Franchises in Guatemala: negotiate mandatory purchasing requirements

Buying a franchise in Guatemala may mean purchasing ingredients, packaging or goods only from authorised suppliers. This requirement helps maintain consistent standards, but it can also affect your margins and business continuity. Before joining a franchise network, check what you must buy, how the terms are set and what alternatives you will have if supplies are disrupted.

1. Define the obligation and its contractual basis

Guatemala has neither a specific law comprehensively governing franchises nor a special mandatory pre-contractual disclosure regime. The relationship is based primarily on the Commercial Code, Decree 2-70, and the Civil Code, Decree-Law 106. The Industrial Property Law, Decree 57-2000, governs matters such as trade marks and their licensing, but does not establish a comprehensive framework for franchise supply arrangements.

Do not therefore assume that a special rule will allow you to switch suppliers if an authorised supplier becomes expensive or fails to meet its obligations. Ask a local lawyer to review the proposed obligations and their compatibility with the general rules that apply.

Request a list distinguishing three categories:

• Exclusive purchasing: products you may buy only from the franchisor or a specified supplier.
• Purchasing from approved suppliers: items for which several authorised options are available.
• Purchasing to specification: supplies you may source freely, provided they meet verifiable requirements.

Clarify whether the restriction covers all products or only those essential to the brand’s identity and quality. A blanket obligation to buy ‘everything needed’ may leave too much scope to expand the requirements after you have invested.

2. Calculate the cost of receiving and storing products

Do not compare catalogue prices alone. Request current quotations, delivery terms and a sample order for your outlet. Distinguish confirmed prices from estimates: an initial offer does not guarantee costs throughout the relationship.

Build a costing spreadsheet that includes, where relevant:

• Purchase prices and conditional discounts.
• Transport, insurance and import expenses.
• Applicable taxes and their accounting treatment.
• Storage, refrigeration and handling.
• Losses from expiry, deterioration or rejected products.
• The financing cost of paying before you sell.

If imports are involved, identify who will act as the importer, who will handle the formalities and when you will assume the risk associated with the goods. Ask an accountant to distinguish cash outflows from final costs, particularly where taxes are recoverable.

Calculate the cost per usable unit, not just per unit purchased. An apparently economical order can prove expensive if some of the goods expire before they are sold. Also check whether minimum orders and delivery frequency match your actual storage capacity and sales volumes.

3. Negotiate changes, minimum orders and claims

Ask who sets prices and how changes will be communicated. Seek an advance-notice mechanism that allows you to adjust orders and budgets. If prices cannot be fixed for a set period, try to agree objective benchmarks or a procedure for reviewing significant increases.

Also check whether you must buy minimum quantities, complete product ranges or new products even if you have not requested them. Negotiate how slow-moving items will be handled and whether orders can be reduced when you already hold sufficient stock.

The supply terms should specify:

• When an order is accepted and whether it can be amended.
• The delivery timescale the supplier commits to, rather than merely estimates.
• The minimum remaining shelf life products must have on receipt.
• How to document shortages, damage or failures to meet quality standards.
• Who pays for returns and when a replacement or credit is due.

Identify who you should make a claim against: the franchisor, manufacturer or distributor. If the supplier is a separate business, a promise from the franchisor does not necessarily bind that supplier. Ask for the relevant terms to be recorded in the appropriate documents for each relationship.

4. Agree an alternative for supply disruptions

An exclusive purchasing commitment needs a procedure for managing shortages. Ask what will happen if the supplier cannot fulfil orders, delivers defective products or ceases trading.

Propose a process for temporarily authorising alternatives: documented notice, technical specifications, evidence of quality, a designated approver and a response deadline. Do not assume that no response means permission has been granted.

Any alternative must meet the brand’s standards and the legal requirements applicable to the product. Also agree how the incident will be documented and how any commercial obligations affected by a substantiated supply shortage will be assessed.

Practical conclusion: before signing, document four points: which purchases are mandatory, how much it costs to receive them, how you will make a claim and what solution will be available if the supplier cannot deliver.