Franchise network restructuring: Pressures, constraints and mechanisms

Franchised businesses operate on the basis of granting individual franchisees trading rights to serve territories or market areas on either an exclusive or a non-exclusive basis. The design of these territories is generally undertaken during the roll-out phase of the franchise. However, these territories and market areas may become sub-optimal over time, necessitating restructuring. However, if the franchisor has granted exclusive rights to a territory then this is likely to involve a breach in the franchise contract. In cases where existing franchisees do not have exclusive territories they may nevertheless make a legal challenge to the creation of additional franchises on the grounds of encroachment. This paper -- which is based on a study of 40 franchisors in the UK -- examines how franchisors go about network restructuring in constrained and non-constrained situations. Franchisors typically did not act on their legal rights, echoing findings of earlier franchising studies which reveal a divergence between contractual rights and operational behaviour. This focus on network restructuring also provides new perspectives on the reasons for ownership reversion and the growth of multi-unit franchisees.