What Kind of Territory Protection Do You Look For?

I recently came across this thread on Blue Mau Mau and it made me think – how far is far enough, when it comes to a second location of your chosen franchise chain? If you’ve ever really looked around a big city, you’ve no doubt  noticed that some stores appear on nearly every block. In NYC, you’ll find a Starbucks and Duane Reade if you walk more than a couple blocks in almost any direction. In a lot of areas, Subway restaurants are nearly as common as gas stations. Clearly, some types of stores don’t need very big separation areas, especially in major cities.

The challenge, though, is in creating a rule that is fair to franchisees but mindful of the local market. Giving someone 5 miles of protected area in the middle of NYC is just too much in most cases. On the other hand, 5 miles in a rural area is nothing, especially if it’s the kind of business you only need one of in a small area.

In the thread I mentioned above, the problem was with a UPS store. Clearly, that’s a case where a little more separation would help franchisees greatly. Most people don’t use UPS on a regular basis like they might use a fast food franchise, and those that do often arrange for pickup rather than going though a UPS store.

Regardless of the rules set out by your franchisor, though, it’s important to consider what could happen if a direct competitor opened up nearby. If you own a Marathon filling station and a BP opens across the road, it’s going to cut into your business. The same can be said for UPS Stores and other postal service/delivery service companies. These types of businesses are especially vulnerable to competition, as they’re fairly homogenous and price sensitive.

Think of it this way – if a person loves Schlotzsky’s deli subs, they’re probably not going to be swayed by a new Subway opening across the road with slightly cheaper subs. They might try it now and then, but ultimately, people will tend to favor what tastes best to them. It gives you a differentiating factor over potential competitors (as long as your territory is at least somewhat protected and your location is good). With shipping, there’s very little way to differentiate yourself from competitors. Ultimately, most people will go where it’s cheapest, assuming they ship often enough to know. Otherwise, factors like easy parking and good traffic flow will come into play. If it’s harder to get in and out of your store, people will avoid it. Good service can help a little, but most people go with what’s cheapest and easiest when the product (shipment) is essentially the same.

What do you think? Is territory the most important factor for you? Would you invest in a franchise like UPS Stores? Let us know why or why not in the comments!

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