Prices on Required Purchases

From the Columbus Dispatch:

DavCo Restaurants Inc., a Maryland company that owns 160 Wendy’s restaurants, contends that Wendy’s required franchisees to buy only Coca-Cola products, set a price higher than market value for those products and used the funds for advertising.

Dave Norman, DavCo’s chief financial officer, said his company believes its agreement with Wendy’s allows DavCo to suggest alternate suppliers.

Further, Norman said, Wendy’s didn’t give DavCo a credit against its required contribution to the national advertising campaign. Both constituted breaches of the franchise agreement, he said.

Franchisors will claim that the mandatory vendors are passing on savings to franchisees through volume discounts it can achieve through negotiations. Franchisees will claim that the vendors prices still are inflated partly because of the rebate paid to the franchisor.

There’s a “very significant difference” between the cost of products in Wendy’s contract with Coke and the price an open bidding process would bring, Norman said.

Competition and competitive bids almost always produce lower prices and better service. Franchisees should look for franchisors that are flexible with their vendor requirements, permitting the franchisee to select their own suppliers and vendors so long as the quality is the same as the required vendor. If this is important to you, there MUST be language iinserted into the franchise agreement stating that such supplier substitutions are permitted and permission will not be unreasoably withheld.

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