Buying into a big-name franchise has long been sold as one of the safer ways to start a business in South Africa. Now the country's competition watchdog wants to know whether that door is actually open to everyone. The Competition Commission has published draft terms of reference for a market inquiry into the franchise sector, signalling its intention to investigate whether parts of the industry are harming competition. It is a big target: the sector spans more than 800 franchisor brands, over 3,500 franchisees and more than 30,000 outlets, contributes close to R1-trillion in annual turnover and supports more than 500,000 jobs.
Who's in the frame
The brands caught up in the review read like a walk through any South African high street: Chicken Licken, KFC, Pick n Pay, Spar, Spur, Steers, Sorbet and Italtile Retail among them. The Commission says the inquiry follows numerous complaints it has received over several years about certain business practices and franchise agreements. Rather than chase individual companies, it has opted for a broad market inquiry. The plan is to examine the competitive dynamics in the franchise value chain, the impact of franchise agreements, the information available to prospective franchisees, and the financing conditions that affect small businesses and historically disadvantaged people.
Why it matters
Money is a big part of the worry. The Commission says the large upfront capital contributions that franchisors or credit providers require can make it hard for new entrepreneurs to get in. It also says franchising still shows "skewed, racialised patterns of ownership," limiting the sector's contribution to economic inclusion. Lawyers are paying attention, because market inquiries in South Africa have historically produced "binding, remedial actions, including forced changes to long-standing corporate business models." Strict supply-chain exclusivity clauses, mandatory procurement systems and rebate structures are all expected to face scrutiny. Not everyone is sold on the wide net: the Franchise Association of South Africa has argued the terms are too broad and could yield unenforceable recommendations. The Commission, for its part, insists it is not out to punish success, noting strong franchise brands create jobs, invest in communities and drive growth.
Public comment on the draft terms closes at 4pm on 7 August, after which the final version is gazetted and the inquiry is expected to begin within 20 days and run for up to 18 months. Whether it reshapes the model behind your local chicken shop is now a question the whole industry will be waiting on.
