Franchise territories in Sweden: planning boundaries and customer flows

When turning your existing business into a franchise network, you need to decide how new units will share the market. A map alone is not enough: customers shop online, corporate contracts may cover several locations, and your own business already has customer relationships. Well-designed territorial terms reduce the risk of disputes and make it easier for each franchisee to assess their business prospects.

1. Map customer flows before drawing up territories

Start with how your business actually attracts and serves customers. Look at existing orders, delivery addresses, travel times and sales channels. Use aggregated data wherever that is sufficient; personal data must not be shared with prospective franchisees without a lawful basis.

Distinguish between three things that are easily confused:

• Location territory: where the franchisee may open a physical unit.
• Marketing territory: the area on which active local marketing and customer acquisition should focus.
• Delivery or service territory: where the unit is expected to fulfil orders or carry out work.

These territories do not have to be identical. A shop may have a small natural catchment area but deliver further afield. A service business may need to limit travel time to remain profitable.

Next, assess demand and the capacity needed to meet it. A large geographical area is not automatically attractive if customers are widely dispersed. A small territory may be sufficient if it has a dense customer base and plenty of repeat business.

Document the evidence and its limitations. Historical sales from your own unit can inform decisions, but they do not guarantee a new franchisee’s turnover. Note in particular whether the results depend on your personal customer relationships or an unusually strong retail location.

2. Explain what any exclusive rights cover

Exclusive rights do not come automatically with a franchise agreement. If you offer territorial protection, the agreement must explain what you undertake not to do and what exceptions apply.

Specify, for example, whether the protection covers new franchised units, company-owned outlets or both. Decide how temporary sales outlets, mobile teams and sales through other channels will be treated. Avoid promising an ‘exclusive territory’ if your intention is simply not to open another physical shop there.

Use a dated map annex with clear boundaries. If you use postcodes, agree what will happen if postcode boundaries change. The agreement should state which takes precedence if the map and the written description differ.

You also need to decide how to handle your existing customers. Will they remain with your own business, transfer to a local unit or be covered by shared customer contracts? Set out the principle before signing the agreement, rather than when the first attractive order arrives.

If territorial protection depends on performance, the conditions need to be clear and measurable. Define the measurement period, data source and process for dealing with deviations. A broadly worded right to change the territory creates uncertainty around the franchisee’s investment.

3. Decide how to handle online orders and shared customers

A shared website can generate more business for the entire franchise network, but it requires clear rules on who does what. Distinguish between allocating enquiries internally and restricting an independent business’s sales. The latter may require a specific competition law assessment.

Create a simple responsibility table for different types of order. For each type, it should show:

• Which business enters into the contract with the customer?
• Who receives payment and records the sale?
• Who delivers the goods or provides the service?
• Who handles complaints, refunds and customer support?
• How is a unit compensated for work carried out on behalf of another?

Then test the rules against practical scenarios. A customer orders centrally but wants to collect in another municipality. A company’s head office orders services for several workplaces. A local unit lacks capacity and needs help from a neighbouring unit.

Agree a fallback procedure for these situations and a process for resolving disagreements. Customers should not have to mediate between businesses using the same brand. At the same time, it must be clear which business is the customer’s contracting party and is responsible for fulfilling the commitment.

4. Let the law set the limits of territorial protection

Sweden has a specific Act (2006:484) on Franchisors’ Duty to Provide Information, although it has no comprehensive franchise law. Well before the agreement is concluded, the franchisor must provide clear, understandable written information about the agreement’s implications and any other matters required in the circumstances. Territorial terms that affect the business should therefore also be clearly described in the information provided to support the prospective franchisee’s decision.

The Swedish Contracts Act (1915:218) and Competition Act (2008:579) are also relevant. EU competition rules may apply, including Article 101 of the Treaty on the Functioning of the European Union and the Vertical Block Exemption Regulation, Regulation (EU) 2022/720.

Territorial protection does not give you unrestricted freedom to prohibit all sales across a boundary. Competition law distinguishes, among other things, between active sales, such as targeted approaches to customers, and passive sales made in response to unsolicited customer enquiries. Restrictions on passive sales are generally particularly problematic. Online sales also require a nuanced assessment.

Have a lawyer with competition law expertise review the territorial terms, online sales arrangements and any customer restrictions together. An internal procedure cannot make an unlawful restriction lawful.

Practical takeaway: Prepare a map, a description of rights and a responsibility table for customer flows. Check that they are consistent and have them legally reviewed before promising anyone an exclusive territory.