Building a franchise: getting purchasing and sourcing obligations right

In your own business, you can decide at short notice where to buy goods and materials. Once you develop it into a franchise network, several legally independent businesses need reliable rules. The central question is: which purchasing requirements genuinely protect your concept, and where do your future partners need commercial freedom? Resolve this before signing the first agreement, rather than simply carrying over existing supplier arrangements unchanged.

1. Turn purchasing habits into justified standards

Not every trusted supplier needs to become a mandatory supplier. Start by taking stock of the products, materials and services your existing business needs. Assign each item to one of three groups:

• Core to the concept: for example, a special recipe blend or a precisely matched technical component whose characteristics define what you promise customers.
• Important for quality, but interchangeable: such as packaging or cleaning products, where measurable requirements may be sufficient.
• General operating supplies: such as standard office supplies, where using a particular provider often brings no clear benefit to the concept.

For every proposed sourcing obligation, record its purpose in writing. “We have always bought from them” is not a sound justification. Specific, verifiable requirements relating to safety, workmanship, compatibility or consistent product characteristics provide a better basis.

Next, define whether the binding requirement should concern a particular product, a group of approved suppliers or simply a quality standard. The more precisely you describe the necessary standard, the easier it is to avoid unnecessary restrictions. This helps secure acceptance within the franchise network and makes subsequent legal review easier.

2. Test supply capacity beyond your original business

A supplier that reliably serves your existing premises is not automatically suitable for several independent businesses. Before making a binding commitment, check whether it can actually accommodate new delivery locations, smaller order quantities and different opening dates.

A purchasing trial should cover more than the list price. Also document freight charges, minimum order quantities, lead times, payment terms, complaints and the work involved in reordering. What matters is the total cost of getting the goods to each location and how much capital is tied up in stock.

Also clarify the contractual structure:

• Does each franchisee order from and pay the supplier directly?
• Does head office buy the goods itself and then resell them?
• Does head office merely negotiate terms, without becoming a party to the purchase contract?

These models allocate responsibilities and risks differently. If head office resells goods, it takes on its own obligations as a seller, as well as additional financing and logistics requirements. With direct ordering, the framework agreement and individual supply contracts must be consistent.

Agree a contingency process for supply disruptions. Who can approve substitute products? What evidence is required? When may partners temporarily buy elsewhere? Test this process against a specific supply failure before several locations become dependent on it.

3. Keep sourcing obligations and selling prices legally separate

Germany has no dedicated franchise law and no general government franchise register. Purchasing rules are governed in particular by the contract law provisions of the German Civil Code (BGB), sections 305 onwards of the BGB for standard contract terms, and German and EU competition law. Even in business-to-business dealings, standard contract terms are subject to legal limits.

Agreements that restrict competition must be assessed in particular under 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 Vertical Block Exemption Regulation, Regulation (EU) 2022/720, can exempt certain agreements from the prohibition on anti-competitive agreements, provided its conditions are met. It is not, however, blanket permission for every sourcing obligation. Market shares, duration, scope and the specific arrangements must all be examined.

Consistent quality does not automatically mean uniform retail prices. Setting binding minimum or fixed resale prices for independent franchisees is generally problematic under competition law. Non-binding recommended retail prices must not become effectively binding through pressure, penalties or financial incentives. Centrally planned discount campaigns therefore also need careful structuring.

Have sourcing obligations, pricing provisions and enforcement mechanisms reviewed together. Legally compliant wording is of little use if threats or less favourable supply arrangements in practice result in unlawful resale price maintenance. You should therefore also train staff who coordinate purchasing, advertising and franchisee support.

4. Keep commercial terms transparent and changes predictable

Prepare a clear purchasing overview for prospective partners. It should explain mandatory product ranges, ordering channels, additional costs, payment terms and how supply failures will be handled. Also make clear whether head office receives financial benefits from product sales, intermediary fees or supplier rebates, and how these are treated under the agreed model. Whether there is an entitlement to have these benefits passed on depends on the agreements and circumstances.

Pre-contractual disclosure duties arise in particular under sections 311(2) and 241(2) of the BGB; breaches of duty can give rise to damages under section 280 of the BGB. Purchasing costs and sourcing obligations must therefore not be presented misleadingly. Known material restrictions must be disclosed in good time, not left to emerge with the first invoice for goods.

Finally, set out how supplier changes and new mandatory products will be introduced: with a clear justification, reasonable advance notice and a solution for existing stock. An unrestricted right for head office to make changes is no substitute for a balanced agreement.

Practical takeaway: Before launching the franchise, prepare a sheet for each mandatory item setting out the quality objective, sourcing route, total costs and fallback option. Use these to develop a coherent set of purchasing rules and have them legally reviewed, rather than making your existing purchasing habits compulsory for everyone.