South Africa’s franchising sector is set to come under increased regulatory scrutiny following the Competition Commission’s publication of draft Terms of Reference for the proposed South African Franchise Market Inquiry.
Once the Terms of Reference have been finalised, the inquiry will examine whether features of the franchise market impede, distort or restrict competition, or hinder the entry, expansion and effective participation of small and medium-sized enterprises (SMEs) and historically disadvantaged persons (HDPs). For franchisors, franchisees, prospective investors and finance providers, the inquiry may have significant consequences for the commercial and contractual arrangements underpinning franchise systems across the country.
Scope of the proposed inquiry
The Commission intends to focus on three broad areas:
- Finance, funding and associated terms and conditions;
- Franchise agreement terms, conditions and related practices; and
- The exploitation of information asymmetries.
The inquiry will assess whether existing franchise structures and practices create barriers to market participation or place certain franchisees at a competitive disadvantage.
Finance and access to franchise opportunities
Access to capital will be a central focus.
The Commission has raised concerns about the level of upfront, unencumbered capital that prospective franchisees may be required to contribute. These requirements, whether imposed by franchisors or finance providers, may exclude otherwise viable entrepreneurs from entering the market.
The inquiry will consider franchise-finance qualification criteria, application processes and financing terms, as well as the potential for alternative funding models that could reduce upfront capital requirements while maintaining commercial sustainability.
Franchise agreements and operational practices
The Commission will also assess the terms contained in franchise agreements and the broader practices governing the relationship between franchisors and franchisees.
Areas likely to receive closer attention include:
- Mandatory or approved-supplier arrangements;
- The treatment of supplier discounts and rebates;
- Pricing and promotional controls;
- Franchise fees and royalty structures;
- Differences in the terms offered to individual franchisees; and
- Standard-form agreements with limited scope for negotiation.
The inquiry will examine the commercial rationale for these arrangements and their potential effect on the ability of SMEs and HDP-owned franchise businesses to compete, participate and expand.
Transparency and disclosure
Transparency before a franchise investment is concluded forms the third principal area of review.
The Commission intends to assess whether prospective franchisees receive sufficient and accurate information to make informed investment decisions. This includes the accuracy of financial projections, business plans, operational representations and franchise disclosure documentation.
The inquiry will also consider whether information asymmetries between franchisors and prospective franchisees may result in an inaccurate or overly optimistic representation of the value or viability of a franchise opportunity.
Sectors likely to receive closer attention
Although the inquiry will extend across the broader franchise market, the Commission has identified several sectors that may have a greater influence on market dynamics:
- Fast food;
- Construction and hardware stores;
- Automotive;
- Grocery retail;
- Fuel stations; and
- Health and beauty.
What franchisors and franchisees should consider now
Franchisors, franchisees, finance providers and other affected stakeholders should review the draft Terms of Reference, identify practices relevant to their operations and consider whether to participate in the consultation process.
Franchisors may also wish to assess their funding requirements, supply arrangements, rebate structures, pricing controls, disclosure documents and standard franchise terms in anticipation of the inquiry.
Franchisees and prospective franchise investors may use the consultation process to raise concerns relating to access to finance, supply flexibility, pricing restrictions, rebate transparency, disclosure standards and the terms governing their franchise relationships.
The deadline for comments on the draft Terms of Reference is 16h00 on 07 August 2026. The inquiry will commence 20 days after publication of the final Terms of Reference, with the Commission intending to complete its final report within 18 months.
How KISCH IP can assist
KISCH IP’s Commercial Department advises franchisors, franchisees and industry stakeholders on regulatory, competition law and commercial issues affecting franchise networks.
Our team can assist with submissions on the draft Terms of Reference, stakeholder representations to the Competition Commission, competition law assessments, franchise agreement reviews and engagement throughout the inquiry process.
For further information, please contact a member of KISCH IP’s Commercial Department at commercial@kisch-ip.com.
