Mandatory Purchasing in a Franchise: What to Check Before You Buy

A requirement to buy goods only from the franchisor or approved suppliers can help maintain consistent quality, but it also limits the franchisee’s independence. When considering a franchise in Russia, these terms deserve careful scrutiny before you buy. You need to establish not only the cost of the initial order, but also who sets the product range, changes prices and takes responsibility for supplying unsuitable goods.

1. Establish which purchases are genuinely mandatory

Ask the franchisor for a list of mandatory purchases alongside the draft agreement. Divide it into goods for resale, raw materials, packaging and consumables. For each item, you should be able to identify the supplier, the quality requirements and the basis for making the purchase mandatory: the agreement itself, an appendix or a network standard.

Wording such as ‘purchases shall be made in accordance with the rights holder’s current requirements’ leaves too much uncertainty. Before signing, you need to know what those requirements contain, how they can be changed and the limits of the franchisor’s discretion. Otherwise, you may discover after opening that even basic consumables must be bought through a single intermediary.

In Russia, commercial concession arrangements—the legal framework used for franchising—are governed by Chapter 54 of the Russian Civil Code. Article 1032 requires the user of the rights to ensure that the quality of their goods, work or services matches that of comparable offerings from the rights holder, and to follow the instructions provided for by law on using the package of exclusive rights. However, this does not create a blanket obligation to buy everything exclusively from the franchisor: you need to examine the specific purchasing restrictions in the agreement.

The supply of goods is also governed by Chapter 30 of the Russian Civil Code. Check both sets of documents: the franchise agreement sets the restrictions, while the supply agreement determines when you will receive the goods and what claims you can bring against the seller.

2. Calculate the purchase cost including delivery

The supplier’s price list does not show the full cost. Request current prices and a sample delivery calculation for the city where you plan to operate. Check whether VAT is included and who pays for transport, insurance, unloading, the return of reusable packaging and storage if collection or receipt is delayed.

Create a simple table for each key item covering:

• purchase price and unit of measurement;
• number of units in the required pack size;
• minimum order quantity and minimum order value;
• delivery costs and related service charges;
• shelf life and minimum remaining shelf life on receipt;
• payment terms, including the size of any advance payment.

Compare offers on a like-for-like basis. A cheaper alternative may not meet the required formulation or quality standards. However, a substantial price difference is a reason to ask what additional value the mandatory supplier provides: quality control, consistent specifications, deferred payment terms or specialist logistics.

Check the price-change procedure separately. Agree on the notice period and the point at which the order price becomes fixed: when the order is confirmed, the invoice is issued or payment is made. It is particularly risky if you have already paid an advance but the seller can still set the final price just before dispatch.

Do not treat a discount as guaranteed until its terms are documented. Check whether it depends on the purchasing volume of a single outlet or the entire network, and whether it can be withdrawn retrospectively.

3. Limit the risk of excess stock

A minimum order and a mandatory purchasing volume are different requirements. The first sets the size of an individual order. The second may oblige you to buy a certain quantity of goods every month, regardless of sales. Check whether both apply at the same time.

Ask the franchisor to explain how the initial product range was selected for an outlet of your format. Establish which items must always be stocked, which are introduced on a trial basis and who decides whether to remove them. A standard range used across the network will not necessarily match buying habits in your city.

Discuss the following terms:

• the option to split the initial order into several deliveries;
• adjustments to subsequent orders based on actual sales;
• approval of seasonal ranges before orders are placed;
• exchanges or buy-backs of slow-selling items;
• allocation of costs when changes to packaging or the product range are mandatory.

In business-to-business transactions, there is no automatic right to return unsold goods that are free from defects. This right must be expressly agreed. Specify the time limits, packaging requirements, minimum remaining shelf life and method for calculating the refund value. A manager’s promise that ‘we’ll help with leftover stock’ is no substitute for a binding supplier obligation.

If there are penalties for failing to meet purchasing volumes, ask for periods when the supplier could not fulfil orders to be excluded. Otherwise, you risk being held responsible for missing a target through no fault of your own.

4. Agree on alternative suppliers and claims procedures

Establish who is legally obliged to supply the goods. If the franchisor recommends a separate company, that alone does not make the franchisor responsible for its breaches. Responsibility for supply and assistance when problems arise must be assigned to a specific party in the documents.

Set out a procedure for approving an alternative supplier: which documents and samples are needed, who carries out the assessment, how long it takes and how the decision is recorded. Requirements for alternatives are best expressed through verifiable product specifications rather than vague wording such as ‘alignment with the network’s interests’.

In the supply agreement, check dispatch deadlines and the procedures for inspecting quantity and quality, reporting defects and handling claims. For perishable goods, temperature requirements, recording their condition on receipt and prompt decisions on replacements are particularly important. Do not settle for a general statement about compliance with standards.

Agree in advance on what happens when a mandatory item is unavailable: whether a temporary substitute is allowed, who approves it and what form of communication confirms that approval. This procedure helps you meet brand requirements without buying unapproved goods at your own risk.

The practical takeaway: before buying a franchise, obtain the list of mandatory purchases, a delivery cost calculation for your city and drafts of the supplier’s contractual documents. Sign only when you understand not just the prices, but also the rules for changing orders, dealing with leftover stock and approving alternatives.