The Benefits of a Franchise Preferred Vendor Program
by Ed Teixeira
Franchisors should actively organize and administer preferred
vendor programs for their franchisees. An approved or preferred vendor program
provides benefits for the franchisor and franchisee. Read this article to learn
more about a preferred vendor program.
A number of franchisors have a preferred vendor program for products and
services purchased and utilized by their franchisees. The requirements for being
a preferred vendor can be rigorous and use a specific process. Some franchisors
utilize a separate entity to administer the program. Franchised food concepts in
particular, need a preferred vendor program in order to control and verify that
equipment, ingredients and supplies meet specifications.
There are a number of benefits from a Preferred Vendor program:
- Leverage the purchasing power of the franchise network
- Obtain rebates from purchases, that can be shared with
franchisees and used for marketing programs
- Demonstrates to new franchise candidates that the franchise
is well organized and supportive of its franchisees
- Underwrite a portion of national meeting expenses
- Maintain franchise network standards for equipment, products
- Contribute to reduced franchisee operating costs
- Provide a valuable resource for franchisees
- Eliminate the need for franchisees to devote time searching
- Vendors can present new products and services to franchisees
at national and regional meetings
- Provide purchase data for system reports and audits
Despite these numerous benefits, some franchisors are reluctant to formalize
a preferred vendor program for their franchisees. One of the concerns is the
fear of violating so called tying arrangements that require franchisees to
purchase from specific vendors. Franchisors may also feel its time consuming,
requires staff to administer, could present liability issues, would prefer to
delegate this responsibility to their franchisees or donít recognize the value
from such a program.
Each of these reasons can be overcome by the number of benefits that a
preferred vendor program provides. In order to avoid any potential liability,
legal issues or franchise disclosure problems make sure that your franchise
attorney reviews and helps draft the program. Consider involving a few select
franchisees in the process. Finally, donít avoid implementing a program because
you have a small number of franchisees. Vendors will have an interest in a
growing franchise system and as the number of franchisees increases the benefits
from a preferred vendor program will grow.
© 2010 FranchiseKnowHow, LLC
Ed Teixeira is the President of FranchiseKnowHow, LLC. He
can be reached at
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