Franchise procurement: prepare your suppliers for expansion in Croatia

A supplier that reliably serves your existing outlet may not be ready to supply several independent partners across different locations. Before turning your business into a franchise, check whether procurement can scale up without compromising quality, incurring unexpected costs or disrupting operations. Well-organised supply arrangements are one of the foundations of trust within a franchise network: franchisees need to know what they are buying, from whom and on what terms.

1. Separate essential products from items franchisees can source freely

Start by listing everything an outlet needs to deliver the promised product or service. This might include raw materials, packaging, spare parts, cleaning products or teaching materials. For each item, record the required quality, delivery lead time, storage conditions and consequences of a shortage.

Then divide the items into three groups:

• Sourcing from a specified supplier: items whose distinctive characteristics directly define what makes your offering recognisable.
• Sourcing from approved suppliers: items that several suppliers can provide, provided they meet predefined criteria.
• Free sourcing to specification: standard goods where meeting the specification matters more than the supplier’s identity.

This is a practical approach, not a set of legal categories. Every restriction must have a business justification and undergo legal review. Do not require franchisees to buy all their supplies from you simply because it is easier to administer. Explain the value that the mandatory source provides and what you will do if it can no longer supply the goods.

2. Check suppliers’ actual capabilities

Ask suppliers for a proposal based on your future operating model, rather than simply asking them to confirm their existing price list. Your current arrangement may depend on a single large order, collecting goods yourself or flexibility that the founder negotiates over the phone. A new outlet may not have access to the same terms.

Check minimum order quantities, delivery days, geographical coverage, transport costs, payment terms and the complaints procedure. In particular, ask whether each franchisee will need to enter into a separate contract and undergo a credit check. A discount negotiated for the franchisor does not automatically extend to other businesses.

Calculate the total cost of goods delivered, including transport, storage, spoilage and capital tied up in stock. A lower unit price may be poor value if it requires an order that a smaller outlet cannot use up.

Before making promises to prospective franchisees, arrange a trial delivery to a more distant location or during a more demanding period. Record the arrival time, the condition of the goods and any discrepancies against the order. The aim is to test the supply process, rather than assume that a successful existing relationship guarantees the same results everywhere.

3. Align procurement with contracts and Croatian rules

Croatia has no dedicated law comprehensively governing franchising. Contractual relationships are subject to the Civil Obligations Act, while procurement restrictions should be assessed under the Competition Act and, where the conditions for their application are met, European Union competition rules.

Commission Regulation (EU) 2022/720 on the block exemption of certain categories of vertical agreements and concerted practices is relevant to vertical agreements. It is not blanket permission for every exclusive purchasing obligation. The assessment depends, among other things, on market shares, the nature of the restrictions and the duration of the obligation. Before introducing a mandatory supplier, obtain a legal review of the specific arrangement.

The franchise agreement should make clear who places orders, who pays and who is responsible for defective goods or late deliveries. A franchisor that resells goods to franchisees has a different role from one that merely recommends a supplier. The supplier agreement must support the promises made to franchisees; a franchise agreement does not, in itself, bind a supplier that is not a party to it.

Sector-specific rules depend on the goods and the business activity. For example, food businesses need arrangements for traceability and handling unsafe products. Allocating tasks by contract does not remove each business’s statutory responsibilities.

4. Set out how price changes and joint purchasing benefits will be handled

Before joining the network, franchisees should understand how their purchase prices are determined. State whether the franchisor charges separately for logistics, earns a margin on resale, or receives supplier rebates or other benefits linked to outlets’ purchases.

This is about having a transparent commercial arrangement: do not present procurement as a pass-through cost if it generates income for the franchisor. Explain whether volume rebates are retained by the franchisor or shared with franchisees under the agreed model.

Set out how new prices will be communicated and how orders already accepted will be handled. Do not promise that prices will remain unchanged indefinitely unless the supplier has guaranteed this contractually. When assessing an outlet’s financial viability, check whether it can absorb increases in key input costs.

5. Arrange alternatives before the first shortage

For critical items, identify a backup supplier or a pre-approved alternative product. Document who approves departures from the usual requirements, what evidence the franchisee must provide and how temporary substitutions are recorded. For safety-sensitive products, speed must not take precedence over checking suitability.

Keep a simple record of delays, complaints and emergency purchases. Repeated problems signal a need to change the terms or source of supply, rather than continually asking outlets to make extra efforts.

Practical takeaway: before selling your first franchise, prepare a list of procurement categories, written supplier terms and a backup supply plan. Offer franchisees a system that works even when a scheduled delivery fails to arrive.