Buying a Franchise in Lebanon: Supply Due Diligence and Stock Costs

The initial franchise fee may look affordable, while the greater risk lies in the goods you will buy every month. When entering Lebanon’s franchise market, asking about the advertised profit margin is not enough. Ask how products will reach your outlet, which currency you will pay in, and who bears the cost of delays and damage. This guide helps you assess supply and stock as part of your investment decision before committing to a brand.

1. Map the supply chain before comparing brands

Start with a list of the products, equipment and consumables needed to operate the business. Then divide them into mandatory purchases from the franchisor, purchases from approved suppliers and permitted local purchases. Do not assume that approval of a local supplier gives you the freedom to replace them, or that buying equipment once frees you from an obligation to purchase spare parts later.

For each category, request written details covering the country of origin, estimated delivery time, minimum order quantity, remaining shelf life on receipt, and the party responsible for importing and customs clearance. Also distinguish between the supplier issuing the invoice and the party guaranteeing quality: they may not be the same.

Ask existing franchisees about what happens in practice, rather than just their overall satisfaction:

• Do orders arrive in full and on time?
• Have they had to buy more than they needed to retain agreed pricing terms?
• How were incomplete or defective shipments handled?
• Can they keep the outlet running when an essential product is unavailable?

Consider their answers in light of your location and expected sales volume. The experience of a high-volume outlet does not prove that the same minimum purchase requirement will suit a smaller one. Ask for an explanation of any differences between the terms offered to you and those applied to comparable outlets.

2. Calculate the landed cost at your outlet and the cash required

The supplier’s price is not the final cost of your stock. Build a spreadsheet covering the purchase price, freight, insurance, customs clearance, any applicable customs duties, inland transport and storage. Add transfer and payment charges, and do not overlook refrigeration or the energy needed to preserve temperature-sensitive products.

Ask an accountant to establish the correct tax treatment. Recoverable tax, where the conditions for recovery are met, is distinct from the final cost, but you may still need to fund it temporarily. Allocate shipment costs across the units you expect to be able to sell, allowing for anticipated damage or spoilage, rather than simply across the number ordered.

The true contribution margin is the net selling price less the product’s landed cost and variable costs associated with the sale, such as packaging, delivery commission and sales-based royalties. It is not net profit: rent, salaries and other fixed expenses still need to be covered.

In Lebanon, establish the invoice currency and payment currency. If they differ, specify the conversion mechanism and the date used to calculate the exchange rate. Do not accept wording such as “at the prevailing exchange rate” without a clear reference source and calculation method. Check which payment methods are actually available and what they cost, rather than assuming that transferring money abroad will be straightforward.

Test three scenarios: expected sales, slower sales and supply delays. For each, calculate the value of stock held, payments falling due and cash remaining to run the business. If you need finance, align its repayment schedule with the stock sales and revenue collection cycle. Selling goods after the finance repayment falls due can create a cash shortfall even when margins are healthy.

3. Turn supply risks into measurable contractual terms

Do not settle for a promise that the franchisor will “help when needed”. Request a supply schedule setting out responsibilities and specifying which takes precedence if the agreement, schedule and operations manual conflict. Pay particular attention to the franchisor’s right to change suppliers, prices and specifications, and whether it can impose new purchasing obligations simply by updating the manual.

Focus negotiations on five areas:

• Price changes: a written notice period and clear treatment of orders confirmed before an increase.
• Minimum purchases: requirements tied to a reasonable level of operation, with a review mechanism if sales slow down.
• Delays and shortages: a notification deadline, an approved alternative and a fast-track process for approving a local supplier that meets the required standards.
• Defects and shelf life: clear acceptance criteria, an inspection period, and procedures for compensation or replacement, including who pays the associated costs.
• Product changes: arrangements for stock that becomes unsaleable because the brand decides to change its packaging or range.

Clarify when the risk of loss or damage to goods passes to you, and who submits any insurance claim. If a supplier suggests buying more stock to secure a discount, compare the saving with financing and storage costs and the risk of products passing their expiry date. A discount does not protect cash flow if it encourages you to buy goods you will not sell.

4. Understand legal protection and its limits in Lebanon

Lebanon has no comprehensive law specifically governing franchise agreements. The relationship is governed primarily by the Code of Obligations and Contracts and the Commercial Code, with consumer protection, intellectual property, competition and other rules applying according to the nature of the business. Do not therefore assume that you have an automatic, franchise-specific right to return unsold stock to the franchisor.

Nor should you regard an exclusive supply arrangement as guaranteed legal protection. The legal classification of some relationships has raised questions about the application of Legislative Decree No. 34 of 1967 on commercial representation. Beirut Court of Appeal Decision No. 1106/2009 distinguished a franchise agreement from commercial representation, but the label on an agreement does not determine how every relationship will be classified. Ask a Lebanese lawyer to review the substance of the obligations, taking account of legislation in force and its amendments, particularly competition rules.

The practical takeaway: before choosing a brand, map the supply chain, calculate the landed cost at your outlet and stress-test cash flow under disruption. Then put pricing mechanisms, alternative supply arrangements and stock-handling provisions in writing. The right brand is one you can operate and finance, not merely afford the right to use.