Planning Franchise Supply Arrangements in Australia

The suppliers that serve your existing business may not be ready to support independently owned outlets. Before franchising in Australia, decide which purchases need central control, where franchisees can choose, and how supply problems will be handled. Clear, commercially workable arrangements help protect product quality and trust across your franchise community without imposing unnecessary costs on individual businesses.

1. Decide what genuinely needs a supply restriction

Start with a purchasing list drawn from your existing operation. Include ingredients, stock, packaging, uniforms, equipment, consumables and outsourced services. For each item, identify what matters: a proprietary recipe, safety certification, compatibility, appearance or simply reliable availability.

Then assign a purchasing approach:

• Specified supplier: the franchisee must buy from a nominated business because there is a defensible operational reason.
• Approved suppliers: the franchisee chooses from businesses that meet defined requirements.
• Product specification: the franchisee can source independently if the purchase meets an objective standard.

Do not assume every purchasing habit of your original business should become a contractual obligation. A nominated supplier for a signature product may be sensible; compulsory purchasing of ordinary cleaning materials needs its own justification.

Record the reason for each restriction and consider a less restrictive alternative. This gives your lawyer a clear commercial brief and helps you explain the arrangement to prospective franchisees.

2. Check whether suppliers can support separate businesses

A supplier that delivers reliably to your own premises may struggle with dispersed outlets, smaller orders or separate credit accounts. Discuss the proposed franchise structure before promising access to existing prices or delivery terms.

Confirm who will place orders, receive invoices and carry payment risk. If each franchisee contracts directly with the supplier, do not imply that your existing account terms automatically extend to them. If you buy and resell stock, assess your own storage, working capital and fulfilment responsibilities.

Ask suppliers for clear answers on:

• Delivery areas, lead times and minimum order quantities.
• Freight charges and treatment of remote locations.
• Credit applications, payment terms and personal guarantees.
• Returns, defective goods and product recalls.
• Capacity constraints and notice of product changes.

Compare the full delivered cost, not just the headline unit price. Minimum orders can create waste or tie up cash, particularly for a new outlet with uncertain demand. Test different order sizes and delivery locations before treating a purchasing arrangement as suitable for the whole franchise community.

3. Align restrictions with Australian franchise law

Australia’s mandatory Franchising Code of Conduct, prescribed under the Competition and Consumer Act 2010, governs dealings between franchisors and franchisees. The Australian Competition and Consumer Commission (ACCC) regulates the Code. The current Code commenced on 1 April 2025, with some requirements commencing later.

Supply restrictions belong in the legal planning process, not just in purchasing instructions. The ACCC explains that restrictions are set out in the disclosure document and franchise agreement. Many are lawful, and franchisees may have to comply even where another supplier would be cheaper.

However, putting a restriction in an agreement does not make it lawful. Competition law can prohibit exclusive dealing where it has the purpose, effect or likely effect of substantially lessening competition. The Australian Consumer Law also prohibits misleading or deceptive conduct, and unfair contract terms protections may apply to franchise agreements.

Give your franchise lawyer a complete picture of nominated suppliers, associated businesses, purchasing restrictions and any rebates or other financial benefits you receive. Ask them to identify the applicable disclosure requirements and review the contractual arrangements. Explain commercial benefits accurately rather than making unsupported claims about purchasing savings.

Ensure supplier contracts support what you promise franchisees. A franchise agreement cannot, by itself, make an external supplier maintain prices, grant credit or deliver nationwide.

4. Create a practical alternative-supply process

Build a controlled route for approving alternatives before shortages occur. Specify who considers requests, what evidence is needed and how decisions are communicated. Objective criteria might include safety documentation, samples, compatibility testing and delivery capability.

Distinguish temporary emergency approval from permanent supplier approval. Record the products, outlets and period covered by any exception, together with any conditions. Avoid leaving a franchisee to choose between closing temporarily and breaching purchasing requirements without a clear escalation route.

Review delivery performance, complaints and total purchasing costs as the franchise community grows. Apply the Code’s good faith obligation when dealing with franchisees, including when considering supply concerns. Seek legal advice before changing restrictions rather than assuming a purchasing policy can override agreed contractual rights.

Practical takeaway: Before offering your first franchise, create a purchasing matrix showing each restriction, its justification, delivered costs and approved alternatives. Have suppliers confirm their commitments and your franchise lawyer check that the arrangements are lawful and accurately documented.