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 and services
• Contribute to reduced franchisee operating costs
• Provide a valuable resource for franchisees
• Eliminate the need for franchisees to devote time searching for vendors
• 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 don’t 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, don’t 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 franchiseknowhow@gmail.com