How Important Are Franchise Territories?
I want to buy a new fast-food franchise. I’m concerned that after I reveal my desired location the company might disregard me and take the location. Are there any stipulations concerning territories? They say that they wouldn’t do that.
Assigning And Owning A Territory
Franchisors establish and quantify territories in the franchise agreement. Unless you have that agreement or a legal document somehow giving you protection in a territory, we doubt you could stop a franchisor from opening in that location.
However, here’s reality. Most franchisors are primarily interested in building franchise territories as opposed to expanding company owned operations. This is especially true once the franchisor has its franchise legs and is in full franchising mode. It’s to their advantage to work with franchisees for many reasons. The following two reasons are critically important. One, franchisors are in (or should be in) the business of using OPM (other people’s money). Expansion with company owned units fly in the face of that strategy. Two, a franchisor that would grab a territory you scouted is playing with fire. That practice would eventually dilute the franchisor’s sales opportunities.
On another level, consider the following mindset. New franchisors usually are successful entrepreneurs who have proven their concept through hard work over a long period of time. Their next step in business is growth through successful franchisees. That would be the role of mentor and network developer. The best of franchisors understand that they’ve moved into a new form of business.
Logical Franchise Territories Make For Logical Business
Now, as stated above, prior to signing the franchise agreement both you and the franchisor are free to go about your business in that area without much regard for one another. Once the franchise agreement has been signed and the territory is clearly defined, it’s yours.