Franchising in Colombia: agreeing on prices and promotions

A promotion can attract customers while leaving little money to cover an outlet’s running costs. Before buying a franchise in Colombia, clarify who decides prices and who bears the cost of each discount. Across a franchise network, sharing a brand does not mean that every outlet has the same costs or that every campaign is financially sustainable for every franchisee.

1. Distinguish recommended prices from binding requirements

Ask the franchisor to explain how its commercial policy works, including recommended prices, mandatory price lists, authorised discounts and national campaigns. Do not assume that a price list presented during negotiations carries the same weight as a contractual obligation.

Also check who can change prices at the till, on the ordering website or in the apps used by the outlet. The autonomy described in the contract may be limited in practice if only head office controls these tools.

Prepare a list of specific questions:

• Can the outlet adjust prices to cover its local costs?
• What approval does it need to offer its own discounts?
• Are campaigns voluntary, or is there a commitment to participate?
• Are there different prices for eating in, collection and delivery?
• Who is responsible when the advertised price differs from the price charged?

Request examples of previous campaigns and their financial terms. These help explain how the arrangements work; they do not guarantee that the same results will be achieved again.

2. Review the legal framework without assuming complete freedom

In Colombia, franchising is an ‘atypical’ contract: there is no comprehensive legal regime specifically governing franchise agreements. The terms validly agreed by the parties apply, alongside the general contract rules in the Commercial Code and Civil Code and other relevant provisions. A franchisee’s independence does not remove its contractual commitments, but nor can the contract override mandatory legal rules.

Competition law is particularly relevant to pricing policies. The framework includes Law 155 of 1959, Decree 2153 of 1992 and Law 1340 of 2009. Restrictions on resale prices warrant legal review in light of their terms and how they operate. Simply calling a price ‘recommended’ is not enough if pressure or consequences make it mandatory in practice.

Law 1480 of 2011, the Consumer Protection Statute, also applies to dealings with end customers. Price information and promotional terms must meet its requirements; the objective terms advertised are binding on the advertiser. Identify who publishes each offer and how the outlet will ensure it is honoured.

There is no specific general obligation to provide a franchise disclosure document within a uniform statutory timeframe. Ask for these rules before committing and have them independently reviewed, taking care not to confuse proposed legislation with the law currently in force.

3. Work out who funds each discount

Assess each campaign as a separate financial exercise. Start with the revenue the outlet would retain after the discount, then deduct the costs attributable to that sale: the product, packaging, sales channel commissions, payment processing fees and any other applicable charges. Account for taxes separately, with help from an accountant.

Check which amount is used to calculate royalties during promotions. Calculating them on the actual discounted sales value is not the same as calculating them on the pre-discount price. The answer should be consistent with both the contract and the royalty calculation system.

If the franchisor promises to fund part of the campaign, clarify:

• Which sales qualify for its contribution.
• How the outlet proves its participation.
• When the contribution is paid or credited.
• Who bears the cost of returns, cancellations and combined discounts.

A future reimbursement will not necessarily meet an immediate cash-flow need. Assess how long you would have to fund the discount before receiving reimbursement. Avoid justifying a campaign solely on the basis of an expected increase in sales: selling more does not guarantee a higher margin.

4. Put a clear, verifiable commercial procedure in place

Before signing, propose a procedure covering advance notice of campaigns, communication of terms, cost estimates and responsibility for implementation. If participation is voluntary, specify how an outlet accepts or declines and how it will be prevented from being advertised as a participant by mistake.

Where exceptions are envisaged because of availability, costs or operational capacity, define how to request them and who is responsible for responding. Include a mechanism for correcting price discrepancies between channels and reconciling promised contributions. These rules must comply with competition and consumer protection law, rather than simply authorising breaches of it.

Practical conclusion: before buying, trace a promotion from the advertisement through to cashing up. If you cannot identify who decides, who pays and how much the outlet retains, an essential financial term remains unresolved.