Minimum purchase quotas in franchising: what to assess

A franchise may require regular purchases even when the outlet’s sales fall below expectations. Understanding the initial investment is therefore not enough: you also need to establish whether there is a minimum purchasing commitment during operation. Clear rules on these quotas help prospective franchisees distinguish a stock replenishment requirement from an obligation that could put pressure on cash flow.

What the law requires franchisors to disclose about quotas

Law No. 13,966/2019, which governs business franchising in Brazil, expressly addresses this issue. Article 2, item XIX, requires the franchise disclosure document (Circular de Oferta de Franquia, or COF) to state whether there are minimum purchase quotas involving the franchisor or third parties it designates. It must also disclose whether, and under what conditions, franchisees may refuse products or services required by the franchisor.

This does not mean that the law prohibits minimum purchases or sets a universal limit on them. The central requirement is transparency about the obligation a prospective franchisee may take on.

Buying from an approved supplier and meeting a minimum purchase quota are different commitments. The first determines whom you buy from; the second may require you to purchase a specified quantity or value, regardless of actual demand at the outlet.

Read the COF alongside the standard franchise agreement and its appendices. If the sales presentation says that stock replenishment follows sales, but the agreement specifies a fixed minimum, ask for clarification and amendments to the documents before deciding. Do not treat a verbal explanation as a substitute for a written rule.

Turn the obligation into specific questions

The term “minimum purchase” is not enough to assess the risk. Request a description that allows you to calculate exactly how much you must buy and when.

Structure your review around six questions:

• How is it measured? By value in Brazilian reais, number of items, physical volume or a combination of products?
• How often does it apply? Per order, month, quarter, promotional campaign or another interval?
• How is the minimum calculated? Is it fixed, linked to sales or different depending on the size of the outlet?
• Who chooses the product mix? Does the franchisee select the items, or is a mandatory selection imposed?
• How can the rule change? Are there documented criteria, advance notice requirements and limits?
• What happens if the minimum is not met? Must the shortfall be made up later, are favourable commercial terms withdrawn, or does a contractual penalty apply?

Also check whether orders for promotional campaigns and new product launches count towards the quota or are additional. An apparently manageable obligation can grow when several requirements fall within the same period.

Ask whether special provisions apply to the first few months of trading, seasonal fluctuations, temporary closure or supply interruptions. Do not assume that these circumstances automatically suspend the obligation: look for the relevant provisions in the documents.

Test the quota against realistic sales capacity

Your financial assessment should start with plausible sales figures for the proposed outlet, not just the sales expectations presented by the franchise network. Ask what basis was used to set the quota for that particular format and location.

Prepare a monthly forecast showing mandatory purchases, estimated sales, stock balances and payment dates. Add costs arising directly from stock replenishment, such as freight, storage and losses due to expiry or obsolescence.

Run at least three scenarios: trading in line with expectations, lower sales, and a longer period to reach the expected level of trading. There is no need to use standard percentages; choose assumptions that are justifiable for the business and record them.

Purchases are not sales, and unsold stock cannot pay an overdue instalment. Even when a product remains recorded as stock in the accounts, payment may be due long before it generates revenue.

Assess the mandatory product mix too. An overall quota may appear compatible with sales but require items for which local demand is low. In that case, the problem is not just volume: it is the limited freedom to adjust orders to actual demand.

Check the conditions for refusal before committing

The legal requirement to disclose the conditions for refusal deserves particular attention. Ask what procedure applies to unsolicited deliveries, incorrect quantities, damaged products, inadequate remaining shelf life or a mandatory service whose delivery is disputed.

Identify the communication channel, the deadline for reporting the issue, the documents required and who is responsible for transport, replacement or any credit due. Distinguish between refusing an order before dispatch, rejecting goods on delivery and returning them afterwards: the procedures and financial consequences may differ.

If there is a promise to exchange slow-moving items, check that it is documented and establish what restrictions apply. Do not assume that unsold goods will automatically be bought back.

Have a legal adviser review the purchasing clauses and their consequences, and an accountant assess the financial forecast. In practice, only proceed when you can explain on one page the minimum you must purchase, how you can refuse a requirement and how much cash the obligation will absorb if sales disappoint.