Buying a NZ Franchise: Check Approved Supplier Rules

Buying a franchise in New Zealand often means buying stock, equipment and services from suppliers chosen by the franchisor. That can bring consistent quality and simpler purchasing, but it can also limit your control over costs and availability. Before joining a franchise community, investigate exactly what you must buy, who sets the terms and what happens when supplies fail.

1. Identify every compulsory purchase

Do not assume approved supplier rules cover only products sold to customers. They may also cover packaging, uniforms, cleaning materials, payment systems, software, delivery services and replacement equipment.

Ask for the franchise agreement, relevant operations manual provisions, current approved supplier list and any separate purchasing contracts. Establish whether you must buy from one nominated supplier, choose from a panel or obtain permission for alternatives.

Create a purchasing schedule recording:

• Each compulsory product or service.
• The supplier and any relationship with the franchisor.
• Minimum orders, delivery charges and payment deadlines.
• Required opening stock and ongoing stock levels.
• Contract length, cancellation terms and personal guarantees.

Check whether the franchisor can change these requirements through the operations manual without your agreement. A purchase that appears optional during discussions may become compulsory under the documents you sign.

For an existing franchise, verify whether the seller’s supplier accounts and terms can transfer. Do not assume you will inherit their credit arrangements or discounts.

2. Test the full cost of purchasing

Ask for current price lists and sample invoices showing freight, account charges and other compulsory costs. Confirm whether quoted amounts include GST, and have your accountant model both the operating cost and the timing of payments.

A low unit price may be less attractive once minimum orders, storage requirements, expiry dates and delivery frequency are considered. For imported goods, ask who bears exchange-rate movements, customs charges and unexpected freight increases.

Find out how prices can change. Is there a contractual formula, an agreed review timetable or simply a right for the supplier to issue a new price list? What notice must you receive?

Also ask whether the franchisor or an associated company receives rebates, commissions or other benefits from your purchases. Such arrangements are not automatically improper, but you need to understand them. Ask whether benefits are retained by the franchisor, shared with franchisees or applied to a specified purpose. Request written explanations rather than relying on a description such as “group buying power”.

Compare equivalent specifications and service levels where possible. A cheaper alternative is not necessarily comparable, but unexplained differences deserve questions.

3. Check protections when supply breaks down

Supplier restrictions become especially important when goods arrive late, equipment fails or a product is unavailable. Ask who is contractually responsible for resolving each problem: the supplier, the franchisor or you.

Look for written answers to these questions:

• Can you use an alternative supplier during a shortage?
• Who approves substitutes, and how quickly must they respond?
• Who pays for defective goods, returns and replacement deliveries?
• What support is available if a compulsory technology service stops working?
• Can minimum purchase obligations be suspended when supply is disrupted?

Speak to several current franchisees about delivery reliability, complaint handling and whether emergency purchasing permission works in practice. Seek concrete examples rather than general satisfaction ratings.

If your proposed location is distant from distribution centres, check delivery coverage, lead times and surcharges specifically. Terms that work well for one part of New Zealand may create different working-capital and storage needs elsewhere.

4. Understand the New Zealand legal position

New Zealand has no franchise-specific legislation, compulsory government franchise registration or statutory franchise disclosure regime. Supplier obligations and your rights therefore depend heavily on the contracts, alongside general law.

The Fair Trading Act 1986 prohibits misleading or deceptive conduct and unsubstantiated representations. Statements about exclusive discounts, purchasing savings or supplier arrangements should be checked and retained in writing. The Contract and Commercial Law Act 2017 can provide remedies for contractual misrepresentation and breach, depending on the circumstances.

The Commerce Act 1986 governs restrictive trade practices. Approved supplier arrangements are not automatically unlawful, but restrictions affecting competition, particularly resale price maintenance, warrant specialist advice.

If the franchisor belongs to the Franchise Association of New Zealand (FANZ), its Code of Practice and Ethics applies. Membership is voluntary; compliance is required for members. The code requires a disclosure document, updated at least annually, and generally at least 14 days for disclosure before signing the franchise agreement, with provisions also covering binding preliminary agreements. This is an association requirement, not a nationwide statutory entitlement.

5. Resolve purchasing risks before committing

Give your franchise lawyer and accountant the purchasing schedule and supporting documents. Ask them to identify uncapped price exposure, conflicting terms and obligations that continue after the franchise ends.

Where protections matter, negotiate them into the appropriate signed documents. Useful requests include notice of supplier changes, a clear alternative-supplier approval process and written responsibility for faulty goods. Do not rely on verbal assurances that exceptions are “usually allowed”.

Practical takeaway: Before paying a non-refundable fee or signing, know what you must buy, the full delivered cost and your options when the approved supply arrangement fails.