Franchisors often tout that they are selling an "exclusive territory" to a franchisee during the sales process. Franchisees generally want an exclusive territory because they believe this protects them from competition from other franchisees or the franchisor itself. But if you are a franchise who has been sold an exclusive territory, you better make sure you know what you are really buying.
Many franchise agreements contain a clause that allows the franchisor to reserve certain rights with respect to the territory granted to the franchisee. If your prospective franchise agreement contains a reservation of rights to the franchisor allowing it to conduct sales using different methods, it is not truly an "exclusive" territory. More often than not, franchisors will reserve the right to sell products and/or services online IN YOUR "EXCLUSIVE" TERRITORY. This has become even bigger in recent years as many retailers are now conducting sales and/or marketing using social media and mobile apps.
Be sure to review the territory provisions in the franchise disclosure document (FDD) and franchise agreement with an eye toward whether the franchisor or other franchisees are able to conduct Internet, social media and/or mobile retailing. In many instances the franchisor will have a Web site, social media applications and mobile apps but franchisees are not permitted to conduct online retailing. This is problematic for a couple of reasons. First, if the franchisee is unable to conduct online retailing this takes away a significant marketing opportunity generally available to independent retail businesses. Second, if the franchisor conducts online retailing, and markets to the franchisee’s customers or prospective customers (sometimes at lower prices than offered by the franchisee), this could harm the franchisee’s ability to sell in their own territory.
As a prospective franchisee you need to have discussions regarding these issues when you are in the sales process with the franchisor. If you’re told "we won’t do that" by the franchisor, then make sure to get that promise in writing. If it’s not in writing, such statements generally won’t protect the franchisee if the franchisor later changes course and begins to compete against the franchisee through e-commerce.
The fine print is important when it comes to the territorial provisions of the franchise agreement. It is entirely possible, even with an "exclusive" territory, that you could face serious competition from the franchisor or other franchisees that you never expected when you bought the franchise. Know what you’re getting with your franchise and ask questions during the sales process. Territorial reservation of rights needs to be a factor when deciding to purchase a franchise.