What you need to know about:
Competition issues in franchising supplier arrangements

Franchisors often require franchisees to purchase goods or services from particular suppliers. This guide helps franchisors and franchisees understand the ACCC’s role in reviewing these arrangements.
Franchise supplier arrangements and the Act
Franchising supplier arrangements that limit the suppliers from whom franchisees may purchase the goods and services required to operate their businesses may raise competition issues under the Competition and Consumer Act (the Act).
A franchisor that requires franchisees to purchase goods or services only from a particular supplier or a list of nominated suppliers may be engaging in ‘third line forcing’. Third line forcing will breach the Act even if the conduct will not harm competition.

What is third line forcing?Third line forcing occurs where a supplier (e.g. a franchisor) supplies goods or services (e.g. franchising services or the right to become a franchisee) on condition that the customer also acquires goods or services from another person or business (unrelated to the supplier). |

Some franchisors also: set objective quality standards and allow individual franchisees to source goods or services from any supplier that meets those standards, or require franchisees to purchase goods or services from the franchisor or a related company.
These arrangements will only raise concerns under the Act if they have the purpose or likely effect of substantially lessening competition. Generally, competition is unlikely to be substantially affected where the franchise’s market and the suppliers’ markets include a number of competing businesses.
How can franchisors implement these supplier arrangements under the Act?
Control by franchisors over the way in which franchisees operate is often central to the operation and success