Exlusivity in Territory of a Franchise

Franchisors grant exclusive or protected territories to their Franchisees to facilitate sales of franchises and to motivate effective market development by the Franchisee that, theoretically, will be more inclined to invest in thedevelopment of his business if he has no competition of the same brand in his area.

How large should an exclusive territory of a Franchisee be? Depends on the complexity of the business. If the business is mainly based on pedestrians, such as Bakeshops orConvenient stores, the radius can be very small or none at all. Other Franchisors give 500-meter radius around the outlet or up to 1 Kilometre but shouldn’t be more as the distance is quite far already.

Many Franchisors have discovered that they made to large initial estimates of the population required for a successful franchised business (once their network trademark became more widely recognized) and that large spaces between franchises only invited competitors. Large territories also may interfere with adjustment to changing markets and inhibit the offering of additional franchises to productive Franchisees.

The corollary of the exclusive or protected territory, a right granted to the Franchisee, is a restriction on the area within which the Franchisee may conduct his business. IfFranchisees have the ability to sell outside their immediate markets and are able to market and sell in the territories of adjacent Franchisees, restrictions on such marketing may be necessary to make exclusive or protected territories meaningful.

If the Franchised Outlet is located in a shopping mall, the exclusive territory is the mall itself or if it’s a largeShopping mall it can be also divided into the buildings of the compound. There can be also Franchises inside the mall and straight in front of the mall and they do not compete with each other as both are different markets.

An exclusive territory can be awarded as Area Franchise, wherein the Franchisee gets the exclusive rights to a certain territory, which can be a City, a province or a region and with the exclusivity comes a Development program, wherein Franchisee has to open a certain number of outlets within a certain time span. Area Franchise Agreements usually longer than Unit Franchises for a single outlet.