Buying a Franchise: Check Purchasing Obligations and Supply Costs

Joining a franchise network often gives you access to shared suppliers, standardised equipment and proven products. But centralised purchasing is not necessarily cheaper. Purchasing obligations can have a lasting impact on your costs and your freedom to run the business. Before buying a franchise, look beyond the initial fee: check what you must buy, from whom, on what terms and in what quantities.

1. Identify all purchasing obligations

A purchasing obligation requires you to buy certain goods or services exclusively from the franchisor or approved suppliers. This can help maintain consistent quality across the franchise network. Problems arise when the scope, prices or rights to make changes remain unclear.

Do not limit your review to the main agreement. Purchasing restrictions may also appear in appendices, equipment specifications, software agreements and the operations manual. Ask for access to all provisions material to your decision before signing, under a confidentiality agreement if necessary.

Draw up an overview covering the following:

• Goods and raw materials: Which products must be sourced through the franchise system?
• Fixtures and equipment: Are particular manufacturers, models and replacement intervals specified?
• Digital services: Which till, ordering and management software must you use?
• Operating supplies: Are there requirements for packaging, workwear or cleaning products?
• Services: Must you use specified maintenance, payment processing or advertising services?

For each item, record the supplier, pricing basis, any minimum quantities and the contract term. Distinguish binding obligations from recommendations. A statement such as “Almost everyone orders that from us” is no substitute for a clear contractual provision.

2. Calculate the true cost of purchasing

A price list rarely shows the full cost. Freight, packaging, small-order surcharges, storage costs and mandatory services may all be charged on top of the price of the goods. Volume discounts are of little benefit if they require you to order more stock than your outlet can realistically use or sell.

Request current price lists and all supplementary terms. Calculate the total purchasing cost for a typical basket of orders. Compare it with genuinely equivalent alternatives: quality, delivery frequency, warranty cover and service must be comparable. A comparison based solely on unit prices can otherwise be misleading.

In particular, check:

• Are discounts available to an individual outlet, or only for large order volumes?
• Who receives supplier bonuses and rebates, and does the agreement specify how these are handled?
• What payment terms apply, and when are direct debits collected?
• Who bears the costs of damaged, faulty or late-delivered goods?
• What options are available for returning or exchanging unsaleable stock?

Pay attention to cash flow: A large opening order ties up money before the business generates revenue. Explicitly include mandatory stock holdings, advance payments and delivery costs in your funding requirements. As a rule, compare costs consistently on a net-of-VAT basis. When planning payments, also account for actual VAT outflows and your tax position.

3. Understand the legal framework

Germany has no dedicated franchise law or national franchise register. Franchise agreements are legally classified as mixed contracts, combining elements of different contract types. Purchasing restrictions are governed in particular by the general contract law provisions of the German Civil Code (BGB), as well as German and EU competition law.

Pre-contractual duties to protect the other party’s interests and disclose relevant information arise during negotiations, particularly under sections 311(2) and 241(2) BGB and the principle of good faith under section 242 BGB. Material purchasing restrictions and associated costs or burdens relevant to your decision should be examined before the agreement is signed. The precise scope of disclosure duties depends on the circumstances. There is no statutory, generally applicable disclosure period specifically for franchise agreements; insist on sufficient time to review the documents.

Pre-drafted contract terms are also subject to review under sections 305–310 BGB, which govern standard terms and conditions, with particular rules applying to business-to-business transactions. Unclear or unreasonably disadvantageous provisions on changes and pricing may raise legal concerns. However, not every commercially unfavourable clause is invalid.

Key competition law provisions include section 1 of the German Act against Restraints of Competition (GWB), Article 101 of the Treaty on the Functioning of the European Union (TFEU), and the Vertical Block Exemption Regulation (EU) 2022/720. Whether an exclusive purchasing obligation is lawful depends, among other things, on its structure, duration, the parties’ market positions and its importance to the franchise concept. The frequently cited 30% market share threshold is not a blanket exemption: under the block exemption rules, it generally applies to both parties, and further conditions must also be met. Have extensive restrictions reviewed by a specialist lawyer.

4. Agree in advance how price changes and supply failures will be handled

Purchasing arrangements on opening day are only part of the picture. Establish who may subsequently change suppliers, introduce new mandatory products or require additional equipment. Ask about notice periods and how stock already purchased will be treated.

There should be a workable procedure for supply failures: who reports a shortage? When may you source alternatives? What evidence of quality is required, and who approves the exception? A written provision helps prevent a situation in which you must choose between interrupting operations and breaching the agreement.

Also speak to existing franchisees about delivery reliability, complaints and unexpected additional costs. Their experience complements a contract review but does not replace it. Keep a list of outstanding questions and have key commitments incorporated into the contractual documents. Clarify which provisions take precedence if the agreement, appendices and manual conflict.

Practical takeaway: Sign only once the mandatory product range, total purchasing costs, rights to make changes and arrangements for sourcing alternatives are clearly set out. A transparent purchasing agreement protects your cash flow and strengthens cooperation within the franchise network.