Franchise territories: setting the rules before expanding

Turning a business into a franchise means deciding where each unit can operate — and how it will coexist with the others. In franchising, clear territorial rules help protect expectations and prevent disputes. Before offering the first unit, a prospective franchisor needs to turn its expansion plan into verifiable boundaries, including for deliveries and digital sales.

1. Choose the territorial rights you can offer

A territory does not automatically mean exclusivity. Your policy may provide for exclusivity, priority rights or operation without exclusive territorial protection. What matters is explaining the scope of each arrangement, without using vague sales language such as “guaranteed area”.

Where you offer exclusivity, define exactly what is reserved for the franchisee. Does the protection prevent another franchised unit from opening? Does it also prevent a company-owned outlet? Does it cover every format operated by the brand, or only the format covered by the agreement? The answers must be stated explicitly in the offer documents.

Where you offer priority rights, clarify the circumstances in which the franchisee will have priority. For example, if there is an opportunity to open a new unit in the area, the franchisee may receive an offer before other candidates. Specify how they will be notified, the response deadline and the requirements for exercising that right.

If there is no exclusivity, say so clearly. The absence of this protection does not remove the need for planning: opening units close to one another without assessing demand can undermine the balance of the network.

Practical step: write one sentence summarising the right being offered, then list its exceptions. If explaining it requires a lengthy conversation, the rule still needs refining.

2. Define the area using data and a verifiable map

Avoid choosing territories solely on the basis of the distance between addresses. Two neighbouring districts can have very different patterns of footfall, accessibility and purchasing behaviour. A major road, a physical barrier or a concentration of offices can significantly change the area a unit can effectively serve.

Use information from the existing business to identify:

• Where customers come from and how often they buy;
• Travel or delivery times and costs;
• Concentrations of customers suited to the offering;
• The unit’s capacity to serve customers;
• The presence of competitors and other sales channels operated by your own brand.

This information supports a commercial decision, but does not guarantee turnover. Keep projections separate from contractual obligations.

Next, produce a map accompanied by a written description. Depending on the model, you can use municipal boundaries, districts, roads or coordinates. If you choose a radius, specify the reference point and measurement method. Also define how any discrepancy between the map and the description will be resolved.

Test the proposed boundaries by placing a hypothetical new unit nearby. If you cannot establish with confidence whether it would encroach on the protected area, the definition is incomplete.

3. Resolve conflicts between outlets, deliveries and digital sales

The outlet’s address alone does not settle territorial policy. A consumer may discover the brand through social media, buy online and request delivery from a unit outside their neighbourhood.

Before expanding, establish rules for specific situations:

• Orders through the central sales channel: which unit receives the order, and on what basis?
• Deliveries: does the delivery area match the protected territory, or does it have its own boundaries?
• Advertising: can franchisees target adverts at consumers in other areas?
• Business customers: who handles contracts covering addresses in several territories?
• Collection: how will you handle a consumer’s decision to collect from another unit?

Distinguish active prospecting from responding to unsolicited enquiries. Also establish a procedure for orders that the responsible unit cannot fulfil, rather than creating informal exceptions each time.

Your solutions must reflect the capabilities of the systems you use. Do not promise automatic allocation of orders by territory if the available technology cannot carry out and verify that allocation.

4. Align the policy with the law and the agreement

Law No. 13,966/2019, which regulates franchising in Brazil, requires territorial information to be included in the franchise disclosure document, known locally as the Circular de Oferta de Franquia (COF). Article 2, item XI, requires clarification of whether exclusivity or priority rights exist and on what terms, whether sales or services outside the territory or exports are permitted, and the rules governing territorial competition between company-owned and franchised units.

The law does not grant automatic exclusivity: it requires transparency about the policy adopted. The complete template agreement, including its annexes, must form part of the COF. The map, commercial proposal and contractual clauses must therefore be consistent.

The COF must be delivered at least ten days before the agreement or preliminary agreement is signed, or before any fee is paid to the franchisor or to a person or company connected with it.

With legal advice, also establish how to handle relocations, new units, breaches and any territorial revisions. If retaining exclusivity depends on meeting certain conditions, these must be clear, measurable and disclosed in advance, with a defined procedure for assessing compliance.

Putting it into practice: before making your first offer, prepare a map, a sales-channel matrix and a list of exceptions. Only proceed once the sales team can explain the same rules that appear in the COF and the agreement.