Who Controls Prices and Discounts? What to Check Before Joining a Franchise in Japan

Even within the same brand, local purchasing power, competition and patterns of unsold stock vary. When joining a franchise network, look beyond brand recognition: establish who sets selling prices and who bears the cost of discounts. Being told that prices are “recommended by the franchisor” does not tell you how much discretion you will have once you join.

1. Distinguish between “recommended prices” and actual decision-making powers

Start by considering separately the selling prices of goods purchased from the franchisor, the prices of products prepared or processed at your outlet, and service charges. If the agreement simply says that you must “follow the prices set by the franchisor”, ask which products and services this applies to.

Next, check not only the price list but also the operations manual, promotional terms and sales management system settings. Even if the contract permits price changes, your practical freedom may be limited if you cannot change prices at the till or must go through a lengthy approval process.

It helps to put specific scenarios to the franchisor:

• Can franchisees change their regular prices to match nearby competitors?
• Can franchisees decide to discount products approaching their use-by date?
• Can they offer their own member discounts or local coupons?
• Can they charge different prices in-store and through delivery services?
• Is notifying the franchisor of a price change enough, or is prior approval required?

Ask for answers that include the conditions, application process and expected response time. If there are broad exceptions to what is “permitted in principle”, you may be unable to run the business as you intend. When comparing brands, focus not on how low their prices are, but on the scope of your discretion and the clarity of the procedures.

2. Understand the principles and limits of Japan’s Antimonopoly Act

A franchisee is an independent business, not a branch of the franchisor. Dealings between franchisors and franchisees are subject to Japan’s Antimonopoly Act. The Japan Fair Trade Commission’s guidelines on franchise systems under the Act explain how trading restrictions, including those relating to pricing, may raise concerns.

Where a franchisor supplies goods to a franchisee and dictates their resale prices, this raises an issue of resale price maintenance unless there are justifiable grounds. Suggesting a price is different from requiring goods to be sold at that price. Even if a price is labelled “recommended”, the actual arrangements need examining if compliance is enforced through adverse treatment of franchisees who depart from it or through system restrictions.

However, prices for services provided by franchisees themselves or food prepared at their outlets are not necessarily assessed in the same way as prices for goods resold unchanged. The need to maintain brand consistency, the nature of the restrictions and the actual trading arrangements all need to be considered.

Unreasonably restricting markdowns on products approaching their use-by date may also, depending on the circumstances, constitute an abuse of a superior bargaining position. This does not mean that every pricing restriction is automatically unlawful, or that franchisees can disregard all instructions. Have any clauses you are unsure about reviewed by a specialist before signing.

Japan has no single comprehensive statute governing all franchise agreements uniformly. Contracts are subject to the Civil Code and other applicable laws. For certain qualifying chain businesses, Article 11 of the Act on the Promotion of Small and Medium-sized Retail Business requires written pre-contract disclosure and an explanation of its contents. Not every retail or food-service franchise falls within its scope. Even where it does not apply, ask for important terms concerning pricing authority to be explained in writing.

3. Consider discounting authority and cost allocation together

Check not only who has the authority to reduce prices, but also who bears the financial consequences. Even a nationwide promotion led by the franchisor may be structured so that franchisees bear the cost of the discounts. The franchisor paying for advertising is not the same as compensating franchisees for lost profit.

For each promotion, bring the following points together in a single table.

Point to check	Questions for the franchisor
Participation terms	Is participation optional or required for every outlet? What happens if an outlet does not participate?
Discount costs	Which costs are borne by the franchisor and which by the franchisee, and to what extent?
Reimbursement	What conditions, limits and settlement timetable apply to financial support?
Coupons and loyalty points	How are costs allocated between the outlet issuing them and the outlet accepting them?
Third-party services	Do discounts and fees from delivery services or booking platforms apply on top?

Prepare separate financial projections for regular sales, promotional sales and discounts offered independently by the franchisee. Even if sales volumes rise, discounts and additional work may reduce the profit you retain.

When reviewing settlement examples provided by the franchisor, check whether figures include or exclude tax, how refunds are handled and when support payments reach your account. Rather than relying on a verbal assurance that “the franchisor will cover it”, ensure that the amounts can be traced through actual settlement statements.

4. Compare the contract with practice at existing outlets

Check that the agreement, manual and franchisor’s explanations are consistent. Pay particular attention to any clause allowing the franchisor to change price lists or promotional terms. Examine what can be changed, the advance notice required, how changes are explained to franchisees and the procedure for raising objections.

If you can speak to existing franchisees with the franchisor’s agreement, ask about their actual experiences rather than simply asking whether price changes are allowed. For example, ask how the franchisor responded to a request for a local discount, how nationwide promotions were settled, or what steps were needed to change till settings. Conditions may differ according to location or when the contract was signed, so do not assume that one outlet’s experience applies across the network.

Watch for discrepancies such as:

• The contract says participation is optional, but the explanation treats participation by every outlet as a given.
• Prices are described as recommended, but you are told that changing them will result in adverse treatment in your dealings with the franchisor.
• Discount support is mentioned, but no eligibility conditions or settlement examples are provided.
• The manual is only available after signing, leaving you unable to check the price-change procedure beforehand.

These circumstances alone do not establish that anything is unlawful. They are, however, reasons not to rush your decision until you have satisfactory explanations and documentation.

5. Record what has been agreed before joining

Keep a record of your questions, the answers, the relevant contractual clauses, the date of each response and the person who provided it. If you are told that you will have specific permission to change prices or opt out of promotions, obtain confirmation from someone with the authority to give it and, where necessary, have it incorporated into the agreement as a special provision. If the contract and supporting documents differ, clarify which takes precedence.

You can take legal questions to a lawyer experienced in franchise agreements, and concerns under the Antimonopoly Act to the Japan Fair Trade Commission’s consultation service. Alongside the draft agreement, prepare the price lists, relevant sections of the manual and the franchisor’s answers so that your concerns can be assessed in concrete terms.

Practical takeaway: Before joining, confirm three points in writing: who sets prices, who pays for discounts and what options you have when terms change. Choose a brand that allows you to balance commercial decisions suited to your local market with the shared operating rules of the franchise network.