Buying a franchise: checking compulsory purchasing requirements

Choosing a brand often also means choosing particular suppliers. Within a franchise network, shared specifications can support quality and brand recognition. However, an obligation to buy from a particular source directly affects your profit margin and your ability to keep the business running day to day. Before signing, examine not only what you must buy, but also the terms and what happens when the agreed supply arrangements fail.

1. Map out every compulsory purchase

Ask for a complete list of products, raw materials, packaging, consumables and equipment that you must source from the franchisor or approved suppliers. A general reference to ‘approved products’ is not enough to assess the commitment.

For each category, establish whether there is an exclusive supplier, a list of alternatives or scope to choose your own supplier with prior approval. Also check whether the obligation covers only products incorporating the brand’s distinctive know-how or extends to standard items widely available on the market.

Your due diligence file should include:

• The current list of compulsory purchases and suppliers.
• The technical and quality specifications that products must meet.
• Each key supplier’s general terms of sale.
• The procedure for approving an alternative source and the response time.

Read these documents alongside the franchise agreement. Your purchasing obligation may appear in one document, while restrictions on returns or payment terms appear in another. Ask for clarification on which document takes precedence if there are inconsistencies, and who is responsible to you for ensuring supply.

2. Calculate the true delivered cost

The list price is not always the final cost. For a representative basket of purchases, add delivery charges, small-order surcharges, special packaging costs and any handling fees. Your accountant should distinguish between charges that represent a cost and those that primarily affect cash outflow, such as recoverable VAT.

Pay particular attention to minimum order quantities. A low unit price may offer poor value if it requires you to hold substantial stock, rent extra storage space or incur losses through expired products. Ask for details of the remaining shelf life on delivery, delivery frequency and available pack sizes.

Also ask:

• When and how are new price lists communicated?
• Which price applies to an order that has already been confirmed?
• Do discounts depend on purchases by your own outlet or by the entire network?
• Does the franchisor receive commissions or rebates from suppliers, and do these affect the prices you pay?

Do not assume that collective purchasing secures the lowest available price. Compare equivalent quality and identical delivery terms. Comparison is a tool for assessment and negotiation, not permission to bypass a contractual obligation.

3. Agree solutions for shortages and defects

An exclusive purchasing obligation needs a clear procedure for dealing with supply problems. Ask for order confirmation and delivery times, a process for notifying you of shortages and a designated contact. The wording ‘subject to availability’ does not explain how your outlet will keep operating.

Negotiate a procedure for temporarily sourcing supplies elsewhere when the approved supplier cannot deliver. This may require advance notification, evidence of the shortage, compliance with specified standards and written approval. A workable procedure need not dispense with quality control.

For defective or unsuitable deliveries, clarify the deadline for reporting the problem, the evidence required and who pays for return transport. Also establish whether you will receive a replacement, a credit or a refund, and within what timeframe.

It is useful to speak to existing franchisees about actual instances of delayed deliveries. Ask how these were resolved, rather than simply whether they are satisfied. Their experiences can help you identify gaps, but they do not replace written terms.

4. Review the obligation under Greek law

Greece has no specific law comprehensively regulating franchising as a distinct type of contract. There is no specific mandatory pre-contractual disclosure document or dedicated franchise register. Applicable rules include the general provisions of the Greek Civil Code on contracts, obligations and good faith, including during the pre-contractual stage.

Purchasing restrictions are also assessed under Law 3959/2011 and, where applicable, Article 101 of the Treaty on the Functioning of the European Union. Regulation (EU) 2022/720 provides a block exemption for vertical agreements that meet its conditions; it does not amount to blanket approval of every exclusive purchasing clause.

Compulsory sourcing is neither automatically unlawful nor beyond scrutiny simply because it forms part of a franchise agreement. Ask a lawyer to examine the scope, duration and justification of the obligation, as well as the parties’ market positions. Do not assume that you can disregard a clause without legal advice tailored to your circumstances.

Practical takeaway: Before committing, secure three things: a complete list of compulsory purchases, a documented calculation of delivered costs and a written procedure for supply problems. This will help you assess the brand in terms of how the relationship will work in everyday practice.