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How do franchisees benefit from protected territory?

On Behalf of | Sep 22, 2022 | Franchise Law

Concerns about competition are natural for many business owners. You want to run a company that can compete with similar businesses for the dollars of the buying public. This is probably why you seek to run a franchise with a proven track record. However, what if the competition comes from the franchise itself?

Your hopes for running a successful franchise could diminish if you find your franchisor has established another location just a few blocks away. This is why checking your franchise agreement for territory provisions may benefit you.

The problem of oversaturation

If you seek to run a popular franchise, consider that the franchise has attracted other entrepreneurs who have established their own locations. If there are too many franchisees in an area, oversaturation may result. You may not get enough patronage for your location and will likely lose money. This could especially be the case if you want to run a small restaurant that business owners can easily establish in strip malls.

Having protected or exclusive territory

Small Biz Trends explains that your franchise agreement may grant you protections from oversaturation. To have protected territory means the franchisor will limit its activities in your area. For instance, the franchisor may permit online sales of its products in your territory but not allow another franchise location to open while you operate.

Having exclusive territory provides the greatest amount of protection. Basically, you will have a certain territory to yourself. The franchisor will not permit other locations to open and will curtail direct sales to customers in your territory.

Be certain your agreement contains protections

Not all franchisors include territory protections in their contracts. If you want guarantees that you are not opening a franchise in a saturated market, you may need to discuss the matter with your franchisor before buying into the franchise.