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Franchisees are Entitled to a Vendor Program from Their Franchisor

by Ed Teixeira

A major benefit of owning a franchise is being able to purchase goods and services at costs below market prices. However, a number of franchisors fail to provide this benefit.

Most of the large franchisors provide a required or approved vendor program for their franchisees while a number of small and medium franchisors provide no purchasing benefits for their franchisees. Yet one of the major benefits and appeal of franchising is obtained by leveraging the buying power of franchisee locations. The franchised restaurant sector is an exception, since the control of menu ingredients is fundamental to food concepts given the need for consistent quality control.

Some of the Benefits of a Franchise Vendor Program Include:

  • Leverages, the purchasing power of the franchise network
  • Vendor rebates can be shared between the franchisor and its franchisees
  • Represents a value to franchisee candidates
  • Participating vendors can underwrite some of the costs for a national conference
  • Control and maintain franchise network standards
  • Reduce franchisee operating costs resulting in higher gross margins
  • Vendor purchase data reports can be used to audit franchisee revenues

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 of a preferred vendor program will grow.

2015 FranchiseKnowHow, LLC

Ed Teixeira is the President of FranchiseKnowHow.com and Chief Operating Officer, FranchiseGrade.com. He is a former franchise executive and franchisee. He can be contacted at 631-246-5782 or at  franchiseknowhow@gmail.com



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