When purchasing a franchise business opportunity or a fast food franchise, you must be concerned with many important things, all of which matter very much. But let me discuss with the issues that I advise franchise buyers to look into even more careful; let's talk about exclusive rights and exclusive territories for a moment. In the franchise agreement there is a section on the rights that go along with the franchise and among them is the exclusive territory.
This is the area around your franchise outlet if you do go ahead and buy the franchise where you will have absolute exclusivity, meaning the franchise company that sells you the franchise will not put another outlet. This is extremely important because if the franchiser sells another store too close to yours then it will cannibalize sales and cut into your profitability.
Why would a franchisor do that? Well, because they will make more franchise fees, more royalties and attain an incrementally higher percentage of market share. In other words it could be very good for them, and well, not so good for you. Of course, if a franchisor sells you too big of a territory, one you cannot service, then your brand name strength in the region will be solely up to you and that means more marketing expenditure for a larger area, and you might be so far away from customers that they will not make the long trip to buy from you.
Thus, your competitors will get a foothold and cut into your territory anyway. You can see the catch-22 and this is why you need to have a good sized territory, but if you get too greedy, you may end up hurting yourself. It is for that reason that you must think carefully about the exclusive territory of your franchise investments and negotiate the best deal for you and your franchisor, after all you are in this together, so please think on it.
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