#3 of 10 Reasons NOT to Buy a Franchise: Encroachment
February 12, 2007 by Sean Kelly
Filed under Business
Nolo.com features an article titled: Ten Good Reasons Not to Buy a Franchise.
According to the author, there are ten compelling reasons NOT to buy a franchise. We’re looking at them one-by-one.
3. Encroachment. Imagine the following scenario: You have just spent thousands of dollars opening your own GasMart station, when another GasMart station opens across the street, essentially cutting your customer base in half. This type of thing happens to franchisees all the time, as nearly every franchisor reserves the right to operate anywhere they want.
Encroachment is a hot button issue in franchising. Some times it’s a matter of misperception by franchisees who fail to recognize the advantages that come with the increased name recognition and advertising efficiencies of clustering units geographically. Other times it is a legitimate complaint and a serious problem. Make sure that you understand what protection you are afforded, and whether you will get a protected territory that will eliminate franchise encroachment. Also make sure you understand other potential forms of internal competition. Check out the comments under our posts on The UPS Store (in the Buyer Beware category) to see the allegations by MBE and The UPS Store franchisees that they are forced to compete at a disadvantage with the franchisor’s direct-account and Internet shipping programs.
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