Franchise in retail and supermarkets

Franchise in retail and supermarkets: a world of its own

The retail and supermarket sectors are among the most mature franchise sectors in the Netherlands. The concepts are often extensive, highly developed, and capital-intensive, involving significant investments in premises, inventory, and fittings. This makes legal relationships complex and the stakes high. Purchasing obligations, assortment and shelf agreements, the position of the online channel, location and lease, and the relationship between company-owned branches and franchise locations are recurring and sensitive issues in these sectors.

Who do we work for?

We assist franchisors of retail and supermarket chains, individual franchisees and supermarket entrepreneurs, groups of franchisees within a chain, and entrepreneurs considering acquiring a retail chain location. The weight of the investments and the dependence on purchasing and distribution conditions make legal guidance in these sectors particularly valuable, both at the time of entry and during the term and at termination.

Purchasing, assortment, and shelf arrangements

In retail and supermarkets, purchasing is a major focus. The franchise system typically dictates from whom purchases are made and under what conditions, the assortment to be carried, and how the shelves are arranged. These agreements are essential for the uniformity of the system but touch upon the franchisee's margins and competition law. An exclusive purchasing obligation or fixed pricing can be sensitive under competition law. We assess these agreements for their viability and the balance between the interests of the franchise system and the entrepreneur's interests.

Location, rent and the position of the franchisor

Location is a determining factor for success in retail. Often, the franchisor is the main tenant or owner of the premises, while the franchisee rents or subleases. This gives the franchisor influence but also links the franchise to the lease: termination of the franchise may coincide with termination of the lease, and vice versa. The interplay between the franchise agreement and the lease agreement for business premises (Article 7:290 et seq. of the Dutch Civil Code) requires careful coordination, particularly during termination and transfer.

Online sales and the relationship to the branch

The rise of online sales has put pressure on retail franchising. When the franchisor itself operates an online channel that competes with the physical stores, this impacts the franchisees' revenue. This applies both under franchise law, through the right of consent regarding substantial changes (Article 7:921 of the Dutch Civil Code), and under competition law, regarding the assessment of channel restrictions. Clear regulations concerning the relationship between online and offline are indispensable in these sectors.

Branch versus franchise and goodwill

In many retail and supermarket chains, company-owned branches operate alongside franchise locations. The choice to operate a location as a branch or as a franchise, and the conversion from one to the other, affects the position of the entrepreneur and the goodwill. Moreover, the question of goodwill (Article 7:920 of the Dutch Civil Code) plays a significant role in the event of termination or acquisition, as the value of a well-performing retail location can be substantial. We advise on these issues from both the chain and the entrepreneur's perspective.

Our working method

We combine knowledge of the Franchise Act with insight into retail and supermarket practice. We assess the agreement, purchasing and assortment arrangements, the lease structure, and the online relationship, and advise on legal viability and the balance of interests. In the event of disputes regarding purchasing, turnover, online competition, or termination, we determine the most effective course of action, keeping the unique dynamics of the retail industry clearly in mind.

Pre-contractual information for a retail or supermarket chain

Particularly in the retail and supermarket sectors, where investments are high and purchasing and lease obligations are heavy, the pre-contractual phase is crucial. Pursuant to Article 7:914 of the Dutch Civil Code, the franchisor must provide the prospective franchisee with all material information at least four weeks prior to the conclusion of the agreement: the content of the formula, the financial position, investment and purchasing obligations, and any forecasts. During this so-called standstill period, the concept may not be modified to the detriment of the franchisee, and no investments or payments may be requested. We assess whether this duty to provide information has been correctly complied with for both formulas and new entrepreneurs. See also pre-contractual obligations.

Disputes regarding purchasing prices, margins, and transparency

A recurring point of contention in supermarket and retail franchising is the purchase price. Franchisees regularly argue that products mandatory to purchase through the franchise are not priced in accordance with market rates, or that markups are insufficiently transparent. Moreover, a purchasing obligation is not permissible without restriction: it must be necessary to protect the identity and reputation of the franchise and may not go beyond what is required for that purpose. Where this is not the case, the franchisee may claim freer purchasing or an adjustment of the terms and conditions. We analyze the purchasing and margin structure and its compliance under antitrust law, and determine the most effective course of action in the event of a dispute. See also competition.

Termination, takeover and the non-compete clause

At the end of a retail or supermarket franchise, three questions converge: the settlement of goodwill, the fate of the location and lease, and the scope of a post-contractual non-compete clause. Pursuant to Article 7:920 of the Dutch Civil Code, a non-compete clause after the termination of the agreement is only valid if it has been agreed upon in writing, is indispensable to protect the know-how of the franchise formula, lasts no longer than one year, and is no broader than the territory in which the franchisee was active. Moreover, that same article obliges the parties to make arrangements regarding the compensation for goodwill attributable to the franchisee. We assist entrepreneurs and franchise formulas with an orderly termination or takeover. See also sale of franchisee business and goodwill and non-compete clause.

Lawyers and in-house counsel for the entire retail chain

Our mixed teams of lawyers and in-house counsel assist international supermarket chains as well as independent retail entrepreneurs or neighborhood supermarkets on the corner. We combine franchise law, tenancy law (franchise and tenancy law), and competition law in a single approach, and refer to our broader Franchise Legal Advice. Whether it concerns advice beforehand or conflict resolution in an ongoing dispute, we represent the entrepreneur's interests with an eye to the unique dynamics of the retail industry.