Buying a franchise: assessing mandatory suppliers

Choosing a brand also means accepting rules about where to buy products, equipment and consumables. Within a franchise network, these rules can protect quality and a shared brand identity, but they can also create dependency and costs that are difficult to control. Before signing, investigate who supplies what, how prices are set and what happens when a delivery fails.

1. Identify everything you will have to buy through the network

Do not limit your assessment to supplies of the main product. Purchasing obligations may cover packaging, uniforms, furniture, equipment, software, promotional materials and maintenance services. Some requirements appear only in the appendices or operations manual.

Ask for a written list of mandatory purchases, distinguishing between three arrangements: buying directly from the franchisor, buying from suppliers it designates, and buying from suppliers of your choice subject to technical specifications. For each category, confirm:

• Who sells the goods, issues the invoice and is responsible for defects;
• Whether there is an exclusivity requirement or a minimum percentage of purchases;
• The minimum order quantities;
• Who pays for transport, installation and returns;
• Whether equipment must be replaced at set intervals.

Also ask whether the franchisor receives commissions, discounts or other benefits from suppliers. Do not assume you have a general right to access all the network’s commercial agreements: ask for transparency and seek to specify in the contract what information you will receive.

The key question is whether the obligation serves an identifiable quality requirement or adds a cost you cannot properly assess.

2. Check prices, changes and payment terms

An initial price list does not tell you what you will pay throughout the contract. Request the catalogue applicable to your outlet and details of how prices are updated: how often, how much notice is given, what criteria are used and how confirmed orders are treated.

Compare the total cost of supply, not just the unit price. A seemingly cheaper product may require larger orders, additional transport costs or payment in advance. It may also lead to wastage because of a short shelf life or force you to hold excessive stock.

Create a simple table showing the product, price excluding VAT, transport costs, minimum quantity, payment terms and whether returns are allowed. When comparing alternatives, use goods that are genuinely equivalent in quality, specifications and service. A price difference alone does not demonstrate that a mandatory purchasing requirement is unjustified.

Clarify how promotions and discounts work too. Who pays for a promotion decided by the brand? Is compensation available for excess products sent to you? Do volume discounts benefit your outlet, or do they depend on network-wide targets?

Seek to negotiate clear limits on unilateral changes. If the contract refers to prices and obligations in documents that can be amended, ask for the procedure, notice requirements and consequences of any significant change to be specified. A commercial explanation is no substitute for a clear contractual clause.

3. Plan how to respond to supply failures

Exclusive purchasing requirements become particularly problematic when the supplier fails to deliver. Before joining, ask existing franchisees how delays, stock shortages, defective items and complaints are handled. Look for concrete examples, not just a general assessment of the relationship.

The franchise agreement and supply terms should be consistent. Check whether they set out delivery times, complaints procedures and responsibility for products that do not meet the agreed requirements. Also confirm that whoever promises to ensure continuity of supply actually accepts that obligation in writing.

Negotiate an emergency alternative purchasing procedure that specifies:

• The circumstances in which it can be used;
• Who authorises it and how quickly they must respond;
• Which quality requirements still apply;
• How normal supply arrangements are restored.

Do not assume that a delay allows you to buy freely outside the network or suspend payments. These decisions may have contractual consequences and should be assessed with legal advice.

Also consider the logistics of your chosen location. Delivery frequency, storage capacity and transport conditions can make the same purchasing policy more demanding for one outlet than another.

4. Have the restrictions reviewed by a lawyer

Portugal has no specific franchising law or mandatory pre-contractual disclosure document with legally prescribed content for this business model. That does not mean there are no legal duties: relevant provisions include freedom of contract under Article 405 of the Portuguese Civil Code and good faith in negotiations under Article 227.

Where standard contract terms are used, Decree-Law No. 446/85 imposes duties to communicate and explain those terms, alongside rules governing prohibited clauses. Signing a contract does not automatically make every restriction valid.

Purchasing obligations must also comply with Law No. 19/2012 on competition and, where applicable, Article 101 of the Treaty on the Functioning of the European Union. Regulation (EU) 2022/720 provides a framework for exempting certain categories of vertical agreements, subject to conditions. Buying exclusively from designated suppliers is not automatically unlawful, but the duration, scope and competitive context require assessment.

The European Code of Ethics for Franchising is a self-regulatory reference, not a Portuguese law that applies universally. It does not replace a review of the actual documents.

Practical conclusion: before signing, gather the list of mandatory purchases, the supply terms and the procedure for dealing with stock shortages. Ask a lawyer to confirm that the promises made to you are effectively protected in the contract.