Franchise territories in Slovenia: how to structure exclusivity

When you expand an existing business into a franchise network, the question “Where will the franchisee operate?” quickly becomes “Who gets which sales?”. A vague promise of exclusivity can trigger a dispute as soon as the first online order arrives from a neighbouring municipality. Before looking for franchisees, define your territories, sales channels and rules for future expansion, then check that they comply with competition law.

1. Distinguish between premises, operating territory and exclusivity

Permission to open an outlet at a particular address does not automatically grant exclusive rights across the whole town or city. Equally, a delivery area is not necessarily a territory in which the franchisor is prohibited from opening its own outlet. Treat these concepts separately in both your offer and your agreement.

Prepare an overview specifying the following for each outlet:

• approved premises: the outlet’s address and the conditions for any relocation;
• operating territory: the area in which the franchisee plans local marketing, deliveries or on-site services;
• scope of exclusivity: the commitments the franchisor makes regarding its own outlets and new franchisees;
• reserved sales channels: for example, a central online shop or direct supply to specified business customers.

Define boundaries through an unambiguous list of municipalities or postal areas, or a map attached to the agreement. If you use postcodes, check their actual coverage; do not assume they match municipal boundaries. Also specify which definition takes precedence if the list and map conflict.

The phrase “exclusive franchise for Ljubljana” is not enough on its own. The franchisee needs to understand whether the promise covers only new physical outlets or also the franchisor’s other sales channels.

2. Base territory size on business data

Do not divide territories solely along administrative boundaries. For a service business, driving time may matter more; for a retailer, accessibility and footfall; and for business services, the number of suitable companies. Start with how your existing customers actually access your products or services.

Review your existing business data: where orders come from, how far customers travel, delivery costs and where competitors already operate. Use aggregated data where individual customers’ identities are not needed for planning. Then assess whether the proposed territory can support a viable business even under more cautious sales assumptions.

Test two contrasting scenarios. A territory that is too small may limit the franchisee’s potential, while one that is too large may prevent sensible expansion of the network over the longer term. The success of an existing outlet is therefore not automatic proof that a territory of the same size will work elsewhere.

Prepare an internal rationale for each territory. Record the data used, assumptions and unresolved questions. Explain the basis for your decision to prospective franchisees, without presenting it as a revenue guarantee. If part of the territory has not yet been assessed, make that clear.

3. Check exclusivity against Slovenian and EU rules

Slovenia has neither a dedicated law comprehensively governing franchise networks nor a specific compulsory franchise register. Contractual relationships are governed primarily by the Slovenian Obligations Code (OZ), while restrictions on competition fall under the Prevention of Restriction of Competition Act (ZPOmK-2). Where an agreement may affect trade between EU Member States, Article 101 of the Treaty on the Functioning of the European Union is also relevant.

For territories and sales restrictions, Commission Regulation (EU) 2022/720 on the block exemption for vertical agreements is particularly important. Under certain conditions, it provides an exemption from the prohibition on restrictive agreements; it is not blanket permission to allocate customers however you wish. The conditions generally include a market share threshold of no more than 30 per cent for each of the supplier and buyer, but meeting that threshold alone is not enough. The nature of the restrictions and the regulation’s other conditions also matter.

Distinguish between active sales, such as targeting customers in a particular territory, and passive sales, such as responding to unsolicited enquiries. Some restrictions on active sales into an exclusively allocated territory may be permissible. A blanket ban on responding to unsolicited enquiries from elsewhere, however, is generally problematic. Restrictions that prevent effective use of the internet also require particular care.

The European Code of Ethics for Franchising is a self-regulatory framework, not Slovenian law or a substitute for a competition law assessment. Before signing, have a specialist review how your network will actually operate, particularly its online sales arrangements and exceptions to exclusivity.

4. Agree rules for online orders and growth

Imagine a customer from one outlet’s territory places an order through the central online shop but chooses to collect it from another outlet. Who is the seller, who prepares the order and who bears the cost of handling a complaint? A map does not answer these questions.

For each sales channel, assign responsibility for fulfilment, billing, customer support and any compensation payable to a participating outlet. Distinguish internal allocation of tasks from restrictions on sales by independent franchisees. The rules should also be consistent with what you tell customers when they place an order.

If exclusivity depends on developing the territory, set measurable expectations, a monitoring process and a reasonable procedure for dealing with shortfalls. Do not provide for automatic withdrawal of the territory after every poor month. Set out requirements for notice, an opportunity to resolve problems and a process for agreeing changes.

Practical takeaway: before making your first offer, prepare a territory map, an overview of sales channels and a few examples of orders that raise questions about territorial boundaries. If you clearly assign responsibilities in each case and have the agreement legally reviewed, you can promise franchisees exclusivity that the network can genuinely honour.