Buying a franchise: securing your supply chain

Joining a franchise network gives you access to shared working methods and, sometimes, centralised purchasing. However, purchasing obligations can also limit your options when prices rise or a supplier stops delivering. Before choosing a brand, examine exactly what you will have to buy, from whom and with what guarantees. The aim is to protect your ability to serve customers on commercially viable terms.

1. Map out your actual purchasing obligations

A phrase such as ‘approved suppliers’ does not tell you enough about your obligations. Depending on the contract, it may refer to a suggested list, a choice restricted to several providers or a single mandatory supplier. You need to distinguish between these arrangements before comparing franchise brands.

Ask for a written list of the categories covered: goods for resale, ingredients, packaging, consumables and cleaning products. For each category, identify:

• the authorised supplier and the company that will invoice you;
• any exclusivity requirement or minimum proportion of purchases;
• the specific products you must buy and any permitted substitutes;
• minimum order quantities, whether per order or over a set period;
• the procedure for proposing a local supplier.

Distinguish quality requirements from an obligation to buy from a particular company. A product specification can set the required characteristics without necessarily imposing a sole supplier. Ask why each restriction is necessary for the franchise concept to operate.

Finally, establish where these rules are set out: the franchise agreement, an appendix, the terms and conditions of sale or the operations manual. If several documents apply, ask how they fit together and obtain the information you need to assess your commitment before signing.

2. Understand the French legal framework

France has no single statute governing the entire franchise relationship. It is subject, in particular, to contract law and competition law. An exclusive purchasing obligation is therefore neither automatically prohibited nor automatically valid: its assessment depends on its scope and the contractual and economic context.

Article L. 330-3 of the French Commercial Code, introduced by the Doubin Law of 31 December 1989, requires pre-contractual disclosure where a business makes a trade name, trademark or trading identity available while requiring an exclusive or near-exclusive commitment in carrying on the activity. In such cases, the pre-contractual disclosure document and draft agreement must be provided at least twenty days before signing or, where applicable, before any advance payment is made.

Article R. 330-1 of the French Commercial Code specifies what this disclosure must contain, including the scope of exclusive arrangements. For your supplies, compare this information with the detailed obligations in the agreement and its appendices.

Articles 1112-1 and 1104 of the French Civil Code also govern, respectively, the disclosure of material pre-contractual information and good faith. This does not mean that the franchisor guarantees your profit margin or every delivery. Operational commitments must be made explicit. Have any significant restrictions reviewed by a lawyer familiar with franchise and competition law.

3. Calculate the full cost of orders

The listed price does not always reflect the actual cost of getting a product onto your shelves. Ask for a dated catalogue, the terms and conditions of sale and a sample order costing tailored to the type and size of outlet you plan to run.

Add transport charges, small-order surcharges, separately charged packaging and any express delivery fees to the purchase price. Check free-delivery thresholds too: ordering more to reach them can increase unsold stock, particularly for perishable goods.

Next, check how prices can change. Who decides on an increase? How much notice is given? Does the price apply at the time of ordering or delivery? Are discounts applied immediately or conditional on annual purchasing volumes? Also ask who receives any rebates negotiated by the central purchasing organisation.

Compare costs delivered to your outlet, not just catalogue prices. With your accountant, model an increase in purchasing costs and a reduction in order volumes. The aim is not to predict future prices, but to find out whether your business model remains viable when conditions become less favourable.

4. Plan for shortages and practical remedies

A franchise network benefits from arrangements that maintain continuity of supply. Yet a sales promise of ‘efficient logistics’ tells you neither which lead times are guaranteed nor what happens if stock runs out.

Ask for clarification on:

• usual lead times and any firm commitments;
• how shortages are reported;
• how incomplete deliveries or goods that do not meet specifications are handled;
• the conditions for returns and issuing credit notes;
• temporary permission to buy elsewhere.

That last option must be workable: there should be a named contact, clear supporting-document requirements, a response deadline and defined quality standards. If the supplier is a separate business from the franchisor, check who is responsible for each obligation. Approving a supplier does not, in itself, mean that the franchise brand guarantees the supplier’s performance.

Key takeaway: before signing, obtain a list of mandatory purchases, their full cost and a written procedure for dealing with shortages. These three elements will help you make a practical assessment of how secure your supplies will be.