Supply restriction
What it means
Franchisors often require franchisees to buy stock, equipment or ingredients from nominated suppliers to protect brand consistency. These supply restrictions are legitimate, but they affect your costs and margins, and can be a source of hidden franchisor income.
The Code requires franchisors to disclose supply restrictions and any rebates, commissions or other financial benefits they receive from suppliers you are required to use. That transparency lets you judge whether the arrangement is fair.
In practice
Check the disclosure document for supply restrictions and supplier rebates. If you must buy from a single supplier who pays the franchisor a rebate, compare the prices you would pay against the open market to understand the real cost.
A real example
A juice-bar franchisee learns from the disclosure document that she must buy cups from one supplier who pays the franchisor a 5% rebate. She factors the above-market cup price into her margin model before signing.
Supply restriction, FAQs
Can a franchisor make me buy only from approved suppliers?
Yes, supply restrictions are common and lawful, but they must be disclosed, along with any rebates or benefits the franchisor receives from those suppliers.
What are supplier rebates?
Payments a supplier makes to the franchisor based on what franchisees buy. They must be disclosed because they are a franchisor benefit funded, in effect, by your purchasing.
See the full franchise glossary, the Fee Index or our buyer guides.