Territory Encroachment in Maturing Franchise Systems

Abstract

The continued expansion of business format franchising in the U.S. has generally been assumed to have come at the expense of other non-franchised establishments. Recent efforts to regulate franchise encroachment, however, suggest that this growth has come with some cannibalization of existing system sales. The article presents a model which illustrates the potential for conflict between franchisors and franchisees due to the development of additional outlets within a market. Data comparing the performance of franchisor-owned to franchisee outlets support the propositions developed from the model. The implications on franchise growth through expansion from the Iowa Franchise Law are discussed for franchisees and franchisors.