Building a franchise: setting prices lawfully

In your own business, you set your selling prices yourself. When you develop it into a franchise network, you cannot simply extend that control over independent franchisees. Price lists, central advertising and preset till systems can inadvertently lead to unlawful resale price maintenance. Before your first franchisee opens, your pricing model should therefore not only be commercially viable, but also reviewed for compliance with competition law and properly implemented in your systems.

1. Make pricing autonomy your starting point

Germany has no standalone franchise law and no general franchise-specific registration requirement. Franchise agreements are governed in particular by the German Civil Code and, depending on the matters covered, other general legislation. For selling prices, the key provisions are section 1 of the German Act against Restraints of Competition (GWB) and, where trade between EU Member States may be affected, Article 101 of the Treaty on the Functioning of the European Union (TFEU).

These provisions restrict anti-competitive agreements between independent businesses. The EU Vertical Block Exemption Regulation, Regulation (EU) 2022/720, sets out the conditions under which certain vertical agreements are exempt from the prohibition. It is not a blanket exemption for franchise agreements.

The practical starting point is this: franchisees must, as a rule, be free to set their own selling prices. Fixed or minimum resale prices are generally particularly serious restrictions of competition. Non-binding recommended prices and maximum resale prices, by contrast, may be permissible, provided that pressure or incentives do not turn them into fixed or minimum prices in practice and the other legal requirements are met.

Do not limit your legal review to the wording of the contract. How your head office operates day to day matters just as much.

2. Turn your own price list into a genuine recommendation

Start by taking stock: where does your existing business currently set prices? Pricing instructions are often embedded not only in menus or sales leaflets, but also in booking software, sales training, advertising templates and internal messages.

Going forward, distinguish between three levels:

• Pricing tools: You show which cost items and assumptions feed into a price calculation.
• Non-binding recommendations: You suggest a selling price without requiring franchisees to adopt it.
• Binding requirements: You restrict the franchisee’s pricing decisions; this requires a separate legal assessment.

Simply adding the words ‘non-binding’ is not enough if head office then objects when franchisees charge different prices. Reduced support, threatened disadvantages or benefits offered for following a recommendation can also amount to indirect resale price maintenance.

In discussions with franchisees, make it clear that local costs, demand and market positioning require them to calculate their own prices. Provide calculation tools rather than treating a particular final selling price as a test of loyalty to the franchise network.

3. Check that till systems and ordering channels allow independent decisions

A legally compliant contract is of little use if your software only accepts the price set by head office. Work with your technology provider to check every step from the suggested price to the customer’s bill.

For your first franchise outlet, carry out and document a functional test:

1. Can the franchisee change a recommended price independently?
2. Does the change appear across all relevant sales channels?
3. Will the next central update overwrite local pricing decisions?
4. Does the system allow discounts without head office approval?
5. Are departures from recommended prices simply recorded by the system, or automatically flagged as breaches of the rules?

Pay particular attention to central ordering portals. You first need to establish who is the seller or contracting party in the transaction with the customer. If head office merely takes orders on behalf of the relevant franchisee, that does not automatically give it the right to set the franchisee’s retail prices.

Document access permissions, options for making changes and responsibilities. A successful price change tested in a pilot outlet tells you more than an assurance that the system is flexible in principle.

4. Clarify joint promotions before publication

Nationwide advertising featuring a specific price can easily put franchisees under practical pressure to participate. Plan each campaign alongside the necessary legal and technical arrangements, rather than waiting until the advertising materials are finished.

Establish in advance which outlets will participate, who will set the advertised price and how the advertising will make clear where the offer applies. References to participating outlets must be accurate and sufficiently prominent. Alongside competition law, the German Act against Unfair Competition (UWG) is relevant, particularly its prohibition of misleading advertising.

Describing a promotion as ‘voluntary’ does not automatically remove competition-law risks. Jointly agreed promotional prices can also be problematic. Time-limited campaigns involving resale price maintenance are not a generally permitted exception and require specialist assessment on a case-by-case basis.

Also avoid franchisee meetings in which independent businesses coordinate their future selling prices. A franchise network provides no safe harbour for price-fixing.

5. Assign responsibilities before your first franchisee launches

Appoint someone at head office to take responsibility for price recommendations and promotions. Train your franchisee support, marketing and software administration teams in particular: nobody should casually ask a franchisee to raise their price back to the level recommended by head office.

Set out a brief approval process. New pricing functions, promotional arrangements and price-related contract changes should undergo legal review before they are introduced. Put a clear process in place for handling reports from franchisees about technical restrictions.

Practical conclusion: Do not simply impose your existing price list on new franchisees. Build a legally reviewed approach that combines non-binding recommendations, genuine freedom to make pricing decisions within your systems and carefully planned advertising. This allows a consistent brand identity to coexist with franchisees’ independence as business owners.