Franchise Encroachment, Part 1

Competition Issues

Kaufmann: That's frequently the case. Contrary to popular franchisee conception, franchisor executives don't come to work each morning looking to do battle with their franchisees. They come to work looking to do battle with the competition. And the competition all too often is able to respond to changes in technology, demographics and consumer demand far more quickly than franchisors weighed down by antiquated franchisee-agreement territorial provisions and/or franchisees whose "location concerns" are rooted in desire rather than contractual rights. Is it a coincidence that Starbucks avoided franchising while achieving dominance through nationwide-and rapid-market saturation?

Zarco: Unlike nonfranchised companies, which use their own money to expand and thus can spend and allocate it as they choose, there are different equitable considerations to take into account in a franchise environment. Franchisors must always consider franchisees' rights and interests in their investments. If a particular franchisor wishes to grow without regard to the impact that growth has on its franchisees, it should purchase all the units back and become a complete corporate operation.

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