Franchising in Hong Kong: Defining Retail Pricing Autonomy and Promotion Participation

When preparing to offer franchises in Hong Kong, businesses often take the price list used by their company-owned shops and make it mandatory for franchisees. Yet consistent product quality does not mean retail prices must be identical. Franchisees are independent operators. Before recruiting them, franchisors should clarify pricing rights, participation in promotions and system settings. This helps prevent brand marketing from becoming compulsory price coordination and establishes clear boundaries for the franchise network.

1. Understand Hong Kong’s legal boundaries on pricing

Hong Kong has no legislation specifically governing franchising, nor a dedicated statutory regime for franchise disclosure, registration or a mandatory franchise code of conduct. Franchise relationships remain subject to general contract law and relevant legislation, including the Misrepresentation Ordinance, Trade Marks Ordinance and Competition Ordinance. Consumer-facing price promotions also require attention to the Trade Descriptions Ordinance.

For pricing arrangements, particular attention should be paid to the First Conduct Rule under the Competition Ordinance. It prohibits undertakings from making or giving effect to agreements, and engaging in related concerted practices, that have the object or effect of preventing, restricting or distorting competition in Hong Kong. Franchise agreements are not automatically exempt simply because they involve brand licensing.

Requiring franchisees to adopt fixed or minimum resale prices may constitute resale price maintenance and must be assessed in light of the specific arrangements. A signed contract does not, by itself, make an arrangement acceptable. Equally, it would be wrong to suggest that all price recommendations are unlawful.

A genuinely non-binding recommended retail price is different from using fines, supply suspension or the withdrawal of benefits to force franchisees to follow a price. If franchisees may raise prices but cannot lower them, describing the price as ‘recommended’ should not be treated as a safeguard. Before implementation, the arrangements should be reviewed by a Hong Kong solicitor familiar with competition law.

2. Turn pricing rights into a workable division of responsibilities

The franchisor should first review every price customers see, including in-store prices, takeaway platform prices, meal deal prices and member offers. For each, identify who decides the price, who enters it into the system and which business entity makes the sale to the customer. Do not rely on a single contractual statement that ‘the franchisor reserves the final right to set prices’.

A clearer approach is to address the following separately:

• Brand specifications: The franchisor sets product names, portion sizes, quality standards and display formats, without confusing quality requirements with mandatory selling prices.
• Price recommendations: Explain the cost assumptions and market positioning behind them, and clearly state whether they are non-binding.
• Shop-level decisions: Define which prices franchisees may adjust themselves, along with responsibility for updating price boards, till systems and platform listings.
• Notification requirements: If advance notice to the franchisor is required, explain that its purpose is to update customer information, rather than to use an approval process to veto franchisees’ price reductions.

The contract, operations manual and system permissions must be consistent. For example, if the agreement allows independent pricing but prices are locked in the till system, the shop manager cannot exercise that right in practice. Nor should the franchisor use shop inspection scores or renewal assessments to penalise franchisees indirectly for departing from recommended prices.

3. Specify participation arrangements and costs for every promotion

A ‘network-wide offer’ can easily suggest that every shop must take part. Before publishing promotional material, the franchisor should confirm which shops are participating and which offer terms they can deliver. It should not make a public commitment first and then require franchisees to fund the discount.

A separate promotion confirmation form can be used for each campaign, recording at least:

• Campaign dates, eligible products, sales channels and participating shops;
• How franchisees opt in, and the deadlines for confirming or withdrawing participation;
• Who bears the cost of discounts, how any franchisor subsidy is calculated and when it will be settled;
• How stock shortages, pricing errors or early termination of the campaign will be handled;
• Who updates promotional materials and platform pages to prevent inconsistent messaging across channels.

Voluntary participation must be reflected in practice. If declining to participate results in reduced normal supplies or the loss of existing support, simply writing ‘voluntary’ on a form will not reduce the risk. Even where franchisees agree to take part, joint pricing arrangements may still require a competition law assessment.

Customer-facing advertising must also be accurate. Offers available only at selected shops should not be described as applying across the network. When advertising a price reduction, the original price and offer terms must have a genuine basis to avoid misleading customers.

4. Test systems through a pilot and prevent price coordination between shops

Before launching the franchise programme, company-owned pilot shops can be used to simulate different shops charging different prices, with some opting out of promotions. This does not establish legal compliance; it checks whether existing systems can support independent operation in future.

Testing should establish whether the till system supports shop-specific prices, online menus clearly identify participating shops, promotional subsidies can be accounted for separately, and each shop’s settings can be restored on time after a campaign ends. Where limitations emerge, fix the system rather than requiring franchisees to adopt uniform prices to accommodate the software.

The franchisor must also manage communication within the franchise network. It should not arrange for franchisees to agree minimum prices in group chats, or relay individual shops’ unpublished plans to raise prices in a way that encourages others to follow. Brand meetings can cover service quality and operational issues. However, where discussions turn to future prices, discounts or profit strategies, any discussion that could facilitate price coordination should be stopped and legal advice sought.

Practical takeaway: Before recruiting franchisees, prepare a pricing responsibility matrix and a promotion confirmation form, and complete system testing. Then submit the arrangements for legal review. Brand consistency should rest on quality and clear information, not on pricing restrictions that have not been properly assessed.