Why the Competition Commission is looking at franchises
The Competition Commission of South Africa enforces the Competition Act to protect consumers and ensure fair markets. Franchising, which connects national brands with thousands of small-business owners, has natural friction points with competition law: price and territory controls, supplier restrictions, and conditions that limit how franchisees operate.
Recent enforcement trends locally and internationally show regulators are focused on vertical restraints such as resale price maintenance (RPM), exclusive supply arrangements, and clauses that effectively divide markets. For South African franchise owners and buyers, that means agreements and systems previously taken for granted can now invite scrutiny.
Common red flags in franchise agreements
- Fixed resale pricing: Clauses that require franchisees to sell at a set price or within a narrow band. RPM is often the trigger for probes.
- Supplier exclusivity: Forcing franchisees to buy from a single supplier where that supplier has market power or where no efficiency justification exists.
- Territorial allocation: Strict market divisions that prevent franchisees from competing with one another or that allocate customers by geography without legal basis.
- Non-compete and excessive exit restrictions: Long or broad post-termination restraints that prevent former franchisees from earning a living in the same sector.
- Information sharing: Coordinating prices or promotions across franchisees in ways that resemble collusion.
Practical steps for franchisors
Franchisors must act quickly to limit legal and business risk:
- Audit existing agreements: Have competition-law-savvy counsel review distribution, supply and pricing clauses. Remove or rephrase RPM-style provisions into recommended pricing or MAP (minimum advertised price) guidance that allows independent setting of final prices.
- Document efficiencies: Where exclusive suppliers or pricing restrictions exist for legitimate reasons (brand standards, quality control), document the objective and the less restrictive alternatives considered.
- Train staff and field agents: Ensure franchise support teams and area managers understand what constitutes unlawful coordination with franchisees.
- Engage proactively: If contacted by the Competition Commission, respond promptly. Consider early engagement to negotiate commitments rather than face a prolonged investigation and potential fines.
Practical steps for franchise buyers and existing franchisees
Buyers should treat competition issues as part of due diligence. Existing franchisees need to know their rights and obligations:
- Due diligence checklist: Ask for all supplier agreements, pricing guidelines, territorial maps and any Commission correspondence. Speak to current franchisees about how pricing and supply work in practice.
- Seek independent advice: Get a franchise lawyer and an accountant to check projected margins when the head office sets pricing or imposes supply conditions.
- Document restrictions: Keep records of communications about pricing and supplier demands. These can be crucial if a dispute or investigation arises.
- Report concerns: If you suspect anti-competitive conduct (e.g., coerced price fixing), consider lodging a confidential complaint with the Competition Commission or seek legal guidance on whistleblower protections.
Examples from local sectors
In quick-service restaurants, issues often arise when franchisors insist on uniform consumer prices across diverse trading locations. In automotive service networks, supplier exclusivity for parts can reduce competition if alternatives exist locally. Even cleaning and home services franchises may face scrutiny if head office coordinates bids or territories across independent franchisees.
What outcomes can follow a probe?
The Competition Commission can accept commitments, seek fines, or refer the matter to the Competition Tribunal for further action. Remedies may include changing contractual clauses, offering redress to affected parties, or structural changes to business practices. For a franchisor, the reputational and financial costs can be significant, and for franchisees, enforcement may mean renegotiating business models or receiving compensation.
Bottom line for South African business owners and buyers
Franchising remains a powerful growth path in South Africa’s SME landscape, but recent focus from the Competition Commission signals a need for careful contract design and transparent practices. Both franchisors and franchisees benefit from practical legal and commercial checks: audit agreements, document justifications for restrictive clauses, and prioritise open communication channels. Doing so reduces enforcement risk and preserves the commercial benefits of branded networks across townships, suburbs and national markets.
If you’re buying a franchise or managing a network, treat competition compliance as part of core risk management. It protects your business, your investment, and your long-term relationship with customers and regulators.