COMCOM TAKES FRANCHISE TO COURT

Last week, the Commerce Commission announced that it would be taking the cooperative Foodstuffs South Island ('FSSI') to court for allegedly imposing discounting restrictions on independently-owned PAK'nSAVE stores.

The Commission alleges that FSSI centrally set a 'Super Deal' promotion price and prohibited franchisees from discounting below it without prior approval. It makes similar allegations about an 'Every Day Low Price' which FSSI set centrally for 'shelf staple' goods. That conduct, the Commission says, amounts to resale price maintenance, which is prohibited under section 37 of the Commerce Act. Resale price maintenance occurs when a supplier of goods enforces, or tries to enforce, a minimum price at which the reseller must on-sell those goods.

This is the second time in less than a year that the Commerce Commission has initiated Commerce Act enforcement action in respect of a franchise network.  In September 2025, the Commission filed proceedings against members of the Harcourts franchise network, including the franchisor, alleging price fixing of commissions under the section 30 cartel provisions.

Competition law barrister Anna Ryan, of Canterbury Chambers, says that while the Commerce Commission has emphasised that it is not looking to challenge the franchise model generally, the Harcourts and FSSI proceedings underscore the need for franchisors to actively manage Commerce Act compliance. "Franchise networks are no different from any other business, in that they must comply with the Commerce Act," she says.

"For franchisors who are hesitant to undertake a Commerce Act review, I appreciate that the possibility of having to fix a latent issue may be daunting. However, it is far better to get some confidential legal advice to identify any problems and put a corrective plan in place if necessary. You wouldn't leave a health and safety issue unresolved; there are some strong parallels in terms of the risk of high fines and potentially even criminal charges if Commerce Act matters go unaddressed."

Announcing the FSSI proceedings, Commission Chair Dr John Small said that "under the franchise model, individual South Island PAK'nSAVE supermarkets are supposed to be able to compete on pricing, discounts and promotions".  The Commission’s allegations remain to be tested in court.