Approving Franchise Suppliers in the UAE Before Expansion

Your existing business may thrive thanks to a supplier who knows your needs personally, but that relationship does not automatically translate into a system that works for franchisees. Before expanding in the UAE, you need a policy that distinguishes between items that must come from a single approved source and those that simply need to meet consistent specifications. Developing this policy early protects trust across the franchise network and prevents mandatory purchasing from becoming a recurring source of disputes over cost and availability.

1. Classify purchases by their actual impact

Start with the purchasing records for your existing outlet, rather than copying its entire supplier list into the franchise agreement. For each item or service, ask: would changing it affect the product’s identity, its safety or the customer experience, or is it simply a choice your team has grown used to?

Divide purchases into three practical categories:

• Core items: A proprietary ingredient or branded product, for example, may require a specified source to protect consistency or confidential know-how.
• Items with approved specifications: These can be purchased from different suppliers, provided they meet measurable requirements, such as packaging dimensions or performance standards for particular equipment.
• Flexible local purchases: Franchisees choose these within clear limits, without needing your approval for every order.

Record the reason for each restriction alongside the relevant item. Saying ‘to protect the brand’ is not enough to guide decisions; it is better to identify the characteristic you need to protect and how it will be tested. This allows you to remove restrictions that add cost without a clear operational benefit.

2. Test the supplier’s ability to serve independent outlets

A supplier that suits your own outlet may not suit a franchise network. They may offer you an exceptional price because of a longstanding relationship, deliver only to one location or rely on your personal intervention when delays occur. Ask for a written proposal for serving franchisees who will contract and pay independently.

The proposal should specify delivery areas, minimum order quantities, delivery schedules, credit terms and the procedure for rejecting defective consignments. Also establish who bears transport and returns costs, and whether the terms can be maintained as the number of outlets grows.

Run a purchasing trial at your existing outlet using the proposed franchisee terms, rather than your preferential arrangements. Record actual lead times, wastage rates, storage costs and the effect of minimum order quantities on cash flow. The aim is not to prove that the supplier is generally good, but that the commercial arrangement can be replicated without hidden support from you.

Do not promise coverage across all seven emirates before verifying the supplier’s capacity to deliver it. Remote outlets may need a different solution from those close to the supplier’s warehouse.

3. Disclose costs and your financial interests in sourcing

Prospective franchisees should understand how mandatory purchasing affects an outlet’s financial performance, not just what the franchise fees are. Prepare a statement explaining whether you sell items directly, hold a stake in the supplier or receive a commission or rebate linked to franchisee purchases.

This is a contractual transparency practice, not a description of a mandatory federal franchise disclosure scheme. Define what will be disclosed, when it will be updated and how material changes will be addressed before the prospective franchisee finalises their budget.

Also explain whether supply prices are fixed for a specified period or subject to change, and how franchisees will be notified. Do not use the term ‘at cost’ if the price includes a margin or additional services that have not been explained. Where possible, separate the price of the goods from storage, transport and service charges.

If the network receives a volume rebate, decide in advance who benefits and how it is calculated. Leaving this to a verbal understanding may create an expectation that every saving will automatically be passed on to franchisees, while the franchisor’s budget assumes it will be retained.

4. Review mandatory purchasing under UAE law

The UAE has no standalone federal franchise law and no general federal regime requiring a standardised franchise disclosure document before a contract is signed. The relationship is governed by the general contract rules in the Civil Transactions Law, the Commercial Transactions Law issued under Federal Decree-Law No. 50 of 2022, and other legislation relevant to the nature of the arrangement.

For sourcing policies, Federal Decree-Law No. 36 of 2023 on the Regulation of Competition is particularly important. Requiring franchisees to use a specified supplier is not purely an operational matter: restrictions should be reviewed in light of their nature, effects and market conditions. Do not assume that including them in a franchise agreement makes them automatically acceptable, or that protecting quality justifies restrictions of any scope.

Use of the brand is also subject to Federal Decree-Law No. 36 of 2021 on Trademarks. However, the right to protect a trademark does not remove the need to review purchasing terms separately. If the relationship is registered as a commercial agency, the implications of Federal Law No. 3 of 2022 on the Regulation of Commercial Agencies must also be assessed. Seek legal advice on the actual arrangement, not merely the title of the contract.

5. Establish a process for approving alternatives and resolving objections

Make the supplier policy a workable document: who receives requests for alternatives? What documents and samples are required? Who pays for testing? When will the franchisee receive a decision with reasons? Set a reasonable internal response deadline, without presenting it as a statutory time limit.

Also address what happens when an approved item becomes unavailable: the temporary substitute, limits on its use and how approval will be documented. Distinguish between changes to the supplier list and changes to financial obligations; updating an operational list should not become a way to impose substantial burdens that the contract has not addressed.

Practical takeaway: Before recruiting your first franchisee, prepare a purchasing classification table, supply proposals that can be replicated across outlets, a statement of your financial interests and a procedure for approving alternatives. A good policy standardises what needs to be standardised while allowing flexibility where it does not harm the brand.