Buying a franchise: Know your right to set selling prices

A strong franchise network can offer customers a familiar experience, but a shared identity does not necessarily mean shared selling prices. When buying a franchise in Denmark, you should check whether you can genuinely set your own prices and how network-wide promotions affect your finances. This is about both competition rules and your ability to run a profitable local business.

1. Understand the rules on resale price maintenance

Denmark has no dedicated franchise law, no franchise-specific registration scheme and no mandatory standard disclosure package that franchisors must provide before you sign. However, general contract law and principles requiring relevant information to be disclosed in good faith still apply. Franchise agreements are subject to the Danish Contracts Act, among other legislation, while pricing controls must be assessed under the Danish Competition Act and, where applicable, EU competition rules.

For an independent franchisee selling goods or services on their own account and at their own risk, the general rule is that the franchisor must not impose fixed or minimum selling prices. This is known as resale price maintenance. A requirement limiting the discount you can offer may also operate as an unlawful minimum price.

Franchisors can generally recommend prices or set maximum prices. However, pressure or financial incentives must not turn these into fixed or minimum prices in practice. A recommended price is therefore not necessarily acceptable simply because the agreement describes it as ‘recommended’.

The EU Vertical Block Exemption Regulation, Regulation (EU) 2022/720, provides a framework for exemption from the prohibition on anti-competitive agreements, subject to certain conditions. Resale price maintenance is a hardcore restriction that generally rules out this block exemption. Any exceptions require a case-specific legal assessment; a desire for a consistent brand image is not enough on its own.

2. Investigate how pricing is controlled in practice

Do not just read the pricing section of the franchise agreement. Review the operations manual, promotional terms and documentation for the till and ordering systems too. A formal right to set your own prices is of little use if the system or day-to-day practices prevent you from exercising it.

Ask the franchisor to demonstrate how a local price change is made. Choose a typical product or service and follow the change from the back-office system through to the customer’s receipt.

In particular, establish:

• Can you change the standard price without the franchisor’s approval?
• Can you give an individual discount or run a local offer?
• Do changes appear on the website, in the app and at the till?
• Are local changes automatically reset at the next update?
• Do departures from central prices result in lost bonuses, warnings or other negative consequences?

Uploading recommended prices centrally is not necessarily unlawful. Key considerations include whether those prices are genuinely optional and whether you can depart from them without pressure. Conversely, controls on discounts or penalties for price deviations may indicate indirect resale price maintenance.

Also clarify who is legally selling to the customer when orders are placed digitally. If the franchisor is the seller, the assessment may differ from a sale made by your business. A shared ordering system does not automatically answer that question.

3. Calculate the impact of network-wide promotions

Network-wide promotions can raise awareness and generate sales across the franchise network. But a promotion that works for one outlet may be challenging for another with higher labour costs or a different customer mix.

Ask for a specific example of a promotion and calculate your contribution margin per sale. Start with the selling price excluding VAT, then deduct the cost of goods and the variable costs incurred by the sale. Include, for example, payment processing fees, packaging, any delivery costs and turnover-based franchise fees, using the calculation basis specified in the agreement.

Next, assess whether the additional sales require extra staff. Selling more units does not automatically improve profitability if each order contributes very little or displaces sales at the normal price.

Clarify the practical arrangements for the promotion:

• Who funds the discount and any free products?
• Can you opt out of the promotion or offer a lower price?
• Who bears the cost of discount codes and loyalty benefits?
• What happens if the promotion creates capacity problems?

A short-term promotion with shared prices is not automatically exempt from competition rules. If participation involves binding prices, an adviser specialising in competition law should assess the specific arrangement. The Danish Marketing Practices Act’s rules on matters including misleading marketing and price advertising must also be followed.

4. Make pricing freedom workable before you buy

Ask for the agreement to distinguish clearly between recommended prices, maximum prices and your own pricing decisions. It should also explain how price changes are implemented technically and who is responsible for ensuring that customers see the correct prices.

Have an adviser compare the contract with how the business actually operates. A general clause requiring compliance with the Danish Competition Act does not resolve a conflicting obligation to follow a central price list at all times.

At the same time, do not try to solve the problem by agreeing shared minimum prices or discount limits with other franchisees. Independent businesses can also breach competition rules by coordinating prices with one another.

Practical takeaway: Only buy once you have seen how local prices are changed, worked through the figures for a network-wide promotion and had any restrictions assessed. Pricing freedom must work both in the contract and at the till.