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Johannesburg - Franchisees are likely to see their lives improve when the Consumer Protection Bill comes into play in few months. So says Rosalind Lake, an associate at legal firm Deneys Reitz.
The bill prohibits franchisors from insisting that franchisees buy products from suppliers nominated by them, even if that supplier is more expensive than another identified by the franchisee.
This practice, known as bundling or tying products, will not be allowed, unless the franchisor can show that the bundling results in economic benefits for consumers or that the convenience of bundling outweighs any restriction on consumer choice.
If this can't be proved, the bundled goods or services must be offered separately and at individual prices.
This will have an impact on businesses looking to go the franchise route as they may no longer be the sole supplier of goods and services to a franchisee, unless it can be shown that the products and services are reasonably related to the brand.
Aspirant franchise owners, or those who feel that their business may be handicapped by tough supplier regulations in their franchise agreements, may wish to investigate this further in a time when cost containment and control are buzzwords across most sectors.
"Franchisees have always had limited protection against unfair practices by franchisors in terms of the Competition Act, particularly in relation to the tying or bundling of unrelated products by a dominant franchisor or, when it comes to exclusive dealing."
In essence, franchisors could dictate to the franchisor where they could purchase stock items from irrespective of whether the supplier was the most cost-effective for that business.
Lake says: "The bill looks set to dramatically improve the lives of approximately 25 000 franchisees in South Africa. The provisions are not as drastic as they might appear, but it will certainly require a shift in mindset. And franchisors will need to audit their franchise agreements and practices to ensure that they are compliant."
- Fin24.com