Franchise pricing: what can the franchisor control?

In your own outlets, it is natural for you to set prices. But when you turn an existing business into a franchise network, you are bringing independent businesses on board: you cannot simply dictate their retail prices from head office. Before your first franchisee joins, you therefore need a dedicated pricing policy that balances your brand promise, local profitability and competition law requirements.

1. Separate brand consistency from pricing

A shared visual identity, service process and product range do not necessarily mean that every outlet must charge the same prices. Rent, wages, local demand and delivery costs can vary. A price that delivers a healthy margin in your own outlet could leave a franchisee in another town making a loss.

Start by mapping out decision-making responsibilities. List the pricing decisions made within the business and identify who has authority to make them:

• who sets local retail prices;
• who can propose discounts or bundle offers;
• how decisions on joint campaigns are made;
• who bears the cost of discounts and redeemed vouchers;
• how local prices are displayed on the central website.

Brand consistency should come primarily from a consistent offering and service, not enforced prices. Helping franchisees calculate their costs is useful support; prescribing a margin or a mandatory minimum retail price, however, can create competition law risks.

2. Understand the Hungarian and EU legal framework

Hungary has no standalone franchise act covering every aspect of franchising, but it would be wrong to say that franchise contracts are entirely unregulated. Sections 6:376–6:381 of Act V of 2013 on the Civil Code govern franchise agreements. The Civil Code’s general rules on contracts also apply.

Particularly relevant to pricing policy are Act LVII of 1996 on the Prohibition of Unfair Market Practices and Restriction of Competition and, where trade between EU Member States may be affected, Article 101 of the Treaty on the Functioning of the European Union. Commission Regulation (EU) 2022/720 sets out the EU block exemption framework for vertical agreements.

Under this framework, imposing fixed or minimum resale prices is a hardcore restriction: as a general rule, it removes the benefit of the block exemption. Recommended and maximum prices may be permissible, provided that pressure or incentives do not turn them into fixed or minimum prices in practice. Assessing any particular arrangement requires consideration of the agreement as a whole and the market conditions.

There is no general requirement for separate franchise registration or a franchise disclosure document in a prescribed format. Nevertheless, the Civil Code’s pre-contractual duties to cooperate and provide information still apply. The European Code of Ethics for Franchising is a self-regulatory standard, not legislation; following it does not replace compliance with competition law.

3. Keep recommended prices genuinely advisory

Writing ‘recommended’ at the top of a price list is not enough. What matters is how the franchise network operates day to day. If a franchisee who charges different prices loses support, receives less favourable supplies or fears contractual disadvantages, the recommendation can become binding in practice.

In particular, avoid:

• rebates or rewards conditional on following recommended prices;
• warnings or penalties for charging lower local prices;
• mandatory head-office approval of franchisee discounts;
• till software that prevents franchisees from changing their own selling prices;
• minimum advertised prices used as a workaround for minimum selling prices.

Instead, provide a cost analysis template that franchisees can use with their own figures. Show how discounts affect margins, but do not turn the resulting calculation into a compulsory price level. Make it clear alongside the recommended price list that franchisees are free to depart from it.

Test the IT systems too. If the central system loads default prices, franchisees must have a genuine ability to change them. Customer service staff should also be able to handle enquiries from customers who encounter different prices at different outlets.

4. Plan joint promotions before launch

Joint campaigns need their own rules because they involve pricing, cost allocation and consumer communications at the same time. Do not wait until an advert has appeared to discover that a franchisee cannot deliver the offer profitably.

Prepare a campaign brief covering participating outlets, duration, relevant products, stock conditions, funding, voucher settlement and the terms shown to customers. Voluntary participation must be genuinely voluntary, with no adverse consequences for opting out. However, voluntary participation alone does not make every joint pricing agreement lawful.

For example, a nationally advertised meal deal needs to make clear in advance whether the advertised price is recommended or a maximum, and whether franchisees can charge less. Do not automatically roll out a campaign based on a fixed promotional price: whether such an arrangement can be justified requires a case-specific competition law assessment.

When announcing price reductions on products, you must also check consumer protection rules on displaying prices, including requirements to show the prior price. Centrally produced advertising material may not be suitable for use unchanged across outlets with different pricing histories.

Practical takeaway: before signing your first franchisee, prepare a short pricing policy annex, test whether the franchisee can change prices independently, and have a competition lawyer review your incentives and campaign rules. That way, building a shared brand does not come at the expense of independent business decisions.