Building a Franchise: Managing Purchasing and Supply Disruptions

A purchasing process that works well in your own business is not necessarily a robust procurement model for a franchise network. Once independent franchisees need the same goods, orders, delivery commitments and alternative arrangements must work without relying on personal intervention. Before taking on your first franchisee, establish which goods must be specified, who will supply them and what happens if shortages arise. This protects your shared customer promise and helps franchisees plan their finances reliably.

1. Define the necessary standard for each product category

Start by listing all the goods and consumables your existing business regularly needs. The key question is not whether you have been happy with a supplier for years, but which characteristics are genuinely essential to a business model that others can replicate.

Distinguish between three practical categories:

• Goods central to the concept: Products whose formulation, characteristics or design are essential to the network’s shared offering.
• Goods with verifiable quality requirements: Items for which different suppliers can meet the same standard.
• Goods that can be sourced freely: Materials whose origin has no significant effect on the customer experience or service delivery.

Record the objective purpose of each requirement. For example, particular packaging may be necessary for safe transport. That does not automatically mean it must be bought from one specific distributor.

Next, prepare a procurement specification sheet for each important product category: required characteristics, permitted sources, ordering lead times, storage conditions and possible alternatives. Check these details against your actual purchasing experience. A supplier’s ability to serve one business does not prove that it can reliably supply several franchisees in different locations.

2. Clearly allocate ordering, costs and responsibilities

Decide whether franchisees will order directly from suppliers or whether your head office will buy goods and resell them. Both models can work, but they create different obligations. When head office resells goods, it acts as the seller; when franchisees order directly, the supplier will generally be their contractual counterparty.

Simply recommending a supplier is different again from making your own commitment to supply. These distinctions must remain clear in offers, ordering processes and contracts. Do not promise franchisees guaranteed availability unless your supplier agreements provide a sound basis for doing so.

In particular, clarify:

• Who formally accepts orders and confirms delivery dates?
• Who invoices for goods, shipping and any surcharges?
• What minimum order quantities and payment terms apply?
• Who handles short deliveries, damage in transit and defective goods?
• Who holds agreed stock levels and bears the risk of unsaleable surplus stock?

Purchasing benefits also need a transparent framework. Disclose whether volume discounts are passed on to franchisees and whether head office receives payments from suppliers. In particular, avoid suggesting that goods are supplied at cost if a trading margin is actually included.

Test the entire process with a typical order, including a complaint. This will reveal gaps in responsibility before several franchisees encounter them at once.

3. Have sourcing restrictions legally reviewed

Germany has no dedicated franchise legislation and no specific government franchise registration requirement. Contract drafting is governed principally by the German Civil Code (BGB), where applicable the German Commercial Code (HGB), and German and EU competition law. Standard contract terms are also subject to review under sections 305–310 BGB.

Mandatory sourcing rules are particularly affected by section 1 of the German Act against Restraints of Competition (GWB) and, where trade between EU Member States is affected, Article 101 of the Treaty on the Functioning of the European Union (TFEU). The EU Vertical Block Exemption Regulation, Regulation (EU) 2022/720, can exempt certain vertical agreements from the prohibition on anti-competitive agreements if its conditions are met. It is not, however, blanket permission for every sourcing restriction.

Whether a restriction is lawful depends on factors including its terms, duration, market conditions and importance to the franchise concept. Have exclusive purchasing requirements, minimum purchase quantities and restrictions on alternative sources reviewed by a suitably qualified legal adviser. Saying “It is part of our brand” is no substitute for that review.

Prospective franchisees should receive an accurate explanation of significant purchasing obligations and financial burdens before signing the agreement. Pre-contractual duties of protection and disclosure arise from general provisions of the BGB, particularly sections 311(2) and 241(2). The European Code of Ethics for Franchising, by contrast, is a form of self-regulation, not legislation.

4. Prepare a fallback plan for supply disruptions

Define a simple escalation procedure for critical goods. Who reports a shortage, who assesses its impact and who decides whether to approve a temporary substitute? Appoint a deputy too, so that approval does not depend on one person being available.

Where possible, assess potential substitutes before an emergency arises. For food products, for example, ingredients, allergens and labelling may be affected. A substitute must therefore not be selected solely on price and availability. Customer information or working procedures may also need to change.

Set out how a temporary exception will be documented and when it will end. Align these procedures with the franchise agreement; the operations manual should not create additional purchasing obligations that have no contractual basis. After each major disruption, review what happened with the supplier concerned and improve the process.

Practical takeaway: Before recruiting franchisees, prepare a product overview, a clear ordering and complaints process, and an assessed fallback plan. Mandatory sourcing rules need both a clear operational purpose and a legally sound basis.