Running a franchise demands more than hard work, but also a solid grasp of your rights. Before you sign up to franchise a business, it is crucial to arm yourself with a well-written agreement that looks out for your best interests. It may not be apparent now, but encroachments could get in the way of your success.
Resolving encroachment issues can become daunting without clearly defined territorial protections in your agreement.
What is encroachment in franchising?
Franchise encroachment happens when another franchisee unlawfully sets up shop in your area and offers the same things that you do. This can also happen if the franchisor sets up a similar brand or uses alternative methods that target customers in your location.
There are many other ways you might face franchise encroachment:
- Virtual encroachment: When your franchisor starts selling directly to customers online, which could take some of your potential customers.
- Sister brands: If the parent company owns similar brands, they could open one across you unless your agreement explicitly protects you against this.
- Alternative distribution channels: Your franchisor could reach customers within your territory through other means, such as through online delivery platforms, distributing in retail stores or launching pop-up shops. Consider these possibilities when reviewing and negotiating your franchise agreement.
In business, location matters. Competing with the same brand could saturate the market and affect your ability to earn a profit.
Not all franchisors provide exclusivity
An exclusive territory would allow you to be the sole distributor of the franchisor’s goods and services in a specific area. Anyone interested in offering the same goods or services must come to you first.
However, buying a franchise does not automatically grant you exclusive territorial rights. Franchisors may withhold such rights so they can tap as many channels as possible. Although having more stores in one location can sometimes boost brand awareness, you should still know exactly what you are signing up for.
Your franchise agreement must clearly define your territory and protect it effectively. Take a good look at the terms of your contract and review whether can shield you from encroachment. If you need help, especially with matters related to territorial protection, a franchise law attorney may provide the guidance you need.