Buying a franchise: assessing supply arrangements

Joining a franchise network gives you access to a business concept, but also commits you to purchasing rules that can determine your margins and day-to-day independence. Before choosing a franchise brand, establish exactly what you will have to order, from whom and on what terms. An attractive product range is not enough: its supply arrangements must remain commercially viable for your future outlet.

1. Establish which purchases are genuinely mandatory

A supply clause may cover goods for resale, ingredients, packaging, equipment or certain consumables. It may require you to use a single supplier, choose from several approved suppliers, or simply comply with technical specifications.

Do not confuse approved supplier status with exclusivity. A list of recommended partners does not necessarily mean that all purchases from other suppliers are prohibited. Conversely, an obligation described as limited can become highly restrictive if it covers most of the products needed to run the business.

Ask the franchisor for a written list specifying:

• the product categories subject to mandatory purchasing requirements;
• the authorised suppliers and the identity of the business actually selling to you;
• any minimum volumes or quotas;
• the procedure for proposing a local supplier;
• the terms for changing this list during the contract.

Also establish who invoices you and who delivers: the franchisor, a central purchasing organisation or an independent supplier. If there is a delay or a defect, your commercial contact will not always be the party legally responsible. Compare these documents with the contract: informal verbal assurances do not override a strict written obligation.

2. Calculate the total delivered cost and your actual margin

The catalogue price accounts for only part of your supply costs. Add transport, order preparation charges, separately charged packaging, ordering constraints and foreseeable losses. For perishable goods, the remaining shelf life on arrival deserves as much attention as the unit price.

Work with your accountant to put together a representative basket of purchases for your future business. Use dated price lists and the terms available to a new outlet, rather than automatically factoring in the best advertised discounts.

For each key product, record the net price, pack size, minimum order, delivery lead time and payment terms. Then check any retrospective rebates: do they depend on annual volumes, prompt payment or a network-wide target? Who is contractually entitled to receive them?

Test your profitability without relying on uncertain benefits. A conditional rebate should not be treated as a guaranteed saving. Also model an increase in purchase prices that you could not immediately pass on to your customers.

Speak to several franchisees whose outlets are similar to the one you plan to open. Ask whether deliveries match orders, whether small orders attract penalties and whether promotions require additional purchases. Their feedback will shed light on day-to-day operations, but it is no substitute for contractual commitments.

3. Have the legal restrictions reviewed

In France, franchising is governed, among other things, by general contract law and competition law. Where the statutory conditions are met, pre-contractual disclosure is regulated by Article L. 330-3 of the French Commercial Code, introduced by the legislation commonly known as the Doubin Law, and Article R. 330-1.

Where a business makes a brand, trading identity or trade name available while requiring exclusivity or near-exclusivity for the activity, the pre-contractual disclosure document and draft contract must be provided at least twenty days before signing or, where applicable, before any advance payment. This period gives prospective franchisees time to have the proposed purchasing obligations assessed, among other checks.

An exclusive purchasing obligation is not automatically unlawful. Its validity depends, in particular, on its purpose, duration, scope and competitive context. French and European competition rules may apply: have a lawyer review the clause rather than relying on an assumed universal maximum duration.

Also distinguish between mandatory purchases and resale prices. In principle, an independent franchisee sets their own resale prices. A recommended price must not become an enforced minimum price through pressure or penalties.

4. Plan for supply disruptions and product range changes

Ask what happens if an approved supplier stops delivering. Can you temporarily buy elsewhere? Who approves the replacement supplier, and how quickly? An exemption that cannot be used in practice offers little protection for your business.

Also review how defective products, claim deadlines and credit notes are handled. When a product range is replaced, establish who bears the cost of unsold stock, new display units and orders already placed. Do not assume that a supplier will take back stock at the end of the contract.

Before committing, get the crucial points confirmed in writing in consistent contractual documents. A promise of flexibility is no substitute for a clear contingency procedure.

Key takeaway: before choosing a franchise brand, obtain the purchasing clause, dated price lists and delivery terms. Then check three things: your margin, your options if supplies are disrupted, and the cost of any stock you will have to keep.