Franchise Supplier Rebates and Required Purchases: What Item 8 Shows in 259 FDDs (2025 to 2026)

Item 8 terms used in this study

This study reads Item 8 of the franchise disclosure document (FDD), titled Restrictions on Sources of Products and Services, under 16 CFR 436.5(h). The terms below are used exactly this way in every figure.

• Required purchase: a good or service the franchisee must buy or lease from the franchisor, its designee, an approved supplier, or under the franchisor’s specifications, by contract or by practice. Purchases a franchisee may make anywhere are not Item 8 purchases, even if bought from the franchisor (FTC Compliance Guide, 2008).
• Approved or designated supplier: a source the franchisor names, lists or must approve. A specifications-only system lets the franchisee use any source that meets written standards.
• Franchisor or affiliate as supplier: the franchisor, its parent or a sister company sells the item to franchisees; only supplier means no alternative source is approved for that item.
• Revenue from required purchases: what Item 8 says the franchisor (or an affiliate) earned from franchisees’ required purchases in its last fiscal year, including product sales, markups and supplier payments. The rule asks for the dollar amount, total revenue and the percentage.
• Franchise supplier rebates: payments from suppliers to the franchisor or an affiliate on account of franchisee purchases: rebates, allowances, commissions, marketing payments, referral fees. Under 436.5(h)(8), selling similar goods to the franchisor at a lower price than to franchisees also counts as a payment.
• Percentage of purchases: the franchisor’s estimate of required purchases as a share of all purchases, separately for establishing (startup) and operating (ongoing) the business. Some FDDs include purchases that only need to meet specifications; others count only named-source purchases.

Result 1. How many franchisors restrict where franchisees buy

Supplier restriction is the norm, not the exception. 257 of 259 (99.2%) FDDs issued from 2025-01-24 to 2026-08-18 require at least one purchase from the franchisor, an affiliate or a designated or approved supplier. Only 2 (0.8%) leave every purchase open to any source that meets specifications.

Most also keep room to add restrictions. 217 of 259 (83.8%) FDDs reserve the right to designate suppliers, or themselves, for more items later. 126 of 259 (48.6%) FDDs say the franchisor negotiates purchase terms for franchisees, while 18 (6.9%) disclose a purchasing or distribution cooperative.

105 of 259 (40.5%) FDDs disclose that an officer owns an interest in a required or approved supplier; where the franchisor or an affiliate is the supplier, ownership of that entity counts. FTC staff say a de minimis interest need not be disclosed (Amended Franchise Rule FAQ 18).

Result 2. The franchisor or an affiliate as the required supplier

In 214 of 259 (82.6%) FDDs the franchisor or an affiliate currently sells something franchisees must buy. The franchisor itself is a supplier in 175 of 259 (67.6%) FDDs and an affiliate in 122 of 259 (47.1%); some have both.

In 172 FDDs (66.4%, 95% interval 60.5% to 71.9%) the franchisor or an affiliate is the only approved source of at least one item. Items named in these FDDs include proprietary products, branded packaging and supplies, required software or technology services, signage and opening inventory packages.

The FTC’s Consumer’s Guide to Buying a Franchise warns buyers that a franchisor may require an approved supplier even if similar goods cost less elsewhere, and points them to Items 8 and 12.

Result 3. Franchise supplier rebates and revenue from required purchases

Most franchisors report earning something from franchisee purchases. 200 of 259 (77.2%) FDDs say the franchisor or an affiliate received revenue from required purchases in the last fiscal year: the franchisor itself in 162 of 259 (62.5%), an affiliate in 99 of 259 (38.2%). The franchisor reported no such revenue in 90 FDDs.

Supplier payments are narrower. 124 of 259 (47.9%) FDDs say the franchisor or an affiliate receives, or received last year, rebates, allowances, commissions or similar payments from suppliers. Another 114 of 259 (44.0%) reserve the right to them without reporting any received, so 238 (91.9%) either take supplier payments or keep the option.

Where Item 8 states a rate, 79 FDDs, the median range runs from 1% to 10% of purchases, and a quarter of the stated ranges reach 20% or more. The FTC Compliance Guide lets franchisors disclose an aggregate range across suppliers, so a range does not show what any single supplier pays.

Result 4. How large disclosed revenue from required purchases is

Item 8 asks for the dollar figure, the franchisor’s total revenue and the percentage. We used the franchisor’s own figures only. 15 FDDs report parent or multi-brand consolidated figures (several hotel and restaurant brands share one parent total), and one prints a total revenue that cannot be reconciled; these stay in Result 3 but are left out here.

Across 144 FDDs with a dollar figure above zero, median franchisor revenue from required purchases was $484,571 in the last disclosed fiscal year, with the middle half between $95,278 and $1,981,082. Most figures are for fiscal 2025 (121 FDDs) or 2024 (33).

As a share of franchisor total revenue, required purchases were a median 8.23% (136 FDDs; middle half 1.86% to 27.09%). The distribution is wide: 54 FDDs report under 5%, while 38 (27.9%) report 25% or more. Public-company revenue mixes are covered in how franchisors make money.

Result 5. Share of a franchisee's purchases that is restricted

Item 8 asks each franchisor to estimate how much of a franchisee’s purchases are required purchases. 253 FDDs give a startup figure and 249 an ongoing figure.

The median FDD says 70% of startup purchases are restricted (middle half 33% to 85%). 172 of 253 (68.0%) put the startup share at 50% or more, and 112 (44.3%) at 75% to 100%. For ongoing purchases the median is 50% (middle half 17.5% to 80%), and 51.0% of FDDs are at 50% or more.

Startup purchases are more tightly controlled than ongoing ones: of 248 FDDs with both figures, 132 give a higher startup share, 69 the same and 47 a lower one. The dollar size of those startup purchases is in our Item 7 initial investment study.

Result 6. What franchisors say they do with supplier rebates

Item 8 must disclose the basis of supplier payments but not how they are spent, so many FDDs are silent. Of 124 FDDs reporting rebates received, 46 (37.1%) state no use.

The most common stated position is discretion: 61 (49.2%) say the franchisor may use the payments for any purpose, and for 36 that is the only use mentioned. 18 (14.5%) put some or all into the brand or advertising fund, 16 (12.9%) pass some back or credit franchisees, 14 (11.3%) fund conventions, training or events, and 16 (12.9%) offset supply-program or administrative costs. In total 29 (23.4%) send at least part to the ad fund or to franchisees.

Payments that go to an ad fund the franchisor controls still count as supplier payments that must be reported in Item 8, according to the FTC Compliance Guide.

Result 7. Supplier restrictions and rebates by sector

Every sector restricts suppliers; the differences are in how much and who earns on it. The share of FDDs reporting franchisor or affiliate revenue from required purchases ranges from 50.0% in senior and in-home care to 94.4% in fitness and retail.

Food and beverage FDDs state the highest median restricted shares, 90% of startup and 82.5% of ongoing purchases. Lodging is the mirror image: a median restricted startup share of 17.5% but the highest share reporting supplier rebates received, 77.8%. Senior care has low restricted shares (30% startup) and the lowest revenue share.

Each sector holds 17 to 27 FDDs, so gaps of about 10 points or less are within sampling noise.

Result 8. Supplier revenue and royalty levels (correlation only)

One argument is that franchisors earning on supplies charge lower royalties. Joining this dataset to our franchise royalty rates study (same 259 FDDs) shows no such pattern in 2025 to 2026 FDDs. The median standard royalty is 6% of sales whether or not the franchisor or an affiliate reported revenue from required purchases (184 and 55 FDDs with a percent royalty).

Among 124 FDDs with both a percent royalty and a revenue share, the rank correlation is -0.102 (p = 0.26), which is indistinguishable from zero. This is a correlation in a quota sample, not a test of any pricing strategy.

Discussion: what the angle got right and where the data stops

The planned angle holds. Supplier restriction is near universal (99.2%), a large share of franchisors earn on franchisee purchases (77.2% including affiliates), and the median FDD puts 70% of startup and 50% of ongoing purchases under restriction. Two qualifications matter. First, supplier rebates in the narrow sense are reported as received in under half of FDDs (47.9%); the larger number is franchisors that keep the right to take them. Second, for most franchisors the revenue is a modest part of their income (median 8.23% of total revenue), although for about a quarter it is 25% or more.

The FTC explained in 2007 that Item 8 revenue disclosure serves an anti-conflict-of-interest purpose: the material fact is that the franchisor earns from suppliers it requires franchisees to use, not the exact amount (72 FR 15444, at 15488). The data show that the fact is disclosed widely. What Item 8 cannot show is whether required prices are higher or lower than open-market prices, a question franchisees raised in comments on the FTC’s 2023 request for information (FTC Issue Spotlight, July 2024). FTC staff also noted that franchisors and some franchisees point to purchasing power and consistent quality as benefits of the system supply chain.

For a buyer, three numbers in Item 8 are worth reading side by side: the restricted share of purchases, the franchisor’s revenue from them, and the stated rebate basis. Item 6 fees, covered in our royalty and fee study, and Item 7 opening costs complete the cost picture; our franchise costs guide and buying a franchise guide explain where each item sits.

What federal and state rules say about supplier revenue

Federal law is a disclosure rule. 16 CFR 436.5(h) requires Item 8 to state required purchases, whether the franchisor or its affiliates are approved or only suppliers, officer interests in suppliers, the franchisor’s revenue from required purchases and its share of total revenue, the estimated share of the franchisee’s purchases, the basis of any supplier payments, cooperatives, negotiated arrangements, and any material benefits tied to supplier use. It does not cap markups or rebates.

On 2024-07-12 FTC staff issued guidance on undisclosed fees: imposing a fee that was not disclosed in the FDD and not in the franchise agreement may be an unfair practice under Section 5 of the FTC Act. The guidance states it is not binding on the Commission, and it addresses fees, not supplier rebates. The Commission voted 3-2 on the related policy statement released the same day (FTC press release). As of 2026-10-08 the guidance is still posted on ftc.gov.

Some states go further than disclosure. Washington makes it unlawful to sell a franchisee goods or services for more than a fair and reasonable price, or to take undisclosed benefits from suppliers on account of franchisee business (RCW 19.100.180). Indiana bars agreement terms letting a franchisor obtain benefits from suppliers on account of franchisee business, other than compensation for services it renders, unless they are promptly accounted for and transmitted to the franchisee, and limits exclusive sourcing where comparable goods are available (Ind. Code 23-2-2.7-1). Iowa has a similar sourcing limit for franchises operated in Iowa under agreements from 2000-07-01 on (Iowa Code 537A.10(9)). FTC staff also cite a Hawaii limit on restrictive purchasing (Issue Spotlight). Each statute has exceptions, such as approved-supplier lists, specifications and the franchisor’s own trademarked goods. This is a summary, not legal advice.

Limitations

• Sample: 259 brands drawn with sector quotas from Minnesota registrations, about 6.5% of the roughly 4,000 franchisors the FTC estimates are covered by the Rule. Shares describe this sample.
• Disclosure, not behavior: Item 8 states what the franchisor reports. It does not show prices, margins, or what any franchisee paid.
• Definitions vary by FDD. Some purchase-share estimates count specification-only purchases; some revenue figures combine product sales, technology services and rebates. We record what each FDD states.
• Fiscal years differ. Revenue figures mostly cover fiscal 2025, some 2024 and a few 2023 or 2026.
• Reading error: a blind second coding of 20 random brands found 5 wrong fields in 400 (1.2%) after adjudication.
• Whether an unnamed affiliate is a supplier depends on wording (‘from us or our affiliates’); coders did not treat this wording uniformly (one of the five hand-check errors), so the combined franchisor-or-affiliate figure is the more reliable one.
• Several FDDs contain internal inconsistencies or redline artifacts; these are coded by the explicit statement and noted in the dataset.

Appendix: how Item 8 was coded

Extraction. A script cut Item 8 from the pdftotext output of each FDD, anchored on the Item 8 title wording fixed by the rule (parent-company annual reports attached as exhibits also have an Item 8, for financial statements, so the generic splitter was not used). All 259 FDDs had an Item 8.

Reading. Eight AI-assisted readers coded every Item 8 in full under a written codebook (data/item8_codebook.md), opening the full FDD when the cut looked incomplete, and quoted the revenue and percentage sentences verbatim. Reader confidence: 51 high, 189 medium, 19 low.

Cross-checks. A rule-based parser extracted every percent-of-purchases and total-revenue sentence; every disagreement with the readers was reviewed. We applied 29 documented changes to 23 FDDs (data/coding_overrides.csv): parent or multi-brand revenue scope, one misprinted total, one revenue line, two percentage tables coded as the sum of their columns, and five hand-check corrections.

Hand check. We drew 20 brands at random (seed 20261008); a second coder re-read each Item 8 from the full FDD without seeing the first coding, and every disagreement was settled by reading the source text. 5 of 400 field comparisons were wrong in the dataset (1.2%), in 4 of 20 brands; errors found were corrected (data/handcheck.csv).