The franchise industry has long promised entrepreneurs the opportunity to build businesses and generate a stable income. But as many success stories as there may be, there are ample horror stories too. Whether it is bad treatment of franchisees or franchises completely going bankrupt despite individual stores’ sustained growth, it is no wonder that many aspiring owners wonder how to verify a franchise before they invest. Thankfully, not all hope is lost.
In late June 2026, the South African Competition Commission published a draft terms of reference (ToR) for a proposed market inquiry into franchise markets. Simply put, this means that the governing body that ensures fair competition (giving some individuals an unfair advantage or exploitation of others) across industries is showing what they intend to investigate in the franchise industry.
What The Law Says
Under the Competition Act 89 of 1998 (Act), section 43B(1)(a), the Commission has the power to start such an investigation if they believe that a market has certain features that may impede, distort or restrict competition, and in this case, in the South African franchise business market.
As the draft ToR states, South Africa boasts over 800 franchisor brands, with more than 3 500 franchisees. Under this, there are approximately 30 000 franchise outlets nationwide. With so many stores employing a number of people each (roughly about 500 000 people). This amounts to 5% of employment in South Africa.
When looking at the 2023 industry data from FASA that the draft ToR points to, the industry has a turnover of approximately 15% of the country’s GDP. These numbers clearly show the industry’s economic impact.
What’s more, South Africa has the second highest contribution of franchising to national output in the world and is the only emerging market in the top five.
The draft ToR that is published is done so as a draft because the Inquiry recognises that the initial parameters are not exhaustive. Should additional or related matters arise during the Inquiry, amendments can be made under section 43B(5) of the Act.
Why This is Important
According to the team of lawyers at Bowmans, the draft ToR sets out several market features which, in the Commission’s preliminary view, may impede, distort or restrict competition or hinder participation in the franchise sector, including:
- observed lower levels of entry and participation by small and medium enterprises (SMEs) and historically disadvantaged persons (HDPs) in franchise ownership;
- perceived power imbalances between franchisors and franchisees;
- concentration through acquisitions in certain sectors;
- funding requirements and upfront capital contributions;
- franchise agreement terms and conditions; and
- information asymmetries.
Bowmans notes that the purpose of the Inquiry is to assess whether there are market features that:
(i) impede, distort or restrict competition in the franchise sector;
(ii) hinder entry, growth or meaningful participation of SMEs in owning and operating franchise businesses; and
(iii) negatively affect increased ownership of franchise businesses by HDPs.
For the Commission to determine whether this is the case or not, they outlined in the draft ToR that the Inquiry would focus on three broad themes:
- finance, funding and related terms and conditions;
- franchise agreement terms, conditions and practices; and
- exploitation of information asymmetries.
“Under each of these themes, the Inquiry will assess, among other things, the requirements set by creditors and/ or franchisors for access to franchise finance; the nature and impact of franchise agreement terms and related practices on competition and participation; and the extent to which information asymmetries may affect franchisees’ ability to make informed decisions,” Bowmans explains.
Who is Affected
The franchise sector as a whole is affected by the Inquiry as the entire sector will be under the microscope. This includes franchise businesses that operate across a wide range of sectors, including fast food and quick service restaurants, retail, construction, automotive products and services, grocery, fuel stations, health and beauty, childcare education and training, agriculture, mining, and manufacturing.
Bowmans further notes that the Commission seems to be taking inspiration from other jurisdictions where complaints have been raised in relation to particular sectors. Because of this, the Commission indicates that, while its concerns extend across all franchise sectors, it may concentrate on sectors with greater potential to influence market dynamics.
“The Inquiry is likely to be relevant to franchisors, franchisees, prospective franchisees, creditors and financiers, industry associations, and any other parties with an interest in the franchise sector.”
What Happens Next
Before the Inquiry’s work commences, the public is invited to submit written comments on the draft ToR by 16:00 on 7 August 2026. Once these submissions have been reviewed, the Commission will publish the final ToR that clearly state what they are investigating.
Additionally, guidelines for participation and details of administrative phases will be made available on the Commission’s website following publication of the final ToR.
“The Inquiry will formally commence 20 business days after publication of the final ToR and is to be completed within 18 months in accordance with the statutory requirements,” Bowmans elaborates. “On completion, the Commission will publish a report in the Government Gazette and submit its final report to the Minister of Trade, Industry and Competition.”
The franchise industry has long promised entrepreneurs the opportunity to build businesses and generate a stable income. But as many success stories as there may… Read More
