“Here’s an arrangement where the franchiser designates a territory, not just an outlet, for which a franchisee can use the trademark and the business system.”
We are all familiar with single-unit franchising, which is the route normally taken by franchises to franchise their business. A single-unit franchise agreement is drawn up for a single location, such that the franchisee can use the franchiser’s trademark and business system only in the location specified in the franchise agreement. If the franchisee wishes to open a second or more locations, separate single-unit franchise agreements for them will have to be drawn up.
Territorial franchising is different from single-unit franchising. As the term indicates, a territorial franchise is not for just a single location but for a particular territory. Another term for territorial franchising that’s used internationally is “master franchising,” is more commonly used in the Philippines. Under this arrangement, the franchiser specifies the territory for which the particular franchisee can use the trademark and the business system. A territory, of course, can be a province, a city, or a group of islands like Visayas or Mindanao.
WHAT’S REQUIRED OF THE FRANCHISER
Processing for territorial franchises normally takes longer than that for a unit franchise. In this case, the franchiser will not only consider the capability of the territorial franchise applicant to manage one branch but also his or her capability to manage multiple branches. And from the usual determination of management capability, the franchiser will also need to look at the competence of the prospective territorial franchisee to build a middle management team that will run the franchised branches within the territory.
The franchiser then has to put up additional monitoring and control systems for the franchised branches within a territorial franchise, since reaching these territories could take hours and the branches would not be within the usual daily route of the franchiser’s service officers. This could mean having to put up state-of-the-art communications technology to effectively monitor the operations of those branches.
For instance, one franchiser had to install remote cameras to check on how customer service is provided and on how the branch is maintained and manned daily. Another franchiser found it necessary to have the branches in a particular franchise territory hooked by POS (point-of-sale system) to its headquarters. This was to enable it to constantly monitor product movement and provide proper inventory forecasting assistance to those branches.
Due to the distance factor, field visits by the franchiser to the branches of a territorial franchise cannot be done as frequently as those to single-unit franchises. For this reason, a territorial franchisee needs to be given additional training on how to effectively provide operational assistance to its various branches.