Know the Territory
May 2006
Asking the right questions delivers profitable strategies for protecting and growing franchise territories.
If a brand is “hot,” just locking up a good territory can be a huge coup to an area developer. But even with a fast-track brand, developers can leverage their commitment to build a significant number of units to maximize their opportunities. Doug Pak, chief executive officer of Frandeli Franchise International LLC, a Newport Beach, Calif.-based franchise investment, development and management company, recommends:
Negotiate discounts on fees where possible. It’s not unusual to get a 20 percent to 30 percent discount off franchisee fees when you commit to a large territory. This may range from to seven to 10 units for some brands; only three to five for others.
Get co-op advertising rights to better manage media spending in your market. Co-op ad programs, which enable two or more companies to share advertising costs, leverage your local market knowledge and the power of the franchisor’s brand and marketing muscle.
Discuss the possibility of purchasing franchisor’s equity upon meeting a specific development schedule or negotiating a “put” option, which gives you the right to sell the franchised units to the franchisor at a specific price.
Negotiate for right of first refusal on other territories that you are interested in but don’t want to act on now—particularly airports, schools, hospitals, etc.
Getting the territory is one hurdle; protecting it is another. Along with a careful review of the detailed language of the contract, Pak advises that area developers ask franchisors for maximum radius non-compete protection. He also cautions developers to get a clear understanding of how their territories would be impacted if the franchisor launches or acquires a second brand.
“When you are ready to commit, don’t forget to have the agreements reviewed by a seasoned attorney. A few thousands dollars now will save a lot of headaches for many years to come,” Pak adds.