Buying a Franchise in South Africa: Pricing Freedom Checks

A familiar brand may attract customers, but its advertised prices will not necessarily suit your outlet’s costs. Before joining South Africa’s franchising community, establish who decides what customers pay and who absorbs promotional discounts. Pricing freedom is a specific buying check: it affects whether you can turn sales into a sustainable return without breaching your agreement.

1. Separate brand consistency from price control

A franchise system usually expects consistency in products, service and presentation. Do not assume that this automatically gives the franchisor unlimited authority over your selling prices.

Ask the franchisor to explain its pricing model in writing. Does it issue recommended prices, set maximum prices, organise optional promotions or require participation in particular offers? Request the relevant agreement clauses and a sample promotional brief, rather than relying on a salesperson’s description.

Map the rules across each sales channel:

• In-store purchases and orders placed directly with your outlet.
• The brand’s website or app.
• Third-party delivery platforms.
• Corporate accounts, loyalty rewards and vouchers.

For each channel, identify who sets the customer-facing price, who receives payment and what deductions apply before your outlet is paid. A price that works at the counter may produce a different return after delivery commission or a platform-funded discount expires.

2. Understand the South African legal boundaries

South Africa specifically regulates aspects of franchising through the Consumer Protection Act 68 of 2008 (CPA) and its regulations. Regulation 3 requires a prescribed disclosure document at least 14 days before signing the franchise agreement. Section 7 requires the agreement to be in writing, signed by or on behalf of the franchisee, and in plain and understandable language.

These protections make the documents important, but disclosure does not make every pricing restriction lawful. Section 48 of the CPA also prohibits unfair, unreasonable or unjust terms.

The Competition Act 89 of 1998 is particularly relevant to pricing. Section 5(2) prohibits minimum resale price maintenance. In practical terms, a supplier generally cannot require an independent reseller to sell its goods at or above a minimum price.

Section 5(3) allows a supplier to recommend a minimum resale price only if the recommendation is not binding. If a price is stated on the product, it must be accompanied by the words “recommended price”. Calling a price “recommended” is therefore not enough if the actual arrangement makes it compulsory.

Franchise arrangements can involve goods, services, agency relationships and different payment structures. Have a South African competition-law adviser assess the actual arrangement, including any claimed exemption. Maximum prices and promotional conditions also need assessment; they are not automatically unlawful simply because they influence prices.

3. Test the economics of compulsory promotions

Ask for examples of previous campaigns and use your proposed outlet’s costs to calculate their effect. This is a pricing exercise, not simply a check of whether a campaign increased turnover.

For each offer, record the customer’s payment, applicable VAT treatment, direct product or service cost, packaging, payment charges and any delivery commission. Include contractual charges that still apply to discounted sales. Your accountant can help ensure the calculation compares amounts consistently.

Then establish:

• Whether participation is compulsory and how much notice you receive.
• Whether the franchisor, supplier or franchisee funds each discount.
• Whether reimbursement is automatic or requires a claim.
• Whether discounts can be combined with loyalty rewards or other offers.
• Whether an outlet can withdraw when stock, staffing or local costs make participation impractical.

Calculate the contribution remaining towards rent, wages and other overheads. Higher sales do not necessarily improve profitability if each discounted transaction leaves too little to cover those expenses.

Treat a promise of “brand-funded discounts” as incomplete until the funding amount, eligibility rules and settlement timing are documented.

4. Resolve contradictions before committing

Compare the agreement with the pricing policy and promotional examples. Highlight any mismatch, such as a contract describing prices as optional while campaign instructions threaten consequences for charging less.

Ask what happens if you decline a recommended price. Can the franchisor restrict supplies, remove online visibility or treat the decision as a breach? These consequences deserve legal scrutiny, not an assumption that they are normal franchise practice.

Request written clarification of local price adjustments, promotional participation and discount reimbursement. Where clarification changes your obligations, ask your solicitor to ensure it is incorporated into the binding documents. An informal email may not override the signed agreement.

Practical takeaway: Before buying, obtain a written pricing map and cost one realistic promotion. Proceed only when you understand your commercial freedom, your contribution after discounts and the legal basis for any restrictions.