Franchising in Denmark: Get Joint Purchasing Right

When you turn your existing business into a franchise network, purchasing cannot simply carry on as before. A supplier agreement for your own outlet does not necessarily cover independent franchisees. Before promising consistent quality and attractive purchasing terms, you therefore need to establish who buys what, which requirements are necessary and what happens if supplies fail.

1. Check whether your supplier agreements can support the network

Start with the goods, materials and services that your business concept cannot function without. These might include ingredients, packaging, spare parts, cleaning products or particular digital solutions. Draw up an overview of each supplier, the contracting party, lead times, minimum orders and possible alternatives.

Then distinguish between two models: does the franchisor buy goods and resell them to franchisees, or does each franchisee buy directly from an approved supplier? Each model creates different responsibilities for stock, credit, invoicing and complaints. Avoid an ambiguous arrangement in which the franchisee believes you are responsible for delivery, while the supplier regards the franchisee alone as its customer.

Review your existing agreements with suppliers. In particular, obtain written clarification of:

• Whether independent franchisees can buy on the agreed terms.
• Whether discounts depend on your own turnover or the network’s total purchases.
• Whether the supplier can serve new locations and fulfil smaller opening orders.
• Who bears the risk of delays, defects and damage in transit.
• How prices and delivery terms can be changed.

A verbal assurance that a supplier can handle more outlets is not the same as an agreement on capacity, prices and liability. Also ask for a clear explanation of how new franchisees will be set up as customers and credit-checked.

2. Separate essential quality standards from purchasing requirements imposed for convenience

A franchise network needs consistent, recognisable quality, but not every purchase has to come from the same source. Divide purchases into three groups: products critical to the concept, products subject to common specifications and unrestricted local purchases.

A particular product may be central to the customer experience. Other goods can be defined through measurable requirements for materials, performance or durability. Everyday stationery may need no central oversight at all. This distinction makes it easier to explain why some requirements are binding while others are merely recommendations.

Denmark has no dedicated franchise law and no franchise-specific registration scheme. The Danish Contracts Act and general principles of contract law apply, including section 36 of the Act, which addresses unfair agreements. The Danish Competition Act and, where relevant, EU competition rules are particularly important for purchasing arrangements. The Danish Sale of Goods Act, Marketing Practices Act and product liability rules may also be relevant, depending on the model and the products.

Mandatory suppliers, exclusive purchasing obligations and lengthy tie-in periods require a case-specific competition law assessment. The EU Vertical Block Exemption Regulation, Regulation 2022/720, may be relevant, but it does not provide blanket approval for all franchise terms. Market shares, the content of the agreement and any hardcore restrictions of competition all matter.

Joint purchasing does not, in itself, entitle you to set franchisees’ resale prices either. Binding minimum resale prices are generally prohibited. Have purchasing obligations and pricing controls assessed before incorporating them into your franchise concept.

3. Make discounts and total purchasing costs transparent

A low unit price is not necessarily a good deal. Freight, packaging, minimum orders, waste, capital tied up in stock and payment terms all affect a franchisee’s finances. Compare the total cost of getting the goods delivered and ready to use.

Calculate the costs for a typical franchisee, not just your busiest existing outlet. A new outlet buying smaller quantities may face very different costs, even if the price lists are identical. Your calculation should show which discounts already apply and which only become available once a particular total purchasing volume is reached.

Also decide how supplier rebates and other financial benefits will be handled. Will they go to the franchisor, be shared among franchisees or fund joint activities? Explain the principles clearly, and avoid promising purchases at cost price if your business also receives a rebate that the promise does not account for.

Denmark has no franchise-specific statutory requirement to provide a prescribed pre-contract disclosure package. However, general principles of contract law may create a duty to disclose material information. Known purchasing obligations and financial interests should therefore not be left undisclosed until after signing. Codes of ethics may also impose requirements through membership or contractual agreement; they are not a separate Danish franchise law.

4. Agree a workable process for supply problems

Establish a contingency procedure before your first franchisee becomes dependent on the system. Who is notified of a shortage? Who can approve a substitute product? And who informs customers if the product range changes temporarily?

The procedure should include objective quality standards and a clear approval process. Otherwise, a central purchasing requirement could bring local operations to a standstill even when a suitable alternative is available. For product safety issues, responsibility for traceability, stopping sales and any recall must be clear under the relevant product rules.

Set out financial obligations and significant purchasing restrictions in the contractual documentation. Practical ordering procedures can sit in the operating manual, but should not be used to introduce new burdens without a contractual basis.

Practical takeaway: Trace one critical product from the supplier agreement through to local delivery and the handling of complaints. If you can clearly explain the price, purchasing obligations, responsibilities and contingency plan, you have a practical basis for preparing the rest of your purchasing arrangements for the franchise network.