Franchises in Argentina: how to assess purchasing and stock

A franchise can report strong sales yet still leave you with little cash available if it requires excessive purchases or receives goods that are slow to sell. Before entering the franchise market in Argentina, examine how supply and stock management work. Knowing the cost of the first order is not enough: you need to understand who sets prices, how much you must buy and what happens when a product is unavailable or you have surplus stock.

1. Identify who controls supply

Ask for a list of the supplies, products and equipment you will be required to buy. For each item, establish whether the seller will be the franchisor, a designated supplier or a third party you can choose subject to certain specifications.

The distinction matters. A mandatory supplier can simplify operations and maintain standards, but can also concentrate pricing, delivery and availability risks. If there is only one source for an essential product, a disruption could prevent you from making sales while you still have rent and wages to pay.

Request written details of:

• Products subject to mandatory purchasing requirements and authorised alternatives.
• Minimum orders, purchasing frequency and payment terms.
• Typical delivery lead times and coverage for your location.
• Responsibility for freight, insurance, breakages and quantity discrepancies.
• The procedure for approving substitutes when products are unavailable.

Check these answers against the contract and operating manual. A sales promise of flexibility is of little use if the documents allow different terms to be imposed without a clear process.

2. Understand the applicable legal protections

In Argentina, franchise agreements are specifically governed by Articles 1512 to 1524 of the national Civil and Commercial Code. They should not be assessed as agreements with no dedicated legal framework.

For supply arrangements, Article 1514(e) is particularly relevant: if the franchise includes goods or services supplied by the franchisor or third parties it designates, the franchisor must ensure supply in adequate quantities and at reasonable prices, in line with local or international commercial customs and practices.

This does not guarantee the lowest market price or any particular level of profitability. It does, however, provide a legal benchmark for reviewing supply terms that could harm the business. Ask a lawyer to assess how this obligation is implemented and what remedies the contract provides for breaches.

Article 1514(a) also requires the franchisor to provide, before signing, economic and financial information covering two years of performance at similar outlets that have operated for a sufficient period. Use this opportunity to request purchasing and stock data to help you interpret the results; do not confuse these additional details you request with a list of documents expressly required by the legislation.

3. Calculate the true cost of each order

The supplier’s price list does not necessarily show the full cost of having a product ready for sale. Work with your accountant to calculate a figure that includes transport, handling, storage, financing and foreseeable losses from breakages or expiry.

Distinguish the economic cost from the cash outlay. Depending on your tax position, some taxes may give rise to tax credits, but you still need funds to pay them upfront. Do not mix tax-inclusive and tax-exclusive figures when comparing options.

Ask for historical price lists and anonymised purchasing records from comparable outlets, if available. Also check whether discounts depend on volumes your outlet is unlikely to sell.

A discount for buying more can worsen your cash position if it ties up money for months. Calculate how long an order will take to sell and compare that with the invoice payment deadline. If you pay before receiving the sales proceeds, you will need to finance the gap.

Also test a scenario with lower sales, higher replenishment costs and delayed deliveries. The aim is to estimate how much additional capital you would need without assuming you can immediately pass every cost increase on to customers.

4. Negotiate arrangements for shortages, surplus stock and product range changes

Before signing, turn operational answers into clear, verifiable rules. The contract or its schedules should specify how price changes are communicated, when an order is confirmed and who bears the consequences of faulty deliveries.

Pay particular attention to mandatory promotional campaigns. Ask who decides quantities, whether you can adjust orders to local demand and what happens to leftover stock. Do not assume you can return unsold products: ask for explicit conditions, deadlines and acceptance criteria.

It is also worth agreeing how stock will be handled when packaging changes, a product line is withdrawn or the contractual relationship ends. Any buy-back arrangement should define eligible products, their required condition, valuation and transport arrangements; a vague promise of a solution is not enough.

Then check how these rules work in practice with franchisees operating at a similar distance from suppliers. Ask about actual deliveries, complaints and cash tied up in stock, rather than just their overall satisfaction.

Practical conclusion: do not commit to the investment until you have a supplier map, a replenishment budget and written rules for shortages and surplus stock. Buying well is just as important as selling well.