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Revenue
 3 Months Ended
Mar. 28, 2021
Revenue From Contract With Customer [Abstract]  
Revenue

(2) Revenue

We primarily earn revenue at a point in time for sandwich shop sales which can occur in person at the shop, over our online or app platforms, or through a third-party platform. Sales taxes collected from customers are excluded from revenues and the obligation is included in accrued liabilities until the taxes are remitted to the appropriate taxing authorities. We have other revenue generating activities outlined below.

 

Franchise Revenue

We earn an initial franchise fee, a franchise development agreement fee and ongoing royalty fees under our franchise agreements. Initial franchise fees are considered highly dependent upon and interrelated with the franchise right granted in the franchise agreement. As such, these franchise fees are recognized over the contractual term of the franchise agreement. We record a contract liability for the unearned portion of the initial franchise fees. Franchise development agreement fees represent the exclusivity rights for a geographical area paid by a third party to develop Potbelly shops for a certain period of time. Franchise development agreement fee payments received by us are recorded as deferred revenue in the consolidated balance sheet and amortized over the life of the franchise development agreement. Royalty fees are based on a percentage of sales and are recorded as revenue as the fees are earned and become receivable from the franchisee.

 

Gift Card Redemptions / Breakage Revenue

We sell gift cards to customers, record the sale as a contract liability and recognize the associated revenue as the gift card is redeemed. A portion of these gift cards are not redeemed by the customer, which is recognized by us as revenue as a percentage of customers gift card redemptions. The expected breakage amount recognized is determined by a historical data analysis on gift card redemption patterns.

We recognized gift card breakage income of $0.1 million and $0.1 million for the 13 weeks ended March 28, 2021, and March 29, 2020, respectively, which is recorded within net sandwich shop sales in our condensed consolidated statements of operations.

 

Loyalty Program

During the second quarter of 2020, we implemented a new customer loyalty program for customers using the Potbelly Perks application at the point of sale. The customer will typically earn 10 points for every dollar spent in addition to any active promotions, and the customer will earn a free entrée after earning 1,000 points. We defer revenue associated with the estimated selling price of points earned by Potbelly Perks members towards free entrées as each point is earned, and a corresponding liability is established in deferred revenue. The deferral is based on the estimated value of the product for which the reward is expected to be redeemed, net of estimated unredeemed points. Once a customer earns a free entrée, that entrée reward will expire after 30 days. Any point in a customer’s account that does not go toward earning a full entrée will expire a year after the point is earned. When points are redeemed, we recognize revenue for the redeemed product and reduces deferred revenue.

For the 13 weeks ended March 28, 2021 revenue recognized from all revenue sources on point in time sales was $77.5 million, and revenue recognized from sales over time was $0.1 million. For the 13 weeks ended March 29, 2020, revenue recognized from all revenue sources on point in time sales was $87.5 million, and revenue recognized from sales over time was $0.1 million.

Contract Liabilities

As described above, we record current and noncurrent contract liabilities for upfront franchise fees, gift cards and the loyalty program. There are no other contract liabilities or contract assets recorded by us. The opening and closing balances of our current and noncurrent contract liabilities from contracts with customers were as follows:

 

 

 

Current Contract

Liability

 

 

Noncurrent Contract

Liability

 

 

 

(Thousands)

 

 

(Thousands)

 

Beginning balance as of December 27, 2020

 

$

(3,138

)

 

$

(1,707

)

Ending balance as of March 28, 2021

 

 

(2,846

)

 

 

(1,634

)

Decrease in contract liability

 

$

(292

)

 

$

(73

)

 

The aggregate value of remaining performance obligations on outstanding contracts was $4.5 million as of March 28, 2021. We expect to recognize revenue related to contract liabilities as follows (in thousands), which may vary based upon franchise activity as well as gift card redemption patterns:

 

Years Ending

 

Amount

 

2021

 

$

1,500

 

2022

 

 

1,313

 

2023

 

 

216

 

2024

 

 

183

 

2025

 

 

331

 

Thereafter

 

 

937

 

Total revenue recognized

 

$

4,480

 

 

For the 13 weeks ended March 28, 2021, the amount of revenue recognized related to the December 27, 2020 liability ending balance was $0.6 million. For the 13 weeks ended March 29, 2020, the amount of revenue recognized related to the December 31, 2019 liability ending balance was $0.5 million. This revenue related to the recognition of gift card redemptions and upfront franchise fees. For the 13 weeks ended March 28, 2021 and March 29, 2020, we did not recognize any revenue from obligations satisfied (or partially satisfied) in prior periods.