How Will Changes to Consumer Laws Affect Franchisors?

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Table of Contents

• What is Retail Price Maintenance?
• Current Legislation
• Resale Price Management Proposal
• What Does This Mean for Franchisors and Franchisees?

The Australian Government recently published its guidelines proposing changes to the Competition and Consumer Act 2010 (the Act) – in particular, section 48 of the Act dealing with resale price maintenance (RPM). Although these changes are not yet in force, franchisors and franchisees should understand the proposal and its potential impact.

What is Retail Price Maintenance?

RPM refers to the supply of a product to a party based on a condition that the product is not advertised or sold below a specific price. In many franchise agreements, the franchisor sets recommended retail prices (RRP) and the franchisee usually has the option to set their price. RRPs benefit consumers as well as the franchisor as it enables some degree of consistency and pricing across the brand.

Current Legislation

The Act prohibits RPM as it is considered anti-competitive. A supplier may restrict a retailer from fully competing in the market by setting a minimum price as the retailer cannot set prices responsive to market demand. For example, if a juice franchisor requires a franchisee to sell juice at the minimum price of $10, while nearby juice retailers are selling juice for $8, the franchisee cannot compete effectively due to this price restraint. The current legislation requires businesses to receive authorisation for RPM arrangements. The ACCC may authorise the conduct if it would be considered to be to the public’s benefit.

Resale Price Management Proposal

The proposed change to the Act allows businesses to notify the ACCC of RPM practices so that the prohibition will not apply. A notice will be valid from 60 days after lodgement. The notice will only be withdrawn if the ACCC concludes that it is not valid or that the notice is not approved.

Further to the notification amendments, RPM will be permissible if the supplier and the other party are related bodies corporate. For example, if two companies have the same shareholders and company one supplies goods to company two on the provision that it be supplied at a certain price. Consequently, corporate groups that commonly operate as one entity will not have the burden of applying for a notification for their pricing arrangements.

What Does This Mean for Franchisors and Franchisees?

For franchisors, this eases the administrative burden of receiving approval for pricing arrangements that they are seeking to enforce. This can benefit maintaining the consistency of pricing for the brand and the expectations of customers. If the ACCC does not deem a notice void or not approved, the franchisor may also enforce minimum pricing standards in their franchise agreements.

For franchisees, this means that they will need to make informed enquiries as to the reasoning for minimum pricing, including asking the franchisor as to whether they have received approval for the arrangement. The franchisee can then create a business plan to determine whether the franchise agreement will nevertheless be profitable despite these restrictions.

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Although the RPM changes have not yet been implemented or accepted, it’s important both franchisees and franchisors stay abreast of the possible amendments to help plan for your business’ future. If you have any questions, get in touch with our consumer lawyers on 1300 544 755.