Franchise Encroachment, Part 2

Minimum-Distance Legislation

Is Iowa-type legislation, which stipulates a minimum distance between units or impact formula, a reasonable solution to franchisee concerns?

Kaufmann: Iowa-type franchise-relationship legislation may at first blush appear to be an attractive way to resolve franchisee "encroachment" concerns. But, in reality, they prove a bane to both franchisors and franchisees. Government dictating just where retail units should or should not be situated didn't work in the former Soviet Union and won't work here. If such legislation is enacted on a widespread basis, the end result would be many franchisors withdrawing from franchising altogether and substituting, with relatively great ease, joint venture protocols. Many franchise opportunities would disappear-all to the detriment of many people who want to obtain franchises.

Zarco: Minimum distance restrictions are easier to apply and measure because they're objective. Impact measurements, on the other hand, raise the question: What factors do you take into account to measure impact? You can't just rely on gross sales comparisons between different years. What if, in addition to the impact of the new store, the existing franchisee's sales suffer from external factors, such as new and different competition, taste differences, road constructions, economic fluctuations and a gain or loss in traffic generations? This method of calculating impact is much more complex and subjective although ultimately more accurate.

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