Franchise procurement: rules for franchisors in Croatia

A supplier that reliably serves your own outlet may not be able to supply several independent businesses across different locations. Before expanding your existing business into a franchise network, establish your procurement rules: what must be standardised, where franchisees have a choice and who takes action when a delivery fails. The aim is not to control every order, but to protect quality and help your partners run sustainable businesses.

1. Separate mandatory purchases from unrestricted sourcing

Start with a list of the goods, equipment and services an outlet needs to operate. For each item, note whether it directly affects the distinctiveness of your offering, customer safety or equipment compatibility. This will help you avoid requiring everything to be purchased from a single supplier simply because that is how you have operated until now.

Divide procurement into three categories:

• Specified products or sources: items for which there is a justified need to protect a distinctive product, quality or transferred know-how.
• Approved suppliers: multiple sources that meet the same verifiable criteria.
• Unrestricted local sourcing: items for which technical or quality specifications are sufficient.

For example, your signature blend of ingredients may require a controlled source. For standard consumables, it is often enough to specify dimensions, composition or the required documentation. Each restriction should nevertheless be justified individually and legally reviewed.

Prepare a brief explanation for each mandatory item. If you cannot explain why another product would undermine the business concept, consider a less restrictive approach. This makes the rules easier to explain to prospective franchisees while leaving you scope to improve procurement efficiency.

2. Check whether suppliers can keep pace with expansion

An attractive price list is not proof that a supplier is ready to serve a franchise network. Ask key suppliers to confirm their delivery coverage, lead times, minimum order quantities, available capacity and complaints procedures. Check whether terms differ between Croatia’s coastal, island and inland locations, and how seasonal demand affects availability.

Compare the total cost of procurement, not just the product price. This includes transport, storage, spoilage, packaging returns and funds tied up in stock. A supplier with a lower unit price may prove more expensive if it requires orders that a small outlet cannot use up.

Before entering into an agreement, answer these practical questions:

• Does each franchisee order and pay separately, or does the franchisor consolidate purchasing?
• Who bears the cost of incorrect, late or damaged deliveries?
• How are price changes and product discontinuations communicated?
• Does the agreed discount depend on purchasing volumes that have not yet been achieved?

Also clearly set out any benefits the franchisor receives from suppliers, such as rebates or commissions. Franchisees must understand how that relationship affects their costs and whether there is a contractual obligation to pass on those benefits. Do not promise future volume discounts until their terms have been confirmed.

3. Ensure procurement restrictions comply with Croatian law

Croatia has no specific franchise law. A franchise agreement is an unnamed contract governed by the Civil Obligations Act, including its general rules on contracts, the performance of obligations and liability for damages. Depending on the nature of the relationship, the Trade Act, the Trade Mark Act and sector- or product-specific regulations may also be relevant.

The Competition Act is particularly important for mandatory purchasing arrangements. Where an agreement may affect trade between EU Member States, Article 101 of the Treaty on the Functioning of the European Union is also relevant. Commission Regulation (EU) 2022/720 provides a block exemption for certain vertical agreements, but it does not automatically authorise every franchise restriction.

An obligation to purchase from a specified source is not necessarily prohibited in itself, but its purpose, scope, duration and market context must be assessed. Give your lawyer the full procurement model, rather than just a single contractual clause.

Keep procurement arrangements separate from resale pricing. As a rule, imposing fixed or minimum prices at which an independent franchisee sells to customers is not permitted. Nor may a recommended price be made binding through pressure, threats or incentives.

Older Croatian sources refer to a requirement to submit franchise agreements to the Croatian Competition Agency. There is no current general obligation to notify the Agency of such agreements; an administrative notification does not replace responsibility for compliance.

4. Agree on substitutions and responsibilities before the first shortage

For critical products, establish a substitution approval process in advance. Franchisees need to know whom to send a request to, what documentation to include, who makes the decision and what to do while awaiting a response. Silence from the franchisor should not leave an outlet without clear instructions.

Also establish an emergency procedure for supply disruptions: temporary approval of an alternative product, safety and quality checks, and a record of how long the deviation lasts. If no safe substitute is available, specify when the affected product must be removed from the offering.

Set out the core obligations and limits on changes in the contract, and keep product and supplier information up to date in the accompanying specifications. Changes that require new equipment or create substantial costs need a clear notification and implementation process.

Practical takeaway: before offering a franchise, prepare a procurement table listing mandatory items, permitted alternatives, total costs and the people responsible. Then check supplier capacity and the legal justification for any restrictions. Reliable procurement builds trust across the franchise network.