Buying a franchise: negotiating mandatory purchasing terms in Croatia

The initial franchise fee is not the only factor determining how much a franchise will cost you. An obligation to buy goods, equipment or consumables from a particular supplier can have a greater impact on your business over time. Before joining a franchise network, check not only what you must buy, but also who sets the prices, how they change and what happens if a delivery fails to arrive.

1. Distinguish brand standards from mandatory suppliers

Consistent quality standards are important for maintaining customer trust in a franchise network. A special ingredient, proprietary packaging or bespoke equipment may justify centralised purchasing. However, requiring a product to meet a particular specification is not the same as requiring you to buy it exclusively from one company.

For each purchasing category, establish which of the following arrangements applies:

• Exclusive purchasing: buying only from the franchisor or a designated supplier.
• Approved suppliers: choosing from several pre-approved suppliers.
• Purchasing to specification: choosing freely, provided the products meet the required specifications.

Include less obvious items too: cleaning products, uniforms, till equipment, software and servicing. Ask whether the franchisor can subsequently expand the list of mandatory purchases and how much time you will have to comply.

If you want to use a Croatian supplier, agree on an approval procedure. The contract should set out the quality criteria, any testing required, the cost of assessment and the deadline for a response. Without these provisions, the option to propose an alternative may exist only on paper.

2. Calculate the full cost of delivery to your premises

The catalogue price is not the final purchasing cost. Draw up a comparison table for key products, including transport, insurance, storage, any customs duties, exchange rate risk and the costs associated with mandatory minimum orders. Work with an accountant to distinguish business costs from the cash-flow impact of VAT; your ability to deduct input VAT depends on your tax position and the applicable rules.

In particular, check:

• whether you must pay for goods in advance or are offered credit terms;
• whether minimum monthly or annual quantities apply;
• who bears losses caused by expired stock or changes to the product range;
• whether unsold goods can be returned and damaged products replaced;
• whether the franchisor receives rebates or other payments from suppliers.

A supplier rebate is not inherently improper. However, it is important to know whether the franchisor retains it, passes it on to franchisees or uses it to fund shared activities. Ask for a clear explanation in the contract rather than assuming you are automatically entitled to a share.

Also model a scenario in which the prices of key inputs rise. The aim is not to test promised earnings, but to establish how much additional cash you would need to buy the same quantity of goods. A large mandatory order can put pressure on cash flow even when the unit price is attractive.

3. Agree on price changes and procedures for shortages

A clause stating that the ‘supplier’s current price list’ applies leaves an important question unanswered: how much notice will you receive of a change? Negotiate written notice, the frequency of changes and, where feasible, an objective method for setting prices. Clarify whether new prices also apply to orders that have already been confirmed.

Delivery times are equally important for business continuity. The contract or an appropriate schedule should cover order confirmation, the delivery point, transfer of risk, complaints and liability for defective goods. Check who your contractual supplier is: the franchisor is not necessarily liable for the obligations of a separate supply company.

Agree on a practical procedure for shortages:

1. When and to whom you report the problem.
2. The deadline for proposing an alternative delivery.
3. When you can request temporary local sourcing.
4. How the quality of a substitute product is confirmed.
5. Who bears the additional costs under the agreed rules.

Do not depart from mandatory purchasing requirements on your own initiative without checking the contract. An exception agreed in advance is safer than an improvised solution that could lead to a dispute.

4. Check the legal framework and the limits on restrictions

Croatia has no specific franchise law and no general statutory requirement to provide a standardised pre-contractual franchise disclosure document. A franchise agreement is an innominate contract, meaning it is not a specifically defined contract type under Croatian law. The Croatian Civil Obligations Act governs contractual obligations, liability and the principle of good faith and fair dealing. The Companies Act and the Trade Mark Act are also relevant to business status and brand rights.

Purchasing restrictions should be assessed under the Croatian Competition Act and, where the relevant conditions are met, EU rules, including Article 101 of the Treaty on the Functioning of the European Union and Commission Regulation (EU) 2022/720 on the block exemption for vertical agreements. Mandatory purchasing is neither automatically prohibited nor automatically permitted: the substance and duration of the restrictions, the parties’ market positions and the justification for the restrictions all matter.

An obligation to buy from a particular supplier does not give anyone an unrestricted right to set your selling prices either. Fixed or minimum resale prices generally constitute a serious restriction of competition, so clauses of this kind require specialist review.

The European Code of Ethics for Franchising is not Croatian law. Its relevance depends, among other things, on membership and the commitments undertaken. Nor is inclusion in the Croatian Chamber of Economy’s (HGK) Franchise Register a substitute for legal review of the contract.

Practical takeaway: before signing, agree on the list of mandatory purchases, the full delivered cost, the rules for price increases and the procedure for shortages. Review these four areas with an accountant and a lawyer.