Does a franchisee pay a premium for an exclusive territory?
Louise Harris writes:
Exclusive territories are the norm in many franchises where the service is delivered locally to householders or a local, measurable target audience. Typically defined through postcodes, counties, numbers of householders or a socio-economic group, it gives the trading franchisee the best chance of success in their chosen area.
The blurring of lines comes when, for example, a restaurant opens and people may come from anywhere to visit that establishment if they find themselves in the area.
Where there is a restricted, non-compete territory, it allows the franchisee to fully exploit the area without concern that a competitor may be another franchisee in the same business. This doesn’t necessarily attract a premium, but it will mean the franchisor will include a ‘full effort’ clause.
If there are a limited number of territories and a franchisee is not fully working the territory allocated, the franchisor will most likely have a clause that permits removal of all or part of the territory. This would only be done after consultation and remedial efforts, but the ‘premium’ comes in the form of pressure to drive a decent business from the area (typically calculated on average franchisee performances).
Louise Harris is franchise director of Wilkins Chimney Sweep. She sits on the British Franchise Association board and chairs the membership committee.