Franchises in Argentina: how to assess supply arrangements

Before buying a franchise, you need to understand how you will obtain the products and supplies essential to running the business. Joining a franchise network can make purchasing easier and help maintain consistent quality, but it can also create dependence on particular suppliers. Reviewing supply arrangements helps uncover costs and risks that are not reflected in the initial asking price.

1. Identify which purchases are mandatory

Ask for a list of the products, raw materials, packaging and other consumables you must buy from the franchisor or designated suppliers. A general reference to “approved suppliers” is not enough: you need to distinguish specific obligations from recommendations.

For each essential item, record:

• Who sells it and who issues the invoice.
• Whether there is a single supplier or several approved alternatives.
• Which quality specifications it must meet.
• Whether there is a minimum order requirement or a set purchasing frequency.
• Who can change the supplier list and how changes are communicated.

Also distinguish products exclusive to the brand from those that could be sourced elsewhere to equivalent specifications. This distinction will matter if a shortage arises.

The key question is which item could prevent you from opening or continuing to trade if it fails to arrive. In a food business, this might be an ingredient; in another sector, it could be a consumable essential to delivering the service.

2. Understand the legal rules governing supply

In Argentina, franchise agreements are specifically regulated by Articles 1512 to 1524 of the national Civil and Commercial Code. Supply terms should be reviewed within that framework, rather than as a separate commercial arrangement.

Article 1514(e) provides that, where the franchise includes the supply of goods or services by the franchisor or third parties it designates, the franchisor must ensure that those goods or services are supplied in adequate quantities and at reasonable prices, in line with local or international commercial practices and customs.

This does not amount to a guarantee of fixed prices or profitability. It does, however, make it important to document the quantities the business needs, how orders are placed and which financial terms apply.

In addition, Article 1519(b) renders invalid any clauses prohibiting the franchisee from purchasing goods covered by the franchise from other franchisees within Argentina, provided those goods meet the quality standards and characteristics specified in the agreement. Do not confuse this protection with general permission to buy from any external supplier.

Ask a lawyer to review purchasing restrictions and their compatibility with these rules before you sign.

3. Calculate the cost of getting goods to your premises, not just buying them

A price list does not necessarily show how much it will cost to have a product available at your premises. Request a quotation for your location, with clearly stated delivery terms and a validity period.

Include transport, order preparation charges, special storage requirements and foreseeable losses from expiry or deterioration in your calculations. Ask your accountant to distinguish recoverable taxes from actual costs and the cash you need to pay upfront.

Minimum purchase requirements matter too. An attractive unit price may require you to tie up cash in stock that takes too long to sell. Compare the required volume with your actual storage capacity and the product’s shelf life.

Finally, check how price changes are communicated and which price applies to orders that have already been confirmed. Do not assume that the price on the day you place an order will remain valid until delivery: the commercial terms must make this clear.

4. Agree how to handle delays and shortages

Before investing, ask for the procedure for dealing with incomplete deliveries, defective goods or supply interruptions. A promise to “sort it out with head office” does not establish who takes action or who pays.

Seek to have the following points documented:

• Normal delivery lead times and the channel for raising complaints.
• How to record discrepancies, damage or defects on receipt.
• Terms for returns, replacements and the issuing of credit notes.
• The procedure for approving substitute supplies or alternative suppliers.
• Responsibility for additional freight costs and emergency purchases.

Test the arrangements against a specific scenario: the mandatory supplier cannot deliver an essential item before a period of high demand. Who do you notify? Who approves an alternative? How quickly must they respond?

Do not assume that a shortage entitles you to breach other contractual obligations. The consequences and available remedies require legal assessment on a case-by-case basis.

Practical conclusion: before buying, prepare a record for each critical item, setting out the supplier, full cost, delivery lead time and permitted alternative. If any of these details remain unclear, resolve them before committing to the investment.