Reading time: 4 minutes

Welcome to part two of Franchisee Obligations and Exclusive Dealing. We have already touched on the types of exclusive dealing arrangements that franchisors will try to impose on their franchisees, and the legal limitations of these arrangements. An important takeaway from part one is that these kinds of arrangements should never reduce competition, and should be mutually beneficial to both franchisor and franchisee.

Volume Margins

It is common practice for franchisors to require their franchisees to buy their products and services from a nominated supplier. Although this appears to be a restrictive, perhaps even unfair condition, the truth is that by having the franchisees purchase from the same supplier, both parties can benefit. In fact, this is the arrangement in most of the very successful franchise systems.

As with most businesses, the ability to buy goods and services at reduced rates depends to a large extent on the volume you are able to buy. The volume of products, however, depends on both demand and what is required to operate the franchise business. In a large franchise system where there are hundreds of franchisees, it is obviously much cheaper to buy from the same supplier. At the end of the day, this will give the franchisees a competitive edge due to these higher volume margins.

Quality Control

Franchised outlets within a franchise are characteristically alike, meaning they share the same products and marketing for the most part. To have franchisees purchase from a nominated supplier is to ensure that the quality of the products is identical throughout the franchise network. This is important as customers are looking for consistency when they buy from a franchise. A Big Mac in Western Australia is probably expected to taste the same as a Big Mac in New South Wales.

Brand Protection

Much time and effort will have been invested into the franchise to develop a recognisable and reputable brand throughout its network of franchisees. The franchisor will understandably want to maintain the good reputation it has built over time and one effective way of ensuring this happens is to make sure that franchisees buy from the same supplier.

The Australian Competition and Consumer Commission

The ACCC act as the watchdog over the franchising industry. The commission ensures that franchisors and franchisees are compliant with the Franchising Code of Conduct (the Code), as well as the Australian Consumer Law. If franchisors/franchisees breach the Code or the ACL, the ACCC can take enforcement measures to ensure compliance or punish for non-compliance.

In addition, the ACCC has powers to audit different franchisors to check they are being compliant, and also has powers to require franchisors hand over any documents they are required to keep records of under the Code.

To carry out an audit on a franchisor, the ACCC must serve a notice, however, need not have any basis for suspecting the franchisor has in any way breached the ACL or the Code.

Based on recent amendments to the Code, the ACCC has been given stronger enforcement powers with the ability to issue infringement notices of up to $8,500 to companies without a court order.


Franchisors usually require the franchisees within their network to purchase their products from the same supplier. This is for a variety of reasons, including volume margins, quality control and brand protection. In some cases, however, the franchisors will impose unfair conditions that actually reduce competition. These practices are known as exclusive dealing and include third line forcing and full line forcing.

If you’re at all concerned about the conduct of your franchisor, and wish to speak with a franchise lawyer about your concerns, contact LegalVision on 1300 544 755.


Redundancies and Restructuring: Understanding Your Employer Obligations

Thursday 7 July | 11:00 - 11:45am

If you plan on making a role redundant, it is crucial that you understand your employer obligations. Our free webinar will explain.
Register Now

How to Sponsor Foreign Workers For Your Tech Business

Wednesday 13 July | 11:00 - 11:45am

Need web3 talent for your tech business? Consider sponsoring workers from overseas. Join our free webinar to learn more.
Register Now

Advertising 101: Social Media, Influencers and the Law

Thursday 21 July | 11:00 - 11:45am

Learn how to promote your business on social media without breaking the law. Register for our free webinar today.
Register Now

Structuring for Certainty in Uncertain Times

Tuesday 26 July | 12:00 - 12:45pm

Learn how to structure to weather storm and ensure you can take advantage of the “green shoots” opportunities arising on the other side of a recession.
Register Now

Playing for the Prize: How to Run Trade Promotions

Thursday 28 July | 11:00 - 11:45am

Running a promotion with a prize? Your business has specific trade promotion obligations. Join our free webinar to learn more.
Register Now

Web3 Essentials: Understanding SAFT Agreements

Tuesday 2 August | 11:00 - 11:45am

Learn how SAFT Agreements can help your Web3 business when raising capital. Register today for our free webinar.
Register Now

Understanding Your Annual Franchise Update Obligations

Wednesday 3 August | 11:00 - 11:45am

Franchisors must meet annual reporting obligations each October. Understand your legal requirements by registering for our free webinar today.
Register Now

Legal Essentials for Product Manufacturers

Thursday 11 August | 11:00 - 11:45am

As a product manufacturer, do you know your legal obligations if there is a product recall? Join our free webinar to learn more.
Register Now

About LegalVision: LegalVision is a commercial law firm that provides businesses with affordable and ongoing legal assistance through our industry-first membership.

By becoming a member, you'll have an experienced legal team ready to answer your questions, draft and review your contracts, and resolve your disputes. All the legal assistance your business needs, for a low monthly fee.

Learn more about our membership

Need Legal Help? Submit an Enquiry

If you would like to get in touch with our team and learn more about how our membership can help your business, fill out the form below.

Our Awards

  • 2020 Innovation Award 2020 Excellence in Technology & Innovation Finalist – Australasian Law Awards
  • 2020 Employer of Choice Award 2020 Employer of Choice Winner – Australasian Lawyer
  • 2020 Financial Times Award 2021 Fastest Growing Law Firm - Financial Times APAC 500
  • 2020 AFR Fast 100 List - Australian Financial Review
  • 2021 Law Firm of the Year Award 2021 Law Firm of the Year - Australasian Law Awards
  • 2022 Law Firm of the Year Winner 2022 Law Firm of the Year - Australasian Law Awards