Buying a franchise: check your freedom to set prices

A recognisable franchise brand does not automatically mean that every outlet must charge the same prices. As an independent franchisee, you are responsible for your business’s financial performance, while national promotions and centralised pricing systems can affect your revenue. Pricing arrangements therefore deserve particular scrutiny when considering a franchise. Before signing, investigate not only which prices the franchise network advertises, but, more importantly, who decides them and whether you can genuinely depart from them.

1. Distinguish recommended prices from mandatory prices

Ask the franchisor for all arrangements covering selling prices, special offers and discounts. Look beyond the franchise agreement: promotional calendars, till settings and staff instructions can also determine how your pricing policy works in practice.

Distinguish between three situations:

• Recommended prices: the franchisor recommends a selling price, but you must retain genuine freedom to depart from it.
• Maximum prices: an upper limit applies; in principle, you remain free to charge less.
• Fixed or minimum prices: you must charge a specific amount or cannot sell below a set price.

The last category raises particular competition law concerns. A recommended price can also become effectively mandatory if departing from it leads to pressure, penalties or the loss of benefits. Simply labelling a price ‘recommended’ in a document is therefore not enough.

Ask specific questions: can you offer a product at a lower price without permission? Can you increase a recommended price if your local costs are higher? And what happens if you do not take part in a national promotion? Have the answers confirmed in writing.

2. Understand the Dutch and European rules

The Netherlands has specific franchise legislation: the Dutch Franchise Act (Wet franchise), incorporated into Book 7, Title 16 of the Dutch Civil Code. In force since 1 January 2021, it regulates matters including the information that must be provided before a franchise agreement is concluded. Ask in advance for details of pricing arrangements and technical restrictions relevant to your decision. The statutory disclosure obligation extends beyond a list of fees.

The prohibition on anti-competitive agreements under Article 6 of the Dutch Competition Act (Mededingingswet) and, where applicable, Article 101 TFEU is also important when assessing whether pricing arrangements are lawful. Franchising does not provide a general exemption from these rules.

The European block exemption regulation for vertical agreements, Regulation (EU) 2022/720, allows certain arrangements between businesses, subject to conditions. These include a market share threshold of 30% for both the supplier and the buyer in their respective relevant markets. Agreements must also contain no so-called hardcore restrictions.

Fixed and minimum resale prices are generally treated as hardcore restrictions. Recommended and maximum prices may fall within the exemption, provided that pressure or financial incentives do not effectively turn them into fixed or minimum prices. An agreement falling outside the block exemption is not automatically prohibited, but requires an individual legal assessment. Have any doubtful cases reviewed by a lawyer with competition law expertise; do not assume that a uniform franchise concept justifies every pricing restriction.

3. Test your pricing freedom in day-to-day operations

A contractual right is of little value if the till system blocks alternative prices. Before signing, ask for a demonstration of the systems you will use to make sales.

Check, for example:

• Can you change prices yourself, or must head office do it?
• Do different settings apply to the shop, website and delivery orders?
• Are centrally entered promotional prices automatically restored if you change them?
• Can you opt out of a discount promotion in the system?
• Who handles complaints when your outlet’s price differs from national advertising?

Also discuss who acts as the seller to the customer for online orders. If the franchisor makes the sale and your outlet merely fulfils the order, the legal and financial relationship may differ from one in which you are the seller. Make sure this is clearly documented.

If anything is unclear, ask for a practical example: a national promotion launches, but you do not want to participate. What steps must you take, what does the customer see, and what are the financial consequences? This will help you identify differences between the written agreement and day-to-day practice.

4. Calculate how promotions affect your revenue

Lawful pricing arrangements are not necessarily financially attractive. For a representative promotion, calculate what remains after purchasing costs, staffing, packaging, payment or delivery charges, and any turnover-based contributions. Use figures you can substantiate, rather than assumed additional sales.

Ask who funds the discount and whether any compensation is documented. Also check whether contributions are calculated on the sales revenue actually received or on another basis. Otherwise, a busy promotion may generate less income than you expect.

Before signing, document how much pricing freedom you have, how participation in promotions works and who funds discounts. Keep the written explanations with your contract records.

Practical conclusion: check pricing policy at three levels: the legal agreement, how the systems work and the effect on your margin. Only sign when all three are consistent.