Franchise cannibalization can be a severe issue for franchisees. It happens when a franchisor opens new locations too close to existing franchises. It causes a drop in sales and market share for the original stores. If you suspect your franchisor of cannibalization, they may be violating your contract’s implied covenant of good faith and fair dealing.
Proving a cannibalization claim is challenging. However, with good planning and proper support, you can address the issue and protect your franchise.
Gather evidence
The first step in building a cannibalization claim is gathering solid evidence. You need to prove that the new franchise locations directly impact your sales. You can collect:
- Sales data and market research that show a decline in revenue or market share since the new stores opened
- Documents and communications with the franchisor, like emails and meeting notes, that suggest they are aware of the cannibalization issue
- Testimony from other franchisees who have experienced similar problems
- Expert analysis of the franchise network’s operations and market trends
You can then examine how evidence of franchise cannibalization violates laws.
Understand your legal rights
Federal and state laws, such as the Florida Franchise Act and the Florida Deceptive and Unfair Trade Practices Act, protect franchisees in Miami.
The Federal Trade Commission also requires franchisors to provide a Franchise Disclosure Document (FDD). It must include information about the franchisor’s territory and market competition policies.
Look for clauses in the franchise agreement and FDD that discuss:
- Territorial rights
- Market saturation
Once you’ve gathered your evidence and understand how the harm caused by new locations may violate your rights, you can start raising your concerns with your franchisor.
You can consider mediation or arbitration if your franchisor is unresponsive or unwilling to address the issue. However, you may need to file a lawsuit if these methods fail.
Contact the franchise law attorneys at Zarco Einhorn Salkowski for free consultations to discuss your case. Act against franchise cannibalization to ensure your franchise stays profitable.
