Mandatory suppliers in franchise agreements: what to check in Spain

Joining a franchise network usually means buying products, ingredients or materials from suppliers selected by the brand. This arrangement can help maintain quality and consistency, but it also affects your costs and your ability to deal with problems. Before signing, check not only who you must buy from, but also on what terms and what happens if supplies fail.

1. Establish which purchases will be mandatory

Buying exclusively from the franchisor is not the same as choosing from several approved suppliers. Nor is a commercial recommendation the same as a contractual obligation. Ask for a list of the products and services covered, and identify where each requirement appears: in the contract, its schedules or the operations manual.

For each category, clarify the following:

• Permitted supplier: the franchisor, an associated company, a sole distributor or a list of alternatives.
• Scope: core products, packaging, uniforms, consumables and other materials.
• Freedom of choice: whether you can propose local suppliers or equivalent products.
• Subsequent changes: who can amend the list and how much notice they must give.

If there is a supplier approval process, ask for objective criteria, the documentation required, any costs and the timeframe for a response. An alternative that requires authorisation but has no approval procedure may be unusable in practice.

Also ask who actually sells and invoices the goods. If a company other than the franchisor handles supplies, establish what each party is committed to doing. Being part of the same network does not automatically make the franchisor responsible for every delivery.

2. Calculate the full cost of supplies

An attractive price list alone is not enough to assess the arrangement. Request the trading terms that will apply to your outlet, including their effective date, and put together a representative basket of purchases based on your planned activity.

Include transport, small-order surcharges, packaging, storage and preservation, insurance where applicable, and returns costs. Separate amounts excluding VAT from the cash outlay including tax, so that you do not confuse the underlying cost with your cash requirements.

Pay particular attention to:

• Minimum orders: per product line, delivery or period.
• Discounts: volume requirements and when discounts are applied or paid.
• Payment: advance payments, payment deadlines and any guarantees required.
• Price changes: the mechanism, frequency and notice period.
• Promotions: any obligation to buy additional stock and who bears the cost.

Ask whether the franchisor receives commissions or discounts from suppliers and whether any of these benefits are passed on to you. Do not assume you have an automatic right to share in them: request an explanation of the model and ensure any commitment is documented.

Run a simple test: what happens if sales fall below expectations but you still have to meet the minimum order? The risk lies not just in the unit price, but also in paying for and storing stock that takes longer to sell.

3. Agree how delays and surplus stock will be handled

The contract should distinguish between an occasional delay and a supply interruption that prevents you from operating. Ask for delivery timeframes, complaints channels and a procedure for reporting shortages or defective products.

Negotiate a specific response to supply shortages: temporary purchases from another supplier, substitution with an equivalent product or urgent authorisation. Establish who approves the solution and how the problem must be evidenced. Do not assume you can unilaterally depart from mandatory purchasing requirements.

It is also worth agreeing what happens to damaged goods, products with insufficient remaining shelf life and lines removed from the catalogue. Check the deadlines for making claims, the evidence required, the cost of return transport and whether you will receive a refund or credit towards future purchases.

For businesses running sales campaigns or handling perishable goods, ask who decides the initial quantities and who bears the cost of surplus stock. A sales forecast from the franchisor is neither a sales guarantee nor a commitment to buy back unsold goods.

4. Review the legal position before committing

In Spain, Article 62 of Law 7/1996 on Retail Trade Regulation and Royal Decree 201/2010 provide the specific legal framework for franchising. Article 3 of the Royal Decree requires written, truthful and non-misleading pre-contractual information to be supplied at least twenty working days before you sign a contract or preliminary agreement, or make any payment to the franchisor.

This information must cover, among other things, the essential elements of the agreement, the parties’ obligations and any exclusivity provisions. Relevant sourcing restrictions should be examined within this framework; do not rely on a verbal explanation instead of reviewing the documentation.

Exclusive purchasing requirements are neither automatically unlawful nor valid in every circumstance. They may also be subject to competition rules, including Law 15/2007 and, where applicable, the EU framework for vertical agreements. A legal adviser should assess their scope and context, particularly where exclusivity is extensive or long-lasting.

Practical takeaway: before buying, obtain the supplier list, price lists and supply terms. Do not sign until you understand how much you must buy, how prices can change and what remedy will be available if the supplier fails to meet its obligations.