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As a franchisee, your location will likely impact where your customers come from. In turn, this can affect your business’s revenue and growth. So, if you are considering acquiring a franchise with an exclusive territory, you should research the given territory. This will ensure it provides the opportunity to run a successful business. This article will discuss the importance of territory rights and outline the areas you should look into, including:
- demographics;
- local retail market; and
- how this works in the context of online sales.
This factsheet sets out the three key financial disclosure obligations every franchisor needs to comply with.
Demographics
Depending on the nature of your franchise business, the demographics of your territory may be a significant factor to consider for your franchise’s success.
For example, suppose you operate a franchise which provides meal services to elderly people. In that case, it is likely to be more successful with an older population than in an up-and-coming hipster suburb. Given this, if you are purchasing a franchise restricted to a particular territory, it would be worthwhile requesting demographic information from the franchisor and undertaking your own search through the Australian Bureau of Statistics. Having this information will assist you in determining the suitability of the territory for the success of your franchise.
Local Retail Market
It is common for retail franchises to have an exclusive territory, but that is not the whole picture. At first, an exclusive territory with a population of 50,000 for a retail business sounds promising. If that territory borders another territory with a major shopping centre, however, it is likely many potential customers would actually shop elsewhere. Similarly, that territory becomes less appealing if there are many direct competitors already operating in the territory or its vicinity.
Continue reading this article below the formOnline Sales
The issue of enforceability is complex regarding franchises with online platforms. If the goods or services of your franchise can be sold directly to the public online, the franchisor is often unable to enforce any of its franchisee’s territorial rights practically. To overcome this issue, franchisors will often fulfil any sales from an online platform but may alternatively direct franchisees to do so.
Key Takeaways
Ultimately, territory rights are an essential consideration for the success of your business. However, it is also important to recognise that the enforceability of your territory rights can only go so far practically. Understanding your territory rights is more complex than knowing the geographical boundaries, with many other factors being relevant.
Some critical questions to assist your understanding include:
- How is your territory determined, is it geographically? If so, do you have access to the demographics of your territory?
- What happens if another franchisee is taking clients in your territory?
- What steps does the franchisor take to enforce your franchise rights?
- If a customer outside your territory wants to seek business from you, can you provide your goods or services to this customer?
- Does the franchisor have any rights to modify your territory?
- Can you negotiate your territory or any franchise fees you are required to pay if you consider that you are at a disadvantage to other franchisees due to your territory?
If you require assistance understanding the territory rights in your franchise agreement, our experienced franchise lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
If you are in the process of purchasing a franchise which is restricted to a particular territory, it would be worthwhile requesting demographic information from the franchisor. Further, consider undertaking your own search through the Australian Bureau of Statistics. Having this information will assist you in determining the suitability of the territory for the success of your franchise.
If the goods or services of your franchise can be sold directly to the public online, the franchisor can often not enforce any of its franchisee’s territorial rights. To overcome this issue, franchisors will often fulfil any sales from an online platform but may alternatively direct franchisees to do so.
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