Miami, FL commercial litigation attorney Robert Zarco talks about how franchisees can protect their market territory against Encroachment and Cannibalization within the franchise system. Franchise cannibalization and encroachment present significant challenges for franchisees. When franchisors seek to saturate a specific market with additional stores in close proximity to existing locations, it results in an immediate shift in sales from older stores to the newly established ones. To address this concern, franchisees are advised to negotiate, at the outset of the franchise relationship, for a protected exclusive territory surrounding their location.

Securing a written protected territory in the franchise agreement is crucial. In the absence of such a provision, unless state statutes offer exclusive territory protection, franchisors may believe and typically have the right to place competing units in close proximity to existing locations. This lack of protection could severely impact sales growth and, consequently, the profitability of franchisees.