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How carefully do franchisees need to watch for encroachment?

On Behalf of | May 24, 2023 | Franchise Management

Many entrepreneurs choose to operate franchises to decrease the risks that individuals face when starting a company. Many new business ventures fail in the first few years and franchises may be easier to run successfully in many cases. With franchises, people can buy into a turnkey business model as they learn how to run their company.

Typically, buying into a franchise means receiving training and help with marketing, as well as potentially being the sole brand representative in certain areas. However, as franchises become more popular, there may be issues with overlapping regions or encroachment.

Sometimes encroachment is truly problematic

If someone wants to stand out in a saturated market, having another business of the same brand in close proximity might take away from their potential sales and diminish their customer base. The addition of a new franchise from the same brand nearby could damage an existing operation.

Rather than attracting new people to spend their money with a franchise, all that has happened is that one established franchisee now has to share some of their region with another operation. When the opening of a new franchise in close proximity to an existing one causes a change in traffic to the business, the franchisee may need to fight back.

There are scenarios in which what seems like encroachment may not be a problem. For example, there are certain franchise fast food restaurants that are so popular that they often have lines of vehicles stretching out into the street and patrons waiting the entire time the business is open for a chance at a meal there.

When the existing franchise locations for a company cannot meet the local demand for the products or services provided, what seems like encroachment could actually be beneficial. It could take some stress off of the existing franchise and improve people’s perception of the brand. There are also times when it may seem like the placement of a new franchise is a violation of someone’s rights, but the contract that they have with the company indicates otherwise.

There is no black-and-white answer that applies to every scenario in which a franchisee is worried about new internal competition within a company. Seeking legal guidance to review a franchise agreement and a company’s recent performance is often an important starting point when dealing with some kind of franchise-related business conflict.

NOTICE: This blog is intended solely for informational purposes and should not be construed as providing legal advice. Please feel free to contact us with any questions you may have regarding this blog post.