Franchise territories in Mexico: what exclusivity are you buying?

Buying a franchise in a city does not mean buying the exclusive right to serve it. Before investing, you need to know where you can operate and which other outlets or channels belonging to the same brand could compete for your customers. Setting these rules out in writing helps you assess the investment and prevent disputes over the network’s expansion.

1. Distinguish an assigned territory from exclusivity

In Mexico, franchises are specifically regulated by the Federal Law for the Protection of Industrial Property (LFPPI). Article 246 requires the agreement to be in writing and to specify the geographical area in which the franchisee will carry out the activities covered by it.

However, defining an area does not mean granting exclusivity. The agreement may state where you will operate without preventing the franchisor from opening company-owned outlets or authorising other franchises nearby. The protection you actually acquire depends on the scope of the agreed obligations.

Distinguish between three concepts when reviewing the proposal:

• Operating area: the area in which you may carry out the authorised activities.
• Territorial exclusivity: a commitment not to establish specified competing operations under the same brand within a defined boundary.
• Expansion priority: an opportunity to apply for or agree to take on another outlet before other interested parties, subject to specific conditions.

A priority right does not necessarily prevent someone else from opening an outlet if you do not exercise it. Nor does exclusivity over physical outlets automatically protect online sales. Ask for any commercial promise to be translated into a specific contractual obligation that you can review with an independent legal adviser.

2. Turn the promised area into a verifiable map

Phrases such as ‘northern zone’, ‘catchment area’ or ‘the area surrounding the premises’ leave too much room for interpretation. Request a clearly identified map and a description that make it possible to determine whether an address falls inside or outside the territory.

You could propose boundaries defined by streets, polygons plotted using coordinates, or postcodes, provided you clarify how any discrepancies will be resolved. If a radius is used, specify the point from which it is measured and whether the distance is measured in a straight line or by road. These are not equivalent.

Before accepting, request information about:

• Company-owned and franchised outlets already operating within or near the boundary.
• Locations that have been authorised or committed to, even if they have not yet opened.
• Temporary outlets, kiosks or special formats that could be set up.
• Territorial rights previously granted to other members of the network.

Check these answers against a visit to the area and a map of competing businesses. Exclusivity over a large area may be worth little if access is difficult or demand is low; a small territory may be attractive if it has enough customers.

Hypothetical example: if you are offered exclusivity in a neighbourhood (known in Mexico as a colonia), but shopping centres are excluded, a new outlet inside one could serve the same customers. You need to know about that exception before estimating sales or agreeing to pay for the protection.

3. Clarify online sales and excluded formats

An outlet’s address no longer tells you, on its own, who serves each customer. A purchase may originate on the brand’s website, be prepared at another outlet and be delivered within your territory.

Request separate rules for in-store sales, online orders, delivery and business accounts. For each channel, ask who may sell, who receives the order and who is obliged to fulfil it.

The following situations should be addressed:

• A customer in your area buys directly from the franchisor.
• A platform allocates an order to a neighbouring outlet.
• Another outlet targets advertising at addresses within your territory.
• The brand serves a national account through local deliveries.
• A delivery-only kitchen, kiosk or pop-up shop opens nearby.

Do not assume that every sale to a resident of your area belongs to you. That protection must be expressly negotiated. If certain channels are excluded, factor that competition into your financial assessment of the purchase. Exclusivity neither guarantees demand nor removes competition from rival brands.

4. Check when protection can change or be lost

Some proposals make exclusivity conditional on minimum sales, opening dates or development commitments. Check how each condition is measured, what information is used and what opportunity you will have to remedy a breach.

Ask for the agreement to specify how long the protection lasts, its exceptions and the procedure to follow if a change is proposed. If you have priority to open another outlet, clarify the deadline for responding, the information you will receive and any financial terms still to be agreed.

Also ask for clear consequences if your territorial rights are infringed: how to report it, which documents to provide and what action you can require. Do not assume that compensation is automatic or that you can exit at no cost; ask your lawyer to review the agreed remedies and whether they can be enforced.

Practical conclusion: before buying, obtain a precise map, a list of exceptions and rules for each sales channel. Assess and pay only for the protection the agreement actually grants, not the exclusivity you imagine.