Franchise suppliers: preparing your supply chain for growth

A successful company-owned outlet does not necessarily mean its supply arrangements can support growth. A supplier may currently accommodate the founder, deliver small orders or hold prices under a personal agreement. But when you expand into a franchise network, you need terms that also work for independent partners in other towns and cities. Before offering your first franchise licence, check that the same products and quality can reliably be delivered to them too.

1. Separate essential supplies from purchases left to the partner’s discretion

Start by listing everything an outlet needs to deliver the promised customer experience. This goes beyond core products or ingredients. Packaging, a cleaning product for a particular piece of equipment, a spare part or a consumable needed to provide a service can all be critical supplies.

Assign each item to one of three categories:

• Standardised supplies: their characteristics directly determine how recognisable or safe your offering is, and any substitute requires careful checks.
• Supplies subject to specifications: the partner may choose another supplier if they can demonstrate compliance with requirements set in advance.
• Unrestricted purchases: local choices do not compromise quality or the shared brand identity, as with ordinary office supplies, for example.

Record a specific reason for every restriction. “We have always bought it this way” is not a sufficient operational explanation. A precise specification covering materials, composition, performance or service availability is often more useful than the manufacturer’s name alone.

The result should be a concise purchasing map: what needs to be standardised, what can be substituted and who approves alternatives. This provides a basis for discussions with suppliers and a lawyer, not an automatic entitlement to dictate every purchase.

2. Check the actual terms available to independent outlets

The price list offered to your business may not apply to a future franchisee. A supplier may offer them different payment terms, require payment in advance or refuse to deliver to their area. Ask for written terms covering the proposed arrangements for the whole franchise network.

In particular, check minimum order quantities, lead times, delivery frequency, delivery charges, claims procedures and rules for price changes. For goods with a limited shelf life, also address the remaining shelf life on delivery. For equipment, establish whether servicing is available outside the town or city where your own outlet is based.

Calculate the cost of supplies delivered and ready to use, not just the catalogue price. Include transport, storage, wastage, packaging and cash tied up in stock. An attractive volume discount can leave a small franchisee with more stock write-offs or a cash shortage.

Also decide who will be the buyer. With direct purchasing, the franchisee contracts with the supplier. If head office buys and resells the goods, it takes on the associated commercial, financial and, depending on the goods, regulatory obligations. These arrangements are not interchangeable simply because orders go through a shared system.

Run the figures for a more distant outlet placing smaller orders. This is often where you discover whether the supply model can be replicated, or whether its success so far depends on exceptional local circumstances.

3. Have purchasing rules reviewed under Czech and EU law

The Czech Republic has no specific franchise act or compulsory state register of franchises. A franchise agreement is usually concluded as an innominate contract under Section 1746(2) of Act No. 89/2012 Coll., the Civil Code. Purchasing and supply arrangements are also subject to other rules, however: the absence of dedicated legislation does not mean unlimited freedom of contract.

Act No. 143/2001 Coll., on the Protection of Competition, is relevant to mandatory purchasing and exclusive supply arrangements. Where an agreement may affect trade between EU Member States, Article 101 of the Treaty on the Functioning of the European Union also applies. Commission Regulation (EU) 2022/720 on the block exemption is important when assessing vertical agreements.

Mandatory purchasing from a designated supplier is neither automatically prohibited nor automatically permitted. The assessment depends, among other things, on the purpose, scope and duration of the restriction, market shares and other contractual terms. A general reference to protecting quality in the agreement is not enough.

Give your lawyer the purchasing map and an explanation for every restriction. Keep supply rules separate from final selling prices: fixed or minimum resale prices pose a serious competition law risk. The European Code of Ethics for Franchising can serve as a self-regulatory standard for the network, but it does not replace legislation.

4. Prepare backup supply arrangements before you need them

Identify a backup solution for critical supplies. This does not always have to mean a second regular supplier; it could be an approved substitute, a reasonable level of safety stock or a temporary reduction in the range offered. Every option must maintain the necessary safety standards and ensure customers receive accurate information.

Write a simple procedure for supply disruptions: who reports them, who approves substitutes, how outlets are informed and who deals with additional costs. Test substitute products in advance. A similar description does not guarantee the same characteristics, compatibility or composition.

Then monitor supplier performance through on-time delivery rates, order completeness and the frequency of claims. Share findings with partners and address the underlying causes, rather than simply chasing individual orders.

Practical takeaway: Before expanding your franchise network, make sure every critical supply has a verified delivered cost, confirmed terms available to partners and an approved procedure for disruptions. Your supply chain must not depend on the founder personally calling a supplier they know.