Buying a Franchise in Australia: Check Supply Restrictions

A franchise may offer a familiar brand, but you might not be free to choose where you buy everyday supplies. Required purchasing arrangements can affect your margins, delivery reliability and ability to serve customers. Before joining Australia’s franchising community, establish exactly what you must buy, who can supply it and what happens when those arrangements stop working well.

Understand the rules before comparing prices

Australia specifically regulates franchising through the federal Franchising Code of Conduct, enforced by the Australian Competition and Consumer Commission (ACCC). The current Code commenced on 1 April 2025, with transitional arrangements for some obligations. The Competition and Consumer Act 2010 and Australian Consumer Law also apply to franchise businesses.

The ACCC explains that supply restrictions are listed in the disclosure document and franchise agreement. In many cases, these restrictions are lawful. Where a restriction is lawful and forms part of your agreement, you must follow it even if buying elsewhere would cost less.

Do not assume that finding a cheaper wholesaler gives you permission to switch. Equally, do not assume every restriction is legally sound simply because it appears in the contract. Ask an independent franchise solicitor to assess any provision that concerns you.

Read the disclosure document alongside the agreement and any purchasing policies it incorporates. Identify whether you must:

• Buy directly from the franchisor or a related business.
• Use a nominated supplier or choose from an approved list.
• Purchase specified brands, ingredients, packaging or consumables.
• Obtain written approval before using an alternative product or supplier.
• Meet minimum order quantities or purchasing commitments.

Separate mandatory requirements from recommendations. A preferred supplier is not necessarily an exclusive supplier, but the contractual wording determines your freedom.

Calculate the real cost of required purchases

Request current price lists and the terms that would apply to your proposed location. A headline unit price is only part of the cost: freight, handling, minimum orders, storage requirements and payment deadlines can all change the result.

Build a representative purchasing basket for normal trading. Include the routine items the business needs, rather than only its most prominent products. For a food business, that might include ingredients, takeaway containers and cleaning supplies. A service franchise might depend on specialist consumables or mandatory software subscriptions.

For each item, record the delivered price, order frequency, payment terms and any compulsory quantity. Compare alternatives only where quality, specifications and delivery conditions are genuinely comparable. The purpose is to understand the commercial trade-off, not to assume you can bypass the rules.

Ask who controls price changes, what notice you receive and whether any pricing formula or review process exists. Have your accountant test how higher purchasing costs would affect the business if customer prices stayed unchanged.

Also ask whether the franchisor or an associated business receives rebates or other financial benefits from suppliers, and how these arrangements are disclosed. Clarify whether any benefit reaches franchisees. Do not build a rebate into your budget unless your entitlement and its conditions are clear.

Test what happens when supply fails

Central purchasing can support consistent quality and simplify ordering. However, dependence on one supplier creates practical questions that a price comparison cannot answer.

Ask the franchisor to explain the procedure for late deliveries, shortages, defective goods and discontinued products. Who deals with the supplier? Who authorises substitutions? Who pays for replacements or urgent freight?

Consider your location specifically. Delivery arrangements that suit a metropolitan outlet may not suit a regional business. Confirm delivery coverage, order cut-off times and any seasonal limitations with the proposed supplier.

Request a written explanation of the emergency purchasing process. Find out whether you can obtain temporary approval to buy locally, what evidence is required and who can authorise it outside normal office hours.

Do not treat a verbal assurance that “we are flexible” as a dependable contingency plan. Ask your solicitor whether the documents provide a workable route to approval and what happens if no approved substitute is available.

Resolve uncertainty before committing

Prepare a short schedule of unresolved supply questions and send it to the franchisor. Ask for answers that refer to the relevant contract provisions, rather than broad assurances about purchasing power.

Where an exception matters to your decision, such as permission to use a local supplier, ask your solicitor how to document it effectively. Check whether the exception lasts for the agreement’s term or can be withdrawn, and on what conditions.

Assess the arrangement as a whole. A higher purchase price may come with useful quality controls or reliable delivery, but those benefits should be identifiable rather than assumed. Unclear pricing, impractical minimum orders and an absent emergency process deserve attention before you commit.

Practical takeaway: Map every mandatory purchase, calculate its delivered cost and confirm the alternative-supply procedure in writing. Buy only when the purchasing obligations are both clear and workable for your location.