Franchise Basics: What Is A Protected Franchise Territory?

April 30, 2020

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Protected Franchise Territory

What Is A Protected Franchise Territory?

A protected franchise territory refers to a specific area that a franchisor grants the franchisee the right to operate within, meaning other franchisees and sometimes the franchisor itself are unable to enter that market.  

Because you’re not the sole owner of the brand, you don’t get to decide how many stores open up over time. By operating in a protected territory however, you can gain assurance and some control of the brand’s development in your local market. This allows you to execute on marketing within your territory without having to compete with a neighboring franchise of the same brand. Ideally, you don’t want a potential customer choosing between your location and another location. Protected territories ensure that you have the best chance of getting the business of the population in closest proximity to your location.

How are protected territories defined? 

It really depends on the franchise. Some offer a simple radius of X miles, while others will give specific zip codes, county lines, or natural boundaries. Natural boundaries are things like rivers or major highways that organically segment different markets. 

One method is not necessarily better than the others as different strategies make sense for different types of businesses. 

For example, a fast food restaurant’s success is typically driven by convenience, meaning you don’t need a large protected territory to be successful as your customers aren’t typically going to drive long distances to get to you. 

Destination locations, like a miniature golf course, are planned outings for customers so you’ll want a larger protected territory as your customer may be willing to drive 20 or 30 minutes when they’re planning to spend a few hours at your location. 

Do all franchises offer protected territories? 

Many do, but some do not and you’ll have to evaluate whether or not you really need protection for that particular business. If your business is not location based and does not require a physical location (like an online travel agency), then there’s no need for a protected territory. Brick and mortar franchises are typically better off with a protected territory. 

Emerging brands (those with less than 50 franchisees) tend to be more open to discuss exclusive or protected territories than larger brands like Subway.

Will a protected territory ensure the success of your franchise? 

Absolutely not. You may still face inadvertent competition from neighboring locations of the same franchise brand, or other businesses that are competing for your customers. Bottom line is, you’ll still need to be a great operator. 

Find a great location, execute on the marketing plan, and hire a great staff. Try not to worry about neighboring franchises as competition and think of them more as partners. Brand awareness is good for all franchises and proximity of other locations can actually be helpful. If your neighbor executes well on marketing, provides a great product or service, and represents the brand well overall, chances are you’ll get some business in your territory from positive word of mouth and from customers traveling from outside of your territory. 

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