Buying a Franchise in Saudi Arabia: How to Review Mandatory Supply Terms

A franchise opportunity may look attractive until you discover that running the outlet depends on supplies you can only buy from a designated supplier, on terms you have not factored into your calculations. Within a franchise network, standardised purchasing helps protect quality and brand identity, but it needs balanced obligations. Before buying a franchise in Saudi Arabia, review supply terms as part of your investment decision, rather than treating them as details to resolve after signing.

1. Establish what you must buy and who must supply it

Start by requesting a written list of the goods and services you must buy from the franchisor or a supplier it designates. Do not settle for a phrase such as ‘approved materials’: this could cover production materials, packaging, uniforms, cleaning products and maintenance services, each with a different impact on business continuity.

In Saudi Arabia, this relationship is governed by the Commercial Franchise Law and its Implementing Regulations. Article 11 requires the agreement to set out the franchisor’s obligations to supply goods or services, and the franchisee’s obligations to obtain them directly from the franchisor or through another party at its direction. It also requires the agreement to explain how charges for goods and services supplied by the franchisor or any member of its group are calculated.

Turn the list into a table that answers the following questions for each item:

• Must you buy from a particular supplier, or is it enough to meet approved specifications?
• Who issues the invoice, and who handles complaints or replacement requests?
• Is there an approved alternative supplier, and what is the process for adding one?
• Which document sets out the specifications, prices and delivery terms?

If an independent company supplies the goods or services, do not assume the franchisor guarantees its performance. Ask for the limits of the franchisor’s responsibility to be defined, and check that you can review the supplier’s terms before committing to the franchise.

2. Calculate the landed cost, not just the list price

The unit price may be reasonable, while transport charges, minimum order quantities and wastage make the actual cost of using the product much higher. Request a supply quotation for the town or city and proposed location of your outlet, rather than relying on prices for outlets close to the franchisor’s warehouse.

Add shipping, unloading, storage, inspection and any order-related charges to the purchase price. Review the VAT treatment and its cash-flow implications with your accountant, rather than automatically treating VAT as a final cost or ignoring it altogether.

Also check pack sizes, shelf life and the minimum order quantity for each item. A supplier may require you to order more than the outlet can sell or use before it spoils. Assess the cost against the quantity you can actually use, not simply the number of units on the invoice.

Ask how long prices remain valid, how you will be notified of increases, and whether confirmed orders retain the agreed price. These are matters for contractual negotiation; do not assume there is a fixed statutory cap on supply price increases or an automatic right to reject them.

3. Test what happens when supplies are delayed or disrupted

Ask a direct question: if an essential item cannot be delivered, how will the outlet keep operating without breaching brand standards? A useful answer is not ‘we act quickly’, but a clear procedure identifying who is responsible, the timescale and the alternative.

Request available operational data on actual delivery times and order shortfalls, while respecting the confidentiality of other businesses’ information. Distinguish between order preparation time and transit time: the delivery clock may only start after a preparation period with no defined limit, making the promise less useful than it appears.

Discuss including practical provisions in the agreement or supply schedule, such as:

• When orders will be confirmed, and the deadline for amending or cancelling them.
• How partial deliveries and goods that do not meet specifications will be handled.
• The response time for requests to buy from an alternative source during a disruption.
• Who pays for urgent shipping or the return of defective goods.

Do not buy outside the approved list on the assumption that a delay allows you to do so. Negotiate a written emergency approval process in advance that balances business continuity with quality standards, and have it legally reviewed before relying on it.

4. Review payment, receipt and returns together

Payment terms cannot be separated from delivery risks. If full payment is required before dispatch, ask when a refund becomes due if supply cannot be fulfilled, how the order is documented, and who authorises its cancellation. If you buy on credit, check the circumstances in which supply can be suspended because of late payment or an invoice dispute.

Define when responsibility for damage or spoilage passes to you, the procedures for inspecting deliveries, and the time allowed to report visible defects or quantity shortfalls. For perishable goods, request a clear minimum remaining shelf life on receipt and transport conditions appropriate to the products.

Also review what happens to stock if the franchisor discontinues an item or changes its specifications. Can existing stock still be used, will it be replaced, or must you bear the loss? Do not assume there is an automatic obligation to buy it back; ask for a clear contractual provision covering this situation.

5. Make supply terms part of your buying decision

Before signing, cross-check the supplier list, quotations and supply schedule against the franchise agreement. Any promise that materially affects costs or business continuity should be recorded in the contractual documents, with a clear statement of which document takes precedence if they conflict.

Remember that Article 7 of the Commercial Franchise Law requires the franchisor to provide the disclosure document at least 14 days before the agreement is signed or any payment relating to the franchise is made, whichever comes first. Use this period to review your obligations, and do not treat disclosure as a substitute for examining supplier contracts.

The practical takeaway: Do not commit to buying until you know what you must purchase, how much it will cost to get it delivered and use it, and what procedure has been agreed if it arrives late or is defective. Clarity on these points protects your outlet’s operations and helps build a more stable relationship within the franchise network.