Franchise suppliers in Mexico: what to agree before buying

Buying a franchise also means accepting rules about where you can buy products, supplies and services. Across franchise networks, these rules help maintain consistent quality, but they can create dependency and costs that are difficult to control. Before choosing a brand, look beyond its supplier list: check what purchasing commitments you will take on and what options you will have if something goes wrong.

1. Identify which purchases are restricted

Request a list of the purchases needed to run the business and classify them by the rules that apply: mandatory purchases from the franchisor, purchases from an exclusive supplier, a choice of approved suppliers, or unrestricted purchasing subject to technical specifications.

Do not assume that all restrictions relate to the core product. They may also cover packaging, uniforms, cleaning products, maintenance or specialist services. For each category, ask:

• Who sells the goods or services, and who issues the invoice?
• Is the obligation set out in the contract or in a document it refers to?
• What quality, safety or brand identity grounds justify the restriction?
• Are there approved alternatives that actually serve your location?
• Who can change the supplier list, and what procedure must they follow?

Distinguish between a mandatory specification and a mandatory supplier. Requiring a material with particular characteristics is not the same as requiring it to be bought exclusively from one company. That distinction determines your ability to compare offers and resolve supply problems.

2. Check the true cost and commercial terms

Ask for current quotations for the location where you intend to open. A national price list may not reflect freight charges, distance surcharges, insurance, handling or special deliveries. Separate the product price from taxes and additional services so that you can compare like with like.

Prepare a table showing the supplier, product or service, purchasing unit, price, transport costs, payment terms and quotation validity period. Include any advance payment requirements: these may mean paying out before you receive goods or collect sales revenue.

Next, examine how those costs may change. It is worth negotiating a clear mechanism for price adjustments, advance notice and the treatment of orders already accepted. If there is no agreed formula, establish at least who communicates new prices and when they take effect.

Also ask whether the franchisor receives commissions, rebates or discounts from suppliers, and whether any of those benefits can be passed on to your outlet. Do not assume that you are automatically entitled to a discount negotiated for the network: ask for any promised benefit to be defined in writing.

Finally, compare the total cost of a representative basket of purchases, rather than just the price of one attractively priced item. A low price may lose its advantage once frequent transport charges or demanding payment terms are factored in.

3. Negotiate a practical fallback for supply failures

Exclusive supply arrangements deserve particular attention when no alternative is available. Ask what would happen if the supplier stopped delivering, rejected orders or sent products that did not meet specifications.

Request a procedure that sets out:

• How to document and report a failure to meet obligations.
• Who is responsible for processing replacements, returns or credit notes.
• How long the franchisor has to respond to a request to buy from an alternative source.
• What requirements a replacement supplier must meet.
• How long an exceptional authorisation lasts and how normal supply arrangements are resumed.

These points are matters for negotiation, not automatic rights. If you buy directly from a third party, the franchise agreement does not necessarily oblige that supplier to compensate you or replace products. Review its terms of sale as well, and confirm who is accountable to you.

Ask about the approval process for local suppliers, including testing, documentation, costs and who is responsible. An option to switch suppliers without a response deadline may be of little use during a disruption. Nor should you assume that an emergency gives you unrestricted permission to breach contractual restrictions.

4. Incorporate the agreements into your Mexican franchise contract

Mexico has specific franchise regulations. Article 246 of the Federal Law for the Protection of Industrial Property (Ley Federal de Protección a la Propiedad Industrial) requires a written contract that includes, where applicable, provisions on the supply of goods and arrangements with suppliers, as well as inventory, marketing and advertising policies.

This requirement does not, in itself, set maximum prices or guarantee the freedom to buy from any supplier. That is why it is important to review the specific terms you will be signing, with independent legal advice.

Cross-check the contract against quotations, supplier terms and the applicable manuals. If you have been promised free deliveries, local alternatives or a deadline for approving replacement suppliers, ask for those commitments to be incorporated in a legally binding form. Where different companies are involved, check which obligations each one is taking on: a commercial promise from the franchisor is no substitute for a commitment from the supplier.

Practical conclusion: before buying, you should be able to answer three questions: who can supply you, how the total cost may change, and what you will do if deliveries stop. If any answer rests solely on a verbal promise, clarify it before signing.