Buying a franchise: how to assess mandatory purchasing requirements

When you buy a franchise, you may be required to purchase goods, ingredients, equipment or consumables from specified suppliers. These rules can help maintain consistent quality across the franchise network, but they also leave you dependent on other businesses’ prices, stock levels and delivery times. Before signing, check not only what you must buy, but also what happens if a designated supplier raises its prices or cannot fulfil an order.

1. Establish exactly what you must purchase

Ask for a written list of all categories covered by mandatory purchasing requirements. Distinguish between products you must buy directly from the franchisor, products available from approved suppliers and products you may source independently provided they meet specified technical standards. These three arrangements give you different levels of control over costs.

Compare the list with the franchise agreement, operations manual and suppliers’ terms. A verbal assurance that you can use local suppliers is not enough if the agreement requires prior written approval for every substitution.

For each important item, note:

• who the seller is and whom you pay;
• whether there is a minimum order quantity;
• whether you must place orders at set intervals;
• the delivery lead time and shelf life;
• who is responsible for defects and handles complaints;
• whether you may return unsold, undamaged goods, and on what terms.

In particular, distinguish the initial stock package from ongoing purchases. An acceptable opening cost does not mean that subsequent orders will carry the same prices, quantities or payment terms.

2. Calculate the total cost, not just the product price

Ask the franchisor for current price lists, a sample order and delivery terms for your location in Croatia. Prices quoted in a presentation may exclude transport, special packaging or other costs that only appear on the invoice. If goods are imported from outside the European Union, check any potential additional obligations with an accountant and a customs specialist.

Compare the total cost of purchasing. Alongside the purchase price, include transport, storage, potential stock write-offs and the cost of financing stock. Clarify whether VAT is included and how VAT accounting and any available input VAT deduction affect your cash flow.

For example, a product with a lower unit price may cost your business more if it must be ordered in large quantities and has a short shelf life. A mandatory order then ties up cash before you make any sales.

Also check the rules for changes to purchase prices: who can change them, how much notice you receive and whether a new price applies to orders already confirmed. Ask whether the franchisor receives a fee or rebate from the supplier and whether this affects the terms you receive. Seek this information as part of your commercial due diligence, rather than assuming you are automatically entitled to every detail of their relationship.

3. Agree a procedure for supply disruptions

A quality standard is no substitute for a supply plan. If a key ingredient, packaging item or spare part is unavailable, you need to know whether you may temporarily source an alternative and who approves it. Without a clear procedure, you could face a choice between suspending operations and breaching the agreement.

Propose that the agreement or a schedule to it covers:

• Reporting problems: whom you notify about shortages or delays.
• Response deadline: when the franchisor must decide on a proposed alternative.
• Approval criteria: what evidence of quality and safety is required.
• Temporary purchasing arrangements: the circumstances in which you may use an alternative supplier.
• Additional costs: who pays for urgent transport, the return of defective goods or other agreed action.

Do not assume that the franchisor’s silence means approval. If you want such a mechanism, it must be expressly and carefully agreed, while respecting applicable safety requirements.

Check that the franchisor’s promises align with the supplier’s obligations. The franchisor may coordinate purchasing without being the seller of the goods or contractually liable for every delay. Make sure it is clear whom you can bring a claim against and what remedy you can seek.

4. Check Croatia’s legal framework and the limits on restrictions

Croatia has no dedicated franchise law or specific mandatory pre-contractual disclosure regime requiring a standard disclosure document and waiting period. A franchise agreement is an innominate contract — one not specifically defined as a separate contract type in legislation — and contractual relationships are governed primarily by the Croatian Obligations Act. Purchasing rules therefore need to be carefully set out in the agreement, alongside the statutory rules on performance of obligations and liability.

The Croatian Competition Act and, where applicable, European Union competition rules are also relevant to purchasing restrictions. Mandatory purchasing is not automatically prohibited, but neither is every restriction permissible simply because it appears in a franchise agreement. The assessment depends on the terms, duration and market circumstances of the particular relationship.

Show your lawyer the supplier contracts as well as the franchise agreement. Ask them to review the restrictions and your options in the event of non-delivery, defects or an unjustified refusal to approve an alternative supplier.

Practical conclusion: before signing, secure three things: a complete list of mandatory purchases, a calculation of the total cost and a written procedure for supply disruptions. Without these, you cannot reliably assess how much mandatory purchasing will cost you or how you will keep operating if deliveries fail.