Franchise owners face reckoning as South Africa's watchdog launches sector probe

SOUTH AFRICA’S COMPETITION WATCHDOG OPENS FRANCHISE SECTOR INVESTIGATION

For the small business owner who scraped together capital to buy into a franchise, only to find the terms stacked against them from day one, the Competition Commission of South Africa’s announcement on 23 July carries real weight. The Commission has launched a formal market inquiry into the franchise sector, responding to mounting complaints from franchisees and stakeholders who say they face unfair treatment and barriers to entry in an industry worth nearly ZAR 999 billion in annual turnover.

The sector is vast. More than 800 franchisor brands operate across South Africa, supported by over 3,500 franchisees and 30,000-plus franchise outlets nationwide. Those outlets sustain more than 500,000 jobs and represent approximately 15% of South Africa’s total GDP in 2023, spanning agriculture, mining, manufacturing, fast food, retail, health and beauty, education and other industries.

Yet the people who run those outlets, the franchisees, say the relationship is far from equal.

Complaints filed with the Commission describe a consistent pattern: franchisors exercise significant control over franchisees’ operations and supply chains, leaving franchisees with limited ability to negotiate equitable terms. Stakeholders have characterised the relationship as marked by a “power imbalance,” with franchisees exposed to “restrictive and potentially exploitative practices” and vulnerable to decisions made unilaterally by their franchisors.

The barriers begin before a business even opens. Franchisors and credit financiers often require upfront capital contributions directly from prospective franchisees. When those contributions represent a substantial portion of the total franchise value, they effectively shut out historically disadvantaged persons (HDPs) and others with limited access to capital, according to the Commission’s assessment. The Commission noted that entry and participation by small and medium enterprises (SMEs) and HDP businesses remains “still low and at lower levels,” and that the sector continues to “reflect skewed racialised patterns of ownership.”

Information asymmetry compounds the hardship. The Commission has received evidence that some franchisors present overly optimistic or misleading financial projections to attract prospective franchisees, exploiting their superior knowledge of financial resources and corporate strategies. A franchisee, lacking comparable insight or control, is left at a disadvantage precisely when the stakes of an investment decision are highest.

What the inquiry will examine: the competitive dynamics within the franchise value chain; the terms and conditions embedded in franchise agreements; the extent of information asymmetries between franchisors and franchisees; and the financing conditions that affect entry and expansion by SMEs and HDPs. The probe operates under section 43B(1)(a) of the Competition Act 89 of 1998.

The Commission released draft terms of reference and invited members of the public to submit information by 7 August 2026. This inquiry follows an earlier review initiated by the Commission in April, which examined business regulations that prevent companies, particularly SMEs, from entering and competing effectively in South African markets.

Whether the inquiry translates into enforceable changes to franchise agreements, or whether franchisees will see any meaningful shift in the power dynamics they have described, remains the open question hanging over the process.