Latest / Franchise Conversations with Fexingo: Buying, Running, and Scaling Franchise Businesses / How Franchisees Are Using Localized Sourcing to Boost Margins
Transcript
- Lucas: Let me start with a number that caught my eye: a multi-unit Subway franchisee in the Pacific Northwest recently told me they cut their food costs by twelve percent just by swapping out a few centralized suppliers for local ones. Luna: Twelve percent? On what kind of volume? Lucas: This operator runs twelve stores. Annual food budget around one point two million dollars. So that twelve percent saving works out to roughly one hundred forty-four thousand dollars in extra profit per year — just from sourcing decisions. Luna: And Subway allowed that? I thought franchise agreements typically require you to buy from approved suppliers. Lucas: They do. But here's the nuance: most franchise systems have a list of approved suppliers, and you're required to buy from that list. But the list often includes regional distributors, not just the national ones. This franchisee found that within the approved list, there were local produce distributors and bakeries that were significantly cheaper than the national vendor he'd defaulted to. Luna: So he was already approved — he just wasn't using them. Lucas: Exactly. And that's the low-hanging fruit. The national distributor is convenient — one order, one invoice, one delivery — but you're paying a premium for that convenience. When he broke down the cost per item, he found the local bakery was charging eighteen percent less for bread, and the regional produce company was fifteen percent cheaper on lettuce and tomatoes. Luna: But what about quality consistency? If the local bakery's bread is slightly different, customers might notice. Lucas: That's the trade-off. He told me the local bakery's bread was actually better — higher rise, better crust — but it wasn't identical to the national supplier's. He had to work with his store managers to adjust the toasting time by about ten seconds to get the same finished product. Small operational tweak, but it mattered. Luna: And the franchise corporate didn't push back? Lucas: Not as long as the product met the brand's specifications. The franchise agreement says you have to use approved suppliers and meet the brand's quality standards. If the local supplier can deliver within those specs, you're in the clear. Some systems even encourage local sourcing as a way to improve freshness. Luna: So this isn't just a food franchise thing. I could see a cleaning franchise using a local janitorial supply company instead of a national one. Lucas: Absolutely. A cleaning franchisee I spoke to in Atlanta switched to a regional chemical supplier and saved eleven percent on their consumables. The key was that the regional supplier's products were actually more concentrated, so they used less per square foot. Same cleaning power, lower cost per use. Luna: And the franchise system's approved list included that regional supplier? Lucas: It did. And that's the pattern. Franchisors don't always advertise every option on the approved list. The national distributor is the default because they have a national contract and they push it. But the approved list often has a dozen or more suppliers, and franchisees rarely dig into the full list. Luna: So the first step is just reading your own franchise agreement's supplier list carefully. Lucas: Step one: pull out the supplier list and go through it line by line. Step two: ask for pricing from at least three suppliers for each major category. Step three: test the product. But there's a catch — some franchise agreements have a minimum purchase requirement with the national supplier. Luna: Meaning you can't just drop them entirely. Lucas: Right. You may be required to buy a certain percentage from the national vendor. In the Subway case, the franchisee was required to buy sixty percent from the national distributor. He used the local suppliers for the remaining forty percent. So he couldn't capture the full twelve percent savings on everything, but he got it on that forty percent slice. Luna: Which still added up to over fifty-seven thousand dollars. Not bad for reading a contract. Lucas: And that's without any capital investment. No new equipment, no rebranding, no marketing spend. It's purely a procurement optimization. Luna: But what about franchises that have very rigid supply chains? Like a fast-food burger chain where the patties are proprietary. Lucas: That's a real constraint. If the core product is proprietary — like a secret sauce or a custom blend of meat — you can't source that locally. But the non-core items are usually fair game. Things like napkins, cleaning supplies, packaging, even some produce. A franchisee at a national burger chain told me they saved eight percent on napkins and cups by switching to a local supplier that was on the approved list but never used. Luna: So even a few percentage points on those categories adds up. Lucas: Exactly. And the savings compound. If you have multiple units, that eight percent on packaging could be ten thousand dollars a year across your stores. Not life-changing, but it's free money. Luna: What about the operational complexity? If you're dealing with multiple suppliers instead of one, you're getting multiple invoices, multiple delivery schedules, multiple points of contact. Lucas: That's the hidden cost. The Subway franchisee told me he spent about three hours a week managing the local supplier relationships — checking invoices, coordinating deliveries, handling a few hiccups. He valued his time at about fifty dollars an hour, so that's one hundred fifty dollars a week — or about seven thousand eight hundred dollars a year. He was still ahead by over fifty thousand. Luna: So the math works if you have enough volume to absorb the extra time. Lucas: Right. If you're a single-unit owner, the time cost might eat up most of the savings. But for multi-unit operators, the savings scale while the time cost scales sub-linearly. Luna: Let me ask about another angle: supply chain risk. If you rely on a local supplier and they have a disruption — a weather event, a trucking strike — you might not have the backup that a national supplier provides. Lucas: That's a real risk. The Subway franchisee mitigated it by keeping the national distributor as a backup. He maintained a minimum relationship so that if the local bakery had an issue, he could call the national supplier and get bread within twenty-four hours. It wasn't as cheap, but it was available. Luna: So it's not an either-or. It's a strategic blend. Lucas: Exactly. And that's the smartest approach. Use local suppliers for the bulk of your volume, but keep the national supplier as an insurance policy. Luna: I want to bring in another example from a different sector. A fitness franchisee I know — they run four gyms — told me they saved on cleaning supplies by switching to a local janitorial supply company. But they also found that the local company offered free training sessions for staff on proper cleaning techniques, which reduced waste. Lucas: That's an interesting value-add. The national supplier probably charges extra for training or doesn't offer it at all. Local suppliers often compete on service, not just price. Luna: And in the fitness space, the equipment maintenance contracts are another area. One franchisee told me they switched from the national equipment supplier's maintenance plan to a local technician who was certified by the same brand — and saved twenty percent annually. Lucas: That's a great point. Many franchise systems have approved maintenance providers, but the list is usually longer than franchisees realize. The national provider might charge a premium because they have a contract with the franchisor, but local providers who meet the certification requirements can undercut them. Luna: And if you're a multi-unit operator, you can even negotiate volume discounts with the local provider. Lucas: Exactly. That's another layer. The Subway franchisee I mentioned — he negotiated a ten percent discount with the local bakery by committing to a two-year contract across all twelve stores. Luna: So the same principle applies: dig into the approved list, compare pricing, and leverage volume. Lucas: And it's not just about cost savings. Some franchisees find that local sourcing improves customer perception. If you can market that your ingredients come from local farms, it resonates with customers. Luna: But the franchisor might have rules about how you market that. You can't just say 'locally sourced' if it's not part of the brand messaging. Lucas: Right. You have to check with the marketing department. Some brands embrace it, others are strict. But even if you can't advertise it, the cost savings alone are worth it. Luna: Let's zoom out. If a franchisee is listening right now and wants to start, what's the first thing they should do? Lucas: Pull your franchise agreement's approved supplier list. If you don't have it handy, request it from the franchisor. Then pick three high-volume items — maybe your top three by spend — and get quotes from at least two other approved suppliers for each. Compare not just price, but delivery reliability, quality, and any additional services. Luna: And that's a process that could take a few hours per item. Lucas: Maybe a day or two total. But if you're a multi-unit operator, the return on that time is enormous. Even a five percent saving on your total cost of goods sold can mean tens of thousands of dollars a year. Luna: And if you're a single-unit owner, you might still find a few hundred dollars a month — which is real money. Lucas: Absolutely. And it's money that goes straight to your bottom line. No extra sales, no extra customers, no extra hours. Just smarter procurement. Luna: Alright, so one actionable takeaway: audit your approved supplier list. That's something anyone can do this week. Lucas: And if you want more strategies like this, keep listening. These conversations are what we do here. Luna: And if these conversations have moved your work forward in some small way, there's a simple way to support the show. Lucas: Yeah — a couple of dollars a month is genuinely what keeps these going. Buy me a coffee dot com slash fexingo. Luna: It's not about perks or anything like that. It's just a way to keep the podcast ad-free and focused on real franchise business insights. Lucas: Exactly. So back to sourcing — one more piece of advice. Don't forget to re-audit every year. Prices change, new suppliers get approved, and old deals expire. Luna: Good point. The national supplier might come back with a better rate if they see you're shifting volume away. Lucas: That happens. The Subway franchisee told me that after a year of buying forty percent from local suppliers, the national distributor offered him a five percent discount to win back his business. He took it — and then kept the local suppliers too. Luna: So he ended up with savings on both sides. Lucas: Exactly. Competition works. And it works best when you create it. Luna: Alright, next episode we're going to look at something different: how franchisees are using shared employee pools across multiple units. Lucas: That's a good one. Until next time.