The Franchise Trade-Off Nobody Puts in the Brochure

Ask a corporate professional why a franchise looks safer than starting something from nothing, and the answer is almost always some version of the same sentence: someone else has already worked out the model. The site selection, the supply chain, the marketing calendar, the recipe or the service standard, all proven before you sign anything. That pitch isn't wrong. It's just half the story, and South Africa's Competition Commission has just opened an inquiry into the other half.

On 26 June 2026 the Commission published draft terms of reference for a market inquiry into the franchise sector, under section 43B of the Competition Act. Public comment closes on 7 August. Once the final terms are published, the inquiry formally opens 20 business days later and has 18 months to report. The sector under examination is not small.

The numbers

• Draft terms of reference for the Franchise Market Inquiry published 26 June 2026, comment period closing 7 August 2026 (Competition Commission).
• South Africa's franchise sector comprises more than 800 franchisor brands, over 3 500 franchisees, and around 30 000 outlets (Competition Commission, draft Terms of Reference).
• Franchising generated an estimated R999 billion in turnover in 2023, close to 15% of GDP (Franchise Association of South Africa, cited in the Commission's draft Terms of Reference).
• FASA's Accredited Franchisor Membership requires a minimum of 24 months' trading history and audited financial statements before a franchisor qualifies (Franchise Association of South Africa).
• Taste Holdings wrote off R450 million in shareholder loans and closed 55 corporate-owned Domino's Pizza stores immediately when it placed the business into voluntary liquidation in March 2020 (Moneyweb, BusinessTech).

What the inquiry is actually testing

The Commission's stated concern is not that franchising is a bad model. It's that the power sits almost entirely on one side of it. The draft terms name three specific mechanisms: franchisors misrepresenting outlet economics to prospective buyers, a funding structure that typically requires a franchisee to put up 50% of the investment unencumbered, meaning not borrowed, and exclusive supply arrangements that leave a franchisee with no real ability to shop around once they've signed. All three describe the same underlying fact. Once you're in an established system, very little is left for you to negotiate.

This is not a fringe complaint invented by a regulator looking for work. It's the lived experience of running a site inside a big franchise brand. I ran a Wimpy for a period, and the day-to-day reality of an established system is that almost nothing is actually yours to decide. Site specification, supplier list, pricing architecture, marketing calendar, all locked in before you open the doors. That's not a flaw in the system. It's the system. The standardisation that makes the brand worth buying into is the same standardisation that removes your discretion once you're inside it.

The surety of an established brand and the control you give up for it aren't two separate features. They're the same feature, described from two sides of the negotiating table.

The price of an available site

Here's where the trade-off actually bites. A FASA-accredited franchisor, one that has cleared the 24-month trading history bar and can produce audited financials, has also usually been operating long enough that its best territories are taken. New sites in an established system tend to be the leftovers: secondary locations, longer commutes to head office support, more competition from existing franchisees for whatever prime real estate does come up. The brand that offers the most certainty is often the one offering you the least attractive site.

The alternative is obvious and it's the one most people actually take. A newer, hungrier franchisor with fewer existing outlets will hand a new franchisee genuine pick of location, softer terms on the initial fee, more flexibility on format. It feels like a better deal because in the room, it is a better deal. What it isn't is a system that has proven it can survive a downturn, a change in ownership, or two bad years in a row.

South Africa's food franchising sector has no shortage of proof for what happens when that system fails. Taste Holdings, JSE-listed, signed a 30-year master licence to bring Domino's Pizza to South Africa and separately built out Starbucks SA, targeting break-even across both brands within 36 to 40 months of expansion. Neither brand got there. The group sold the Starbucks business for R7 million in November 2019, then in March 2020 placed Domino's SA into voluntary liquidation: R450 million in shareholder loans written off, 770 jobs lost, 55 corporate-owned stores closed with immediate effect. The detail worth sitting with is what happened to the 16 franchisee-owned stores. They kept trading, with the group offering "advice and assistance where possible," which is corporate language for: you're still standing, but the parent that was meant to carry you is gone.

Nino's tells a version of the same story without the JSE listing. Business Day reported in March 2019 that the roughly 20-site restaurant group was insolvent, its long-time owner provisionally sequestrated, debt of at least R13 million disputed in the Durban High Court, and a creditor's application for business rescue that the owner himself argued was pointless because there was nothing left to rescue. Nino's had been trading since 1989. Three decades of history did not build the capital base or the governance to survive a bad stretch, because the group never had to build either. It stayed under Bhana's sole ownership for most of that time, until a creditor took a 50% stake in a dispute over unpaid loans just months before the group's finances landed in court. Age alone was never the protection people assumed it was.

Don't use a franchisor's age as a proxy for stability. Use what actually correlates with it: accreditation status, audited financials, and the number of outlets it's already carried through a downturn. Not how long the name has been around.

Established doesn't mean the numbers were honest

There's a temptation, after two collapse stories, to conclude the fix is simple: only buy into brands with real scale and FASA accreditation. That's better advice than "find the newest, most flexible-looking deal," but it isn't complete, because scale doesn't inoculate a franchisee against the specific problem the Commission is investigating: misrepresented outlet economics.

In 2009 a franchisee running three Vida e Caffè branches in Cape Town sued the franchisor for R3.39 million in the Cape High Court. Her case, reported at the time by IOL, was that the franchisor's managing director had told her the three sites would generate a combined net profit of R1.15 million a year. Instead, the three stores lost close to R300 000 between them. Vida e Caffè is not a cautionary tale in the way Taste Holdings or Nino's are. It's now the largest coffee franchise in the country, with well over 300 outlets, and it grew through the pandemic rather than being broken by it. That's exactly the point. A brand can be large, well capitalised, and still have had a franchisor representative overstate what a specific site would earn. Scale reduces the odds that the whole system collapses under you. It does nothing to guarantee that the profit projection you were shown for your specific site was real.

Accreditation and scale filter out systemic failure. They don't substitute for checking the actual numbers on the actual site you're buying, independently, before you sign.

What to check before you sign

Set the three cases side by side and the trade-off stops being abstract. An established, accredited franchisor gives you a system likely to still exist in five years, in exchange for tighter control over your site, your suppliers and your margins, and probably a weaker location than you'd like. A newer franchisor gives you a better site and softer terms, in exchange for betting your capital on a system that hasn't yet proven it can survive a bad year. Neither door is the safe one. They're different bets, and most people evaluating a franchise are only ever shown the case for the door they've already walked through.

Before signing anything, four checks are worth doing regardless of which side of that table you're leaning towards. Confirm the franchisor's FASA accredited membership status directly with FASA rather than taking a sales brochure's word for it. Request audited financial statements, not projections, for the specific outlet or a comparable existing one. Read the franchise disclosure document closely for the funding structure, particularly how much of your capital needs to be unencumbered rather than borrowed, since that shapes how exposed you are if the site underperforms. And treat any profit projection as a claim to verify, not a fact to accept, by asking to speak to two or three existing franchisees who aren't hand-picked by the franchisor.

None of this tells you whether to buy into the established brand with the mediocre site or the new brand with the great one. That decision depends on your own appetite for risk and how much capital you can afford to lose if you back the wrong system. What the Commission's inquiry should do, whatever it eventually recommends, is make the trade-off visible instead of leaving corporate professionals to discover it the way Sweet Beans Trading, Taste Holdings' franchisees, and Nino's franchisees all did: after the money was already spent.

If funding structure is the part of this that worries you most, it's worth reading in more detail, alongside how South African banks and lenders actually assess a franchise application, in our guide to small business funding in South Africa.

Frequently asked questions

What is the Competition Commission's franchise market inquiry?

On 26 June 2026 the Competition Commission published draft terms of reference for a market inquiry into South Africa's franchise sector under section 43B of the Competition Act, examining information asymmetry, funding rules and supply exclusivity. Public comment closes 7 August 2026, with the inquiry itself running up to 18 months once formally opened.

What is FASA accreditation and why does it matter?

Accredited Franchisor Membership through the Franchise Association of South Africa requires a franchisor to have traded for at least 24 months and to submit audited financial statements, alongside a compliant disclosure document. It's a checkable proxy for a franchisor's proven stability, not a guarantee against every risk.

Is an established franchise always safer than a new one in South Africa?

Not entirely. Established, accredited franchisors are less likely to collapse as a system, but individual outlet economics can still be misrepresented, as a 2009 Cape High Court case against Vida e Caffè showed. Newer franchisors offer better sites and softer terms but carry higher risk of the whole system failing before you break even.

What happens to franchisees when a franchisor in South Africa goes into liquidation?

It varies. When Taste Holdings liquidated Domino's Pizza South Africa in March 2020, its 55 corporate-owned stores closed immediately, while the 16 franchisee-owned stores continued trading with limited support from the group. Franchisees are not automatically shielded from a franchisor's financial collapse.