The franchising industry has long been a bone of contention for antitrust authorities worldwide, with franchisees frequently complaining to competition regulators about their treatment by franchisors. However, in South Africa, no such complaints have as yet resulted in finalised enforcement activity by the Competition Commission. This may soon change. On 26 June 2026, the Commission published draft Terms of Reference (ToR), signalling its intention to launch a market inquiry into the franchise sector in South Africa (Market Inquiry). The Market Inquiry may herald a significant shift for the South African franchising landscape. Historically, market inquiries have resulted in binding, remedial actions, including forced changes to long-standing corporate business models.
Reasons for the market inquiry
The Market Inquiry stems from the Commission’s belief that there are market features that may impede, distort, or restrict competition in the South African franchise business market. In addition, the Commission has observed a rising number of mergers and acquisitions in well-established franchise sectors, which it says gave rise to concentration in those sectors.
The Competition Act 89 of 1998 empowers the Commission to conduct a market inquiry if it believes that certain features or a combination of features in a market for any goods or services impede, distort, or restrict competition within that market. The purpose of the Market Inquiry is to assess whether current franchising models act as a barrier to entry, growth, or expansion for small and medium-sized enterprises and historically disadvantaged persons in the South African economy.
In the terms of reference, the Commission highlights several systemic features within the franchise market that it believes may stifle competition. Chief among these is the concern that participation in the franchising sector is not yet proportional or reflective of the broader demographic landscape of South Africa, limiting the sector’s overall impact on economic inclusivity and transformation. The Commission noted that franchising still reflects skewed, racialised patterns of ownership. The Commission has also pointed to unequal power balances between franchisors and franchisees, having received numerous complaints that franchisees are subjected to restrictive and potentially exploitative practices by franchisors who exert control over their operations and supply chains. Compounding this, franchisees are said to lack bargaining power during the negotiation of franchise agreements, leaving them with little room to negotiate more favourable terms from the outset.
The Commission also states that funding presents a further concern: franchise funding requirements imposed by franchisors or credit financiers, including the need for significant upfront capital contributions, can limit who is able to enter the sector in the first place. The Commission has also flagged franchisors imposing unfair trading terms and conditions on franchisees, as well as the exploitation of information asymmetries between franchisors and franchisees, where franchisors’ superior knowledge of the business model and market can be used to the disadvantage of franchisees.
Accordingly, the Market Inquiry will examine whether and to what extent the abovementioned features exist and, if so, whether they have an adverse effect on competition in the market. Franchisors and franchisees should expect probing by the Commission into the above features and may be required to respond to one or more written information requests. They may also be called upon to make oral presentations regarding their businesses at various public and private hearings.
The Commission further indicates that it may focus the Market Inquiry on sectors that appear to have greater potential to influence market dynamics. Top South African brands including Chicken Licken, KFC, Italtile Retail, CTM, Pick n Pay, Spar, Midas and Sorbet will be under the Commission’s microscope as it examines whether the franchise model is delivering fair outcomes for franchisees and consumers alike, in sectors ranging from fast food and grocery to automotive services, fuel station convenience outlets, construction and hardware, and health and beauty.
Timelines
The public is invited to submit comments on the draft terms of reference by 7 August 2026. Within 20 days after the publication of the final terms of reference, the Commission is expected to commence the Market Inquiry, with a deadline for completion being within 18 months thereafter. However, this timing is probably ambitious, given the broad scope of the Market Inquiry, touching as it does on a multitude of business activities and market players.
It can be expected that many franchisees, particularly SMEs and historically disadvantaged persons, will make use of this public platform to make their grievances heard regarding pricing, one-sided contract terms and funding difficulties.
For certain franchisors, their standard operating models may come under threat. We expect that strict supply chain exclusivity clauses, mandatory procurement systems and rebate structures will be subjected to intense scrutiny. It would be advisable for franchisors to proactively audit their existing franchise agreements and operational policies at this early stage to ensure that their houses are in order when the Commission comes knocking.
Written by Paul Coetser, Director and Head of Competition, and Kwanele Diniso, Associate at Werksmans Attorneys