Franchising in South Africa has come under increased scrutiny after the Competition Commission proposed to conduct a market inquiry into the sector. The inquiry could have significant implications for both franchisors and franchisees. The challenge, however, will be to distinguish genuinely harmful or unfair practices from legitimate commercial arrangements that are fundamental to a sustainable franchise model.
Issues such as supplier arrangements, pricing, financial disclosure and bargaining power warrant careful examination, but any intervention must be grounded in a clear understanding of how franchise systems operate in practice.
South Africa’s franchise sector, which generated an estimated turnover of about R999 billion in 2023 and contributes approximately 15% of the country’s GDP, is now formally under the microscope. On 26 June 2026, the Competition Commission published draft Terms of Reference for a market inquiry into the franchising sector. The public comment period closed on 7 August 2026, and the sector now awaits the publication of the final Terms of Reference and the formal commencement of the inquiry, which must be concluded within 18 months of its initiation.
The Commission’s concerns are not insignificant.
They include supplier rebates that may not be passed on to franchisees, restrictive supplier requirements and conditions, non-negotiable pricing structures, potentially misleading financial projections, and broader concerns regarding the balance of bargaining power between franchisors and franchisees.
These issues deserve serious attention if evidence demonstrates that they are widespread or harmful. At the same time, it is important not to confuse commercial dissatisfaction with market failure. The fact that someone cannot afford a Ferrari does not, in itself, render the Ferrari market unfair. The same principle applies to franchising: commercial disappointment or an unattractive investment outcome does not necessarily amount to an unfair market practice.
The Commercial reality of franchising
A franchisee is not simply purchasing the right to trade under a recognised name. They are investing in an established brand, a proven business model, operating systems, training programmes, supplier relationships, and valuable intellectual property. Those benefits inevitably come at a cost.
Franchise agreements frequently include strict operational standards, approved supplier arrangements, minimum capital requirements and other restrictions governing how the business must be operated. While these requirements may increase the cost of entry, they are not inherently unfair.
For example, requiring a food franchisee to procure products from approved suppliers may be necessary to maintain product quality, food safety standards and consistency across the network. Likewise, substantial capital requirements may be essential to ensure that franchisees possess sufficient working capital to survive the critical early stages of the business.
The key question is whether a particular restriction serves a legitimate commercial purpose and is reasonably connected to the operation and success of the franchise system.
Where the line should be drawn
The position changes where restrictions are used to exploit an imbalance in bargaining power or where material information is not adequately disclosed.
Financial projections provide a useful example. A franchisee making a substantial investment should be given sufficient information to understand the assumptions underpinning projected returns, together with the risks associated with the business.
The same principle applies to supplier arrangements, rebates, royalties and other ongoing costs. Transparency does not eliminate commercial risk, but it does allow prospective franchisees to make informed decisions about the risks they are assuming.
These are precisely the areas where the inquiry has the potential to provide meaningful guidance and greater certainty for the industry.
The risk of addressing the wrong problem
This is the tightrope the Competition Commission must now walk.
If every restriction within a franchise agreement is treated as inherently problematic, regulatory intervention may ultimately undermine the very structures that make franchising successful. Making franchises easier to enter does not necessarily lead to better outcomes for franchisees if businesses are undercapitalised or lack the operational discipline necessary for long-term survival.
Equally, it would be wrong to dismiss every concern on the basis that “that’s just business”. Where franchisees are misled, where material information is withheld, or where contractual arrangements are used to take unfair advantage of their position, legitimate concerns arise that warrant regulatory attention.
The objective should therefore not be to eliminate every barrier to entry. Rather, it should be to distinguish between legitimate commercial discipline and restrictions that are unreasonable, unjustified, or harmful to effective competition.
What should businesses do now?
Pending publication of the final Terms of Reference, franchisors would be well advised to review their franchise agreements, supplier arrangements, rebate structures and disclosure practices.
Prospective franchisees should likewise conduct careful due diligence. This includes assessing the full cost of entry, evaluating working capital requirements, understanding royalty obligations and supplier commitments, and independently verifying any financial projections before making an investment decision.
The inquiry also raises a broader question about the future application of competition law in South Africa: how do we protect competition and smaller market participants without undermining commercially sustainable business models?
South Africa needs a franchise sector that is competitive, transparent and commercially sustainable. The inquiry’s ultimate success will depend on striking the right balance: addressing practices that are genuinely harmful without disrupting arrangements essential to the franchise model’s success.
Disclaimer: This article is the personal opinion/view of the author(s) and does not necessarily present the views of the firm. The content is provided for information only and should not be seen as an exact or complete exposition of the law. Accordingly, no reliance should be placed on the content for any reason whatsoever, and no action should be taken on the basis thereof unless its application and accuracy have been confirmed by a legal advisor. The firm and author(s) cannot be held liable for any prejudice or damage resulting from action taken based on this content without further written confirmation by the author(s).