RESALE PRICE MAINTENANCE

The Commerce Commission continues to scrutinise the franchise sector, in August 2026 announcing its intention to bring Commerce Act proceedings against Foodstuffs South Island in respect of alleged resale price maintenance (RPM). RPM is prohibited by sections 37 and 38 of the Commerce Act 1986, and occurs where a supplier of goods sets, or tries to enforce, a minimum price at which a reseller may on-sell them.

The Commerce Commission alleges that Foodstuffs South Island applied guidelines and rules which stopped independently owned and operated Pak’nSave supermarkets from offering certain discounts unless they obtained prior approval.

Specifically, Anna Ryan explains, the Commission alleges that Foodstuffs South Island centrally set an ‘Every Day Low Price’, primarily for ‘shelf staple’ goods, and prohibited Pak’nSave franchisees from applying further discounts on those products without prior approval.

The Commission also alleges that Foodstuffs South Island set a ‘Super Deal’ promotion price for a product and prohibited franchisees from discounting below that price without permission. Franchisees were also allegedly prohibited from discounting any other product in the same category below the ‘Super Deal’ promotional price.

Franchise model emphasised

In its media release about the RPM proceedings, the Commission highlighted the fact that Pak’nSave supermarkets are a franchise network, stating, “Under the franchise model, individual South Island Pak’nSave supermarkets are supposed to be able to compete on pricing, discounts and promotions.”

This is not the first franchise case the Commission has pursued recently, with civil cartel proceedings filed last year against Harcourts Group and four of its Christchurch franchisees, alleging agreements between competing franchisees about the prices charged to customers, including commission rates. Although the Harcourts case concerns a different section of the Commerce Act, the clear overall message is that the Commission is looking closely at how pricing is coordinated within franchise networks.

RPM in the franchise setting

For franchisors, the risk of RPM arises where the franchisor (or a related supplier) sells goods to franchisees for resale and:

• supplies goods to a franchisee on the condition that they are sold at or above a specified price;
• induces or attempts to induce a franchisee not to discount – by threats, pressure, or incentives offered on the condition that a price is held; or
• withholds supply, or supplies on less favourable terms, because a franchisee has discounted or is likely to do so.

A ‘specified price’ need not be a dollar figure. A minimum margin or a limit on discounting (e.g. “no more than 10% off RRP”) can qualify.

Franchisors that supply goods to franchisees are permitted to recommend a retail price or set a maximum resale price, provided that the franchisee retains the genuine freedom to set the final price it charges customers.

Potential penalties and legislative changes

RPM is illegal per se: this means that a franchisor can be liable even if there is no evidence that the RPM harmed competition. Penalties are up to $500,000 for an individual and, for a company, the greater of $10 million, three times the commercial gain, or 10% of turnover. And where a franchisor also competes with its franchisees, price stipulations can raise cartel issues under section 30 as well.

At present, RPM can only be engaged in lawfully with an authorisation from the Commerce Commission – a costly and relatively slow process. The Commerce (Promoting Competition and Other Matters) Amendment Bill, currently before Parliament, would add a notification regime: a franchisor could notify the Commission of proposed conduct and proceed unless the Commission objects, with a no-objection notice clearing the conduct for three years. Whether the Bill passes before Parliament rises on 24 September, ahead of the election, remains to be seen.

Be proactive

Franchise networks are no different from any other business in that they must comply with the Commerce Act. A compliance review of key franchise documentation and procedures is comparatively inexpensive relative to the cost of defending allegations of anti competitive conduct, and it is far better to find a problem yourself than for it to be identified in the course of a Commerce Commission investigation. 

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