Nothing can be worse for a business, if you find that someone is starting a franchise of the same franchisor just a few feet away from your outlet. Sometimes, even a company-owned franchise may open a location near you. In this situation, you have to compete not only with your competitors, but also with your own company! In order to avoid this sort of “cannibalism’, you need to go through the UFOC and the franchise agreement very carefully in the beginning, before you buy a franchise.

The FDD puts forward the definition of the franchise territory. Here, the first important thing you are required to know is what the company means by “territory”. It can either be based on the municipal division of a place or on the demography of the area. Different franchise opportunities have various ways of marking their territories. For retail-sales franchises, the immediate area of the location and some perimeters around it may be defined as the territory. But a senior-care franchise may offer it franchisees an area based on the number of households when they are starting a franchise with it. The next important point is “exclusivity” of the territory. If this is present in the UFOC and franchise agreement, it ensures that the franchisee is somewhat protected from competing against its own franchisor.

Some franchisors, however, don’t provide this exclusive franchise territory. For example, a cleaning and maid-service provider franchise that has got its clients through call centers may send one particular franchisee in another’s territory, if the client is a very old one and insists on using his/her regular maids in a new place. But, generally, in such scenario, the work is passed first to the franchisee of the area and if he refuses then, it is handed over to the next person who can carry it out.

To address these problems and to make it more transparent, some new changes that have been implemented in FDD have been drawn up. The first is that, if the company doesn’t provide any territorial right, then a warning like “the franchisees may have to face competition from the franchisor or any of its affiliates” has to be given. Furthermore, there will be reference to the rights of the franchisor and its affiliates to advertise or sell the products or services via website, telemarketing, catalog or any other non-traditional forms. It will also spell out any restrictions that the franchisees may face, if they try to execute the same work in outside territories.

Source: brandEXPANSION.
Written on February 6th, 2009 by Joseph in Franchise Industry, Franchise News.