Franchise stock in Mexico: minimum levels, wastage and costs

Buying a franchise also means tying up money in goods that may take time to sell. Excessive compulsory stock levels can lock up funds, lead to products expiring and take up costly space. For prospective franchisees, clarifying these rules before signing helps distinguish a reasonable operational requirement from an unsustainable burden. Your review should cover both the initial purchase and replenishment throughout the franchise relationship.

1. Identify the stock you are required to hold

Do not confuse a suggested opening stock list with an ongoing contractual obligation. Ask for the initial product catalogue, minimum quantities for each product and stock replenishment rules. Check which requirements are compulsory, which depend on the outlet format and which you can adjust to local demand.

It is worth distinguishing between three commitments that may look similar:

• Minimum stock level: the number of units you must keep available at the outlet.
• Minimum order: the quantity or value you must purchase in each transaction.
• Compulsory periodic purchase: the volume you must buy within a given period, even if you still have unsold goods.

Each affects your investment differently. A large minimum order may be manageable if you order infrequently; a compulsory monthly purchase can cause surplus stock to build up when sales fall.

Also ask about the rules for seasonal products, new launches and catalogue replacements. Clarify whether you will have to accept new goods before selling through existing stock, and whether you will be free to reduce slow-moving product lines. Get the answers in writing rather than relying on a sales presentation.

2. Check how the policies are documented

In Mexico, franchises are specifically regulated by the Federal Law on the Protection of Industrial Property (Ley Federal de Protección a la Propiedad Industrial). Article 246 requires the agreement to be in writing and to include, among other requirements, stock policies and provisions governing the supply of goods and contracting with suppliers, where applicable.

This does not mean that the law sets a uniform minimum stock level or guarantees the right to return unsold products. You must check those terms in the franchise’s own documentation.

Article 245 also requires the franchisor to provide information on the state of its business at least thirty days before the agreement is entered into. Use that period to compare the pre-contractual information with the agreement, its appendices and any policies you are given.

If the agreement refers to a stock management manual, ask to see the relevant financial obligations before committing. Review the following with your lawyer:

• Which document sets out the minimum requirements and how its version is identified.
• How the agreement, appendices and manuals relate to one another.
• What procedure will be followed to update the requirements.
• What happens if a stock rule is incompatible with the premises’ authorised capacity.

Do not assume that a promise of flexibility will override a written purchasing obligation.

3. Calculate the cost of holding and losing stock

The purchase price is not the full cost of stock. Add transport, goods receipt, storage, refrigeration where relevant, and waste handling. Separate your own costs from charges made by third parties to avoid double-counting.

Next, prepare a table for each product category showing unit cost, minimum order, lead time, shelf life and estimated sales. Make your assumptions explicit: if you do not yet have sufficient evidence of demand, set out several scenarios rather than treating a forecast as a certainty.

The remaining shelf life when you receive a product matters just as much as its expiry date. Ask whether a minimum remaining shelf life is guaranteed on delivery and how you can demonstrate that this requirement has not been met.

Also define what counts as stock loss or wastage: expiry, breakage, deterioration, shortages or loss in transit. These causes should not necessarily all be treated in the same way. Clarify who bears each cost and what evidence is required for a claim, such as photographs, temperature records or goods receipt records.

4. Agree on returns and ways to deal with surplus stock

Request a written procedure that distinguishes between defective goods, incorrect deliveries and products that simply have not sold. Acceptance of a return for a defect does not mean you can return surplus stock.

For each situation, check the deadline for making a claim, who authorises it, who pays for transport and whether you will receive a refund, replacement goods or a credit note. If a credit note is offered, check how long it is valid and any restrictions on its use.

Also ask which options are permitted when you have surplus stock: discounts, promotions, transfers between outlets or a reduction in the next order. Do not assume you can take these steps unilaterally, particularly where they affect quality or storage standards.

Practical takeaway: before buying, bring together on a single sheet the minimum requirements, the cost of maintaining them and the rules for obtaining replacement goods or recovering your money. If you cannot explain who pays for a product that does not sell or arrives unusable, an essential term still needs to be clarified.