Franchise pricing: who decides the selling prices?

When joining a franchise network, it is natural to expect a consistent brand image and standard of service. But who sets the prices charged to customers is a separate question. Central price lists, nationwide promotions and till settings directly affect your flexibility and profitability. Before buying a franchise in Hungary, therefore, do not just ask what prices you can charge. Ask whether the decision is genuinely yours.

1. Understand Hungary’s legal framework for pricing

Hungary has no separate, comprehensive franchise act, but franchise agreements are not unregulated: Act V of 2013, the Hungarian Civil Code, specifically recognises franchise agreements. Freedom of contract does not, however, override competition law restrictions.

Act LVII of 1996 on the Prohibition of Unfair Market Practices and Restriction of Competition is central to the assessment of pricing clauses. Where an agreement may affect trade between EU Member States, EU competition law also applies, particularly Article 101 of the Treaty on the Functioning of the European Union. Commission Regulation (EU) 2022/720 provides an important EU framework for vertical agreements.

As a general rule, imposing fixed or minimum resale prices between independent businesses raises serious competition law concerns. Recommended or maximum prices may be treated differently, provided that pressure or incentives do not effectively turn them into fixed or minimum prices. Calling a price “recommended” does not, by itself, make a practice lawful.

The availability of the block exemption also depends on further conditions. Have any questionable clause reviewed by a lawyer experienced in franchise and competition law; membership of an industry association or adherence to a code of ethics is no substitute.

2. Check whether recommended prices really are recommendations

Ask for the contractual provisions on pricing, the current price list and a previous head-office notice announcing a price change. Read these together: the contract may promise freedom while day-to-day practices restrict it.

Ask specific questions:

• Can I charge less or more than the recommended price?
• Do I need prior approval, or is it simply a matter of changing a system setting?
• Are there any adverse consequences for departing from it, such as withdrawal of support or contractual penalties?
• Do discounts, bonuses or other benefits depend on following the recommended price?
• Who monitors each outlet’s consumer prices, and for what purpose?

Explicit prohibitions are not the only concern. A mandatory minimum margin, a cap on permitted discounts or threats following a departure from central pricing can also amount to indirect resale price maintenance. Price monitoring alone does not establish an infringement, however: any measures associated with it must also be examined.

Speak to several existing franchisees. Rather than asking whether they are generally satisfied, ask when they last departed from the central price and what happened afterwards.

3. Examine nationwide promotions separately

A discount campaign can raise brand awareness while placing different burdens on individual outlets. An outlet with higher rent or wage costs may earn a lower contribution margin at the same promotional price.

Before joining, establish how campaign decisions are made. Ask for an example of a promotion involving vouchers, a bundle offer or a loyalty discount. Find out who funded the discount, how redemptions were accounted for and whether the offer could be combined with other promotions.

Prepare a simple contribution calculation for each product or service: deduct the variable costs associated with the sale from the discounted revenue excluding VAT. Check whether enough remains to cover fixed costs. Run the calculation for weaker sales as well as average trading conditions.

The competition law assessment of time-limited, co-ordinated discount campaigns depends on the circumstances. Do not accept “it is only a short promotion” as an automatic exemption. Mandatory participation and prescribed prices still need legal review.

4. Check how the till and online ordering systems work

Without the necessary system access, pricing freedom can easily remain theoretical. Ask for a demonstration of the till system and online ordering interface: where can prices be changed, who has permission to do so, and when does the change take effect?

You should also establish who acts as the seller on the central website, who enters into the contract with the customer and who issues the invoice. If the local business is the seller but head office manages the ordering interface, responsibility for managing prices must also be clear.

Ask about automatic price updates. Do they overwrite local settings? How can an incorrect price be corrected? Who bears the cost of an incorrectly configured discount? Agree in advance how any differences between online and in-store prices will be communicated to customers.

5. Turn the answers into an agreement you can verify

The contract reviewed by your lawyer should clearly set out the status of recommended prices, the procedure for setting local prices and who bears campaign costs. Its provisions should also match till-system permissions and actual operating practices.

It is a warning sign if the franchisor verbally promises complete freedom but will not clarify in writing the consequences of departing from recommended prices. In that situation, do not simply ask for a discount on the initial franchise fee: resolve the operational and legal uncertainty first.

Practical takeaway: before signing, check one price list, one completed campaign and one actual price change in the till system. Together, these will show whether the promised pricing independence works in everyday practice.