You’ve just been presented with what seems like a golden opportunity to buy into a franchise that seems to be exploding in popularity.
The only problem is that they seem like they may be growing a little too fast. When it seems like there’s a shop or restaurant by that name on every corner, you may have good reason to be concerned. The franchise may be in the process of self-cannibalization.
In any given market, there are only so many customers to go around
In the rush to create a big brand identity, some franchisors end up over-saturating the market. When that happens, there are simply not enough customers to sustain each franchise, and they end up effectively pulling business away from each other.
That’s why a lot of successful franchisors are very selective (or outright restrictive) about where each of their locations are in proximity to each other. Unfortunately, some companies aren’t as cautious – and even big-name brands can fall into the trap. Subway, for example, has been accused of being reckless with their shop placements. They allowed (and encouraged) far too many shops to open, dividing their own market. A lot of franchise owners ended up closing their doors and losing a lot of money.
Understanding the problems with franchise self-cannibalization can help you look at the deal you’re being offered with new clarity. As part of your due diligence, it may be time to look closer at the available market so that you don’t end up making an expensive mistake.
When you’re contemplating a franchise agreement, experienced legal guidance is wise. Contact Zarco Einhorn Salkowski, P.A., and book your free consultation.
