Mandatory suppliers in franchising: what should you check?

Collective purchasing can be a significant benefit of joining a franchise network. At the same time, having to order exclusively from designated suppliers limits your ability to respond to price rises, stock shortages or delays. Before investing in a franchise, check not only the brand’s list of trading partners, but above all the terms on which you will be buying from them throughout the relationship.

1. Establish the scope of your purchasing obligations

Start by distinguishing between three arrangements: buying directly from the franchisor, buying from an independent supplier designated by the brand, and choosing from a list of approved suppliers. Each arrangement allocates responsibility for pricing, delivery times and complaints differently. Simply being told that ‘head office organises supplies’ does not establish who will actually be selling to you.

Ask for the purchasing rules to be set out for each mandatory category. The obligation may cover not only products sold to customers, but also packaging, cleaning products, workwear or logistics services. Check whether it applies to all purchases, a specified proportion, or only items essential to maintaining a consistent offering across the network.

For each category, record:

• who accepts the order and issues the invoice;
• whether you can choose between approved suppliers;
• which product specifications are mandatory;
• whether buying a substitute requires prior approval;
• who can change the supplier list and how much notice they must give.

Do not confuse a mandatory product standard with an obligation to buy from a single company. Ask whether compliance with the standard can be demonstrated through a specification, sample or certificate. If the brand allows new suppliers to be approved, establish the procedure, response deadline and any assessment fee.

2. Calculate the delivered cost, not just the price of the goods

A unit price list is not enough to compare offers. Ask for a sample cost breakdown for an order suited to the scale of your planned outlet, including transport, order picking, returnable packaging and small-order surcharges. Also check payment terms and the conditions for obtaining discounts.

Pay particular attention to minimum purchasing requirements. Establish whether they relate to the value of an individual order, the number of units, or purchases over an entire accounting period. A minimum order may reduce the unit price while increasing stock levels, storage costs and the risk of products going out of date.

Also ask about rebates based on the franchise network’s combined purchases. Who receives them: head office or individual outlets? Is the benefit reflected in your price list or settled later? Do not assume that every bonus paid to the organisation coordinating purchases automatically belongs to the franchisee. There needs to be an explicit contractual basis for this.

Put together a basket of typical purchases and calculate its cost under several scenarios: a standard order, a smaller delivery and an urgent restocking order. Compare products of the same quality and weight, supplied under equivalent transport conditions. Then check how changes in the basket’s cost would affect the outlet’s margin if selling prices remained unchanged.

Agree how you will be notified of new price lists. In particular, establish whether the price is fixed when you place the order, when it is confirmed or only when it is dispatched. Also clarify whether you can cancel an order if its cost rises before it is fulfilled.

3. Put procedures in place for shortages and faulty deliveries

An obligation to use a single source of supply should be matched by clear procedures for dealing with disruption. Ask what you can do if the supplier fails to confirm an order, delivers only part of it or reports that a key product will be unavailable for an extended period.

It is worth negotiating an emergency purchasing procedure that specifies:

• the circumstances in which you can request permission to buy outside the approved supplier list;
• who is authorised to give approval and the deadline for a response;
• the quality requirements for a substitute;
• how long you may use an alternative source;
• how additional costs should be documented.

Do not assume that silence from head office means consent. If such a mechanism is intended to apply, it should be expressly agreed, taking account of product safety and legal requirements.

Review complaints procedures separately. Establish how to report shortages, quality defects and damage in transit, as well as the arrangements for collecting disputed goods. Check whether a complaint affects the payment deadline — do not assume that payment of the entire invoice is automatically suspended. If the seller is a separate company, a promise of help from head office does not replace a binding commitment from that supplier.

4. Check the legal position on purchasing restrictions

Poland has no separate, comprehensive franchise statute, and a franchise agreement is an ‘unnamed contract’: a type of agreement not specifically defined by statute. The Polish Civil Code is central, including the principle of freedom of contract under Article 353¹. Provisions governing sales may also apply to individual purchases. In business-to-business relationships, statutory liability for defects (known in Polish as rękojmia) can be modified, so you also need to read the supplier’s terms and conditions.

Restrictions on the choice of suppliers must also be considered under Poland’s Act on Competition and Consumer Protection and, where applicable, EU competition law. Mandatory sourcing is neither automatically unlawful nor always permitted. The assessment depends, among other things, on how the restriction is structured, its duration and the parties’ market position. Broad exclusive purchasing obligations are worth having reviewed by a lawyer specialising in vertical agreements.

Practical takeaway: before signing, establish three things in writing: the full cost of mandatory purchases, the rules for price changes and the procedure for emergency sourcing. Only then should you compare the purchasing benefits offered by different brands.