Buying a Franchise: Check Pricing Rules and Mandatory Discounts

Menu prices may look straightforward, but the authority to change them can determine an outlet’s financial health. Before buying a franchise in Indonesia, establish who sets selling prices, whether participation in discounts is compulsory and who bears the cost. Across a franchise network, consistency of offers needs to be balanced with clear responsibilities. A programme that increases transaction numbers should not leave the franchisee losing more money on every sale.

1. Map out who controls pricing

Ask the franchisor to explain its pricing policy in writing, rather than simply saying that prices are “set by head office”. That phrase does not tell you whether prices are recommendations, maximum limits or fixed amounts that outlets cannot change.

Review the draft agreement and its schedules, operating manuals and any promotional terms it refers to. Highlight clauses that allow the franchisor to update its policies. If important terms are only available through an internal app after joining, request copies before signing.

Use the following questions to get a clear picture:

• Can prices vary according to location and the outlet’s operating costs?
• Are prices for purchases made directly from the outlet different from those on delivery apps?
• Can an outlet refuse a discount that would bring net receipts below variable costs?
• Who approves price changes, and how are requests submitted?
• Are there penalties if an outlet does not follow particular prices or participate in certain programmes?

Also distinguish between product discounts, bundles, customer vouchers and loyalty point redemptions. Each may involve a different allocation of costs. Do not accept a single general answer covering every type of promotion.

2. Understand the legal limits on pricing policies

Indonesia regulates franchising specifically through Government Regulation No. 35 of 2024 on Franchising, which replaced Government Regulation No. 42 of 2007. It requires franchisors or sub-franchisors to provide an offering prospectus at least 14 calendar days before the agreement is signed. Use that time to check commercial explanations against the draft agreement and pricing policies.

Pricing policies also need to be considered under competition law. Article 50(b) of Law No. 5 of 1999 contains an exemption relating to franchise agreements. However, this exemption does not automatically justify every restriction in a contract.

Regulation No. 6 of 2009 of the Indonesian Competition Commission (KPPU), which provides guidance on the exemption for franchise-related agreements, explains the limits of its application. Franchise-related agreements that may lead to monopolistic practices or unfair business competition are not automatically protected by the exemption.

Do not therefore assume that all uniform pricing is prohibited, or that every pricing restriction is lawful simply because it forms part of a franchise system. If there are minimum selling prices, bans on discounts or penalties for departing from set prices, ask a legal adviser to assess the terms and the context in which they apply. A legal assessment is separate from an assessment of whether the programme is profitable for your outlet.

3. Calculate the net return from each programme

Do not judge a promotion solely by the increase in turnover. Ask for sample transaction settlement statements from previous programmes, with customer data anonymised. Trace the original price, discounts, the franchisor’s subsidy contribution, platform fees and the amount ultimately received by the outlet.

For an initial check, use this calculation:

Contribution per transaction = outlet’s net receipts − variable transaction costs.

Net receipts must account for the discounts actually borne by the outlet. Variable costs may include ingredients, packaging, transaction commissions and other costs incurred as a result of that sale. Avoid counting discounts or commissions twice if they have already been deducted in the receipts statement.

Model three scenarios: sales without a promotion, a promotion with the promised subsidy, and a promotion where subsidy payments are delayed. The last scenario matters because profit on paper does not necessarily mean cash is available to buy ingredients tomorrow.

Also ask whether several discounts can apply at once. Brand discounts, app vouchers and loyalty point redemptions may look small individually, but together they can change the return on a transaction. Check the basis on which royalties are calculated during promotions too, rather than assuming they are based solely on the money reaching your bank account.

4. Agree the arrangements before committing

Turn verbal answers into contractual terms or agreed schedules. For each type of mandatory promotion, seek clarity on:

• who bears the discount cost and the limit on the outlet’s contribution;
• notice before the programme starts;
• the programme’s duration and the products included;
• the conditions, supporting evidence and payment timetable for subsidies;
• the procedure for raising objections when local costs make the programme unviable;
• the process for correcting erroneous deductions in transaction statements.

These points are matters for negotiation, not automatic rights invariably granted by law. If the franchisor refuses to set cost limits, factor that risk into your purchase decision and working capital requirements.

Check how things work in practice with existing franchisees. Ask whether subsidies are paid on schedule and whether objections to promotions have ever received a response. Use their answers to test the consistency of the franchisor’s explanations, not as a substitute for the contract.

Practical step: before signing, request a written pricing policy, a sample promotional report and a transaction contribution calculation. If the allocation of discount costs still cannot be explained, hold off on committing until responsibilities are clear.