Choosing the Right Territory

Territory definitions can facilitate or limit a franchisor's growth. At least 70% of franchise systems define their territories as exclusive. What if the territory grows beyond the ability of the unit to service it?

Many franchisors get caught selling too much territory in the beginning stages of their development to pay the bills, and are left trying to figure out how to renegotiate, reacquire or refranchise the territory as the system matures.

Territory definitions are not static and need to evolve. This is especially true in today's M&A environment where the considerations are much greater. Parent and affiliate companies products and services can also affect the territory definitions.

Jiffy Lube is an example of a franchise who has changed over the years. In 1987, Jiffy Lube was a stand-alone business with 561 total units in 8 years of franchising. Now in 2007, the franchise has over 2200 locations and gone through two acquisitions, first by Pennzoil-Quaker State then by Shell Oil Company. Both parent companies added to the considerations over product and services offered within a market. This growth and change is reflected in their territory definitions: in 1987, their definition was a half a page long; now it's a page and a half.

Many franchisors, particularly when they are just starting out, have trouble understanding how many units a market may reasonably support. In the adjacent table, we counted the number of franchise brands and units by Designated Marketing Area (DMA) and took population data from the U.S. Census to arrive at a population per unit across the whole United States.

The place to start is to understand the clientele at your existing units. The retail industry has adopted the practice of asking for a customer's zipcode during the purchase process. In mobile businesses, an understanding of mileage travelled may provide the same purpose. Collecting and analyzing your existing customer base is crucial to understanding what your territory definitions should be.

Take Away Points

• The Devil is in the Details - always. For any give unit's territory, there are local pros and cons - and the potential to grow. Did you check to see if there areplans to build condos?
• You should know how the other franchises in your industry define their unit territory. Similarly you should know where the units of those other franchises are located. (We can help you with that.)
• There are many firms that specialize in providing detailed demographic and market analysis. You need to be able to identify who your audience is and how your business model operates in order to make the most of their services.
• Data is king when it comes to territory negotiations. Both franchisors and franchisees need to know all they can about their market.

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We always want to hear from you! We are currently preparing for a report that will analyze the training and support offering across industries. Is this a topic that interests you? What specifically would you like to know about training and support? Email me your ideas at ewiseman@frandata.com.