Franchise Encroachment, Part 1

Most Significant Encroachment Issues

Franchise Zone: What are the most significant issues concerning encroachment in franchising?

David Kaufmann:

  • The Internet and e-commerce, and the extent to which these channels constitute "virtual encroachment."
  • Franchisees' contention that they're entitled to protected market areas despite the contrary explicit terms of their franchise agreements (especially those that afford "site only" or limited territorial protection).
  • Franchisor dual-distribution programs, under which franchisors' products are sold in such secondary venues as supermarkets, convenience stores, on the premises of independent retailers and so on.
  • Franchisors' placement of units in nontraditional or seasonal locations (such as universities, military bases, workplaces and expositions).

These "issues" aren't true disputes as to what the agreement says or does not say but are based instead on a franchisee's unhappiness with previously agreed-to terms.

Robert Zarco:

  • Placing a competing unit operated by the franchisor or another franchisee in close proximity to an existing unit.
  • Taking away sales of an existing unit by mailing products or providing services from outside the franchisee's area into his or her market through the use of the Internet or other means.
  • The development of alternative distribution channels such as supermarkets, kiosks, convenience stores and so on.
  • Sister-brand encroachment, in which a franchisor acquires a competing brand and the franchisor's marketing and trade secrets are shared with franchisees from the other brand.
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