
Franchisees receive no material benefit or preferential treatment for complying with these sourcing restrictions.
While Pilar discloses just one rebate—3% from Katom—later IHMAC FDDs list dozens of supplier rebates and kickbacks, some of which flow through entities not disclosed in Item 1.
Taken together, these structural similarities suggest that Pilar Coffee Bar is not an entirely new franchise model but rather a rebranded, selectively redacted version of the I Heart Mac & Cheese system—built on the same contractual controls, just with fewer disclosures that might raise red flags.
🚨 2023 IHMAC: A TURNING POINT IN FRANCHISEE EXPLOITATION
Rebates Paid to Undisclosed Affiliates
Giordanella Holdings, LLC—an entity controlled by Stephen Giordanella—receives Coca-Cola rebates.
Mac and Cheese FLL, LLC—another entity tied to the franchisor—receives Kraft rebates.
Neither entity is disclosed in Item 1 as an affiliate, yet they are described as such in Item 8, raising potential violations of the FTC Franchise Rule.
According to the FDD: “As of our fiscal year ended December 31, 2022, we derived $155,200, or 7.27% of total revenue ($2,134,624) from required purchases and leases. Our affiliate derived $1,323,504.73 in revenue from required purchases.”
In short, while the franchisor collected $155,200 from franchisee-required purchases, an affiliated but undisclosed entity collected more than $1.3 million.
Kickbacks on Nearly Everything
Over 20 categories of rebates are listed, including wall wrapping, lighting, architecture, POS systems, uniforms, pasta, bacon, security systems, and software subscriptions.
Many vendors pay fixed dollar amounts per unit opened—such as $1,000 per franchise location for architecture and security systems—regardless of whether those vendors offer competitive pricing or quality.
Franchisee Incentives Not Delivered
Coca-Cola and Sysco are supposed to provide franchisees with opening incentives of $1,100 and $3,000, respectively.
Franchisees report not receiving the Coca-Cola payment, suggesting possible misappropriation of funds meant for them.
⚖️ Pilar vs. IHMAC: Strategic Sanitization?
The 2025 Pilar Coffee Bar FDD appears to sanitize or omit disclosures that might raise red flags:
Only one rebate is disclosed (Katom, 3%), despite the system sharing infrastructure, vendors, and leadership with IHMAC.
No mention is made of Giordanella Holdings, LLC or Mac and Cheese FLL, LLC.
The structure of the disclosure is virtually identical to IHMAC’s—but it is notably less transparent, potentially to avoid regulatory scrutiny or registration issues in stricter states.
This shift suggests a deliberate repackaging effort—launching a new brand with the same financial mechanisms but fewer incriminating details visible to regulators or prospective franchisees.
💣 Reality Check Summary
Item 8 in both the IHMAC and Pilar Coffee Bar systems reveals a franchise model designed to extract profit at every stage of the franchisee’s operations—often through layered entities that are undisclosed, unregulated, and unaccountable.
By 2023, IHMAC had turned its franchisee supply chain into a profit engine spanning dozens of vendor relationships. Pilar appears to be built on the same tracks—but with just enough left out to stay under the radar.
🚩 Key Red Flags
Use of undisclosed affiliated entities (e.g., Giordanella Holdings, Mac and Cheese FLL) to collect supplier rebates
Supplier-promised incentives (e.g., Coca-Cola) not being passed through to franchisees
Franchisor control over 70% to 90% of franchisee spending—severely limiting cost control and autonomy”
