One of the first questions a new franchisee asks is: “What area will be mine?” Most franchisors answer with a simple rule. Exclusivity within a few kilometres. Exclusivity within the municipal limits. Exclusivity for the whole district.
These rules are easy to write into an agreement. But distance or a boundary on a map should not be the only way to decide an exclusive territory.
What should shape an exclusive territory
A fair and workable territory depends on the franchise itself and the market around it. Before you fix the boundaries, look at:
- The format of the franchise. A flagship store, a standard small store and a kiosk are very different businesses. They need different catchment areas to succeed.
- The size of the store. A larger outlet needs a larger customer base to support it.
- Market potential in that location. How much demand for your product or service actually exists there?
- Customer density. How many of your target customers live, work or shop nearby?
- The type of location. Is the outlet inside a shopping mall, on a high street, or in a standalone location? Each one draws customers in a different way.
Why one rule does not fit every format
Take a flagship store in a shopping mall. Its territory is better decided by the potential and population density of the whole city than by a fixed radius around the mall.
A kiosk or a small store in a big city is different. Here the territory can be much tighter, for example a particular mall or the immediate area around it. That leaves room for other franchisees in other parts of the city without them competing for the same customers.
If you give every format the same territory, you will either give away too much of the market to one franchisee or squeeze franchisees so close together that none of them can grow.
The takeaway
When you design your franchise, design it with different franchise formats in mind, and with a different type of exclusive territory for each format. Base each territory on store size, market potential, customer density and location type, not only on kilometres or a district line. This is a core part of building a franchise growth plan.
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