Franchising your business: securing your supply chain

Your business works with a handful of trusted suppliers. But can they serve several independent business owners in different towns and cities with the same consistency? Before franchising your business, turn your purchasing practices into a system that can be replicated. The aim is not to centralise everything, but to deliver on your customer promise without creating unnecessary dependencies for your franchise network.

1. Distinguish essential purchases from unrestricted purchases

Start by listing the products, raw materials, equipment and consumables your concept needs. For each category, ask one question: would using an alternative genuinely affect the quality, safety or experience customers expect?

Then divide purchases into three categories:

• Items that define the concept, whose characteristics are essential to the brand promise.
• Purchases governed by a specification, which several suppliers may be able to meet.
• Unrestricted purchases, with no significant impact on the identity or quality of your offering.

For example, a proprietary formulation may require a specific source. Packaging may need to meet criteria for strength, dimensions and presentation without necessarily requiring a single manufacturer.

Record the justification for each restriction. The founder’s personal preference or a longstanding commercial relationship is not enough to demonstrate that a mandatory purchase is necessary. This distinction also helps identify where franchisees can seek local savings without undermining the concept.

2. Check that suppliers can keep pace with growth

A supplier that performs well for your own outlet is not automatically ready to supply a franchise network. Present several outlet-opening scenarios without turning your ambitions into firm volume commitments.

Ask for written answers on the following points:

• geographical coverage, delivery lead times and frequency;
• minimum orders and delivery charges;
• production capacity and management of peak demand;
• payment terms available to new operators;
• handling of defects, returns, recalls and shortages.

Compare the total cost delivered to the outlet, not just the list price. An attractive purchase price may offer little benefit if small orders incur substantial charges or minimum quantities tie up too much cash.

Test an order that reflects a future franchisee’s circumstances: a small volume, a distant address and realistic delivery acceptance constraints. Record lead times, errors and time spent resolving complaints. The purpose here is to check the supply chain, not to repeat the overall assessment of the concept.

Finally, arrange a fallback for critical items. Where no second source exists, document this vulnerability and define a realistic response: safety stock, a temporarily reduced offering or a pre-approved substitute.

3. Structure purchasing obligations under French law

Freedom of contract does not mean that any exclusivity requirement is permissible. In France, purchasing obligations are governed, among other things, by contract law and French and EU competition law.

EU Regulation 2022/720, on vertical agreements, provides a block exemption subject to conditions, including market share thresholds and the absence of hardcore restrictions. An obligation requiring the buyer to source more than 80% of its relevant purchases from the supplier or a designated undertaking may constitute a non-compete obligation under this regulation. Its duration and terms require specific analysis. Falling outside the exemption’s conditions does not, however, automatically make a clause unlawful.

Have a lawyer review exclusive purchasing requirements, supplier approval procedures and options for using alternatives. Do not confuse quality control with resale price fixing: franchisees remain independent business owners, free to set their own prices, subject to the applicable rules.

Pre-contractual disclosure matters too. Article L. 330-3 of the French Commercial Code, introduced by the Doubin Law, applies where its conditions are met, notably where identifying signs such as a brand or trade name are made available alongside an exclusive or near-exclusive commitment. In such cases, the pre-contractual disclosure document, known as the DIP, and the draft contract must be provided at least twenty days before signing or making any advance payment covered by these requirements. Article R. 330-1 specifies the contents of the DIP, including the scope of exclusive arrangements. Purchasing restrictions must be set out unambiguously in the relevant documents.

4. Organise decisions and exceptions

Define who places orders, who issues invoices and who handles disputes. The arrangements will differ depending on whether the franchisor resells goods or simply negotiates terms with suppliers that invoice franchisees directly.

Also explain any income or financial benefits linked to purchasing: resale margins, commissions or supplier rebates. Their treatment must be consistent with contractual commitments, without suggesting that a benefit is passed on in full to franchisees when it is not.

Create a straightforward procedure for proposing an alternative: technical documentation, a sample where appropriate, assessment criteria, a person responsible and a stated response time. Provide a fast-track route for urgent shortages, with a documented approval process.

Key takeaway: before recruiting franchisees, prepare a purchasing matrix, test deliveries and have your clauses reviewed by a lawyer. A sound purchasing rule protects quality while remaining clear and workable for every franchisee.