Introduction

Many of the business sectors where franchising occurs are mature, and franchising itself has become a fairly mature mode of organization in these industries. As a result of this maturity, competition has intensified and the issue of “impact” or “encroachment” has come to the forefront. In fact, as some industry analysts would have it, traditional encroachment – “the franchisor's placement of a new company-owned or franchised unit too close to an existing one – has emerged to be one of the most vexing, emotional and yet least understood [franchising] problems of today.” (Barkoff and Garner 1994a)

While encroachment is defined most often in terms of geographic competition, it can take many different forms. All alternative channels through which a franchisor can distribute its products or services to customers will potentially “encroach” on its franchisees' businesses and impact their profitability. For example, when Carvel sells its frozen desserts at the supermarket, customers who purchase them there might reduce the frequency of their visits to individual Carvel restaurants. Franchisees thus can claim that they are hurt by such sales. On the other hand, customer awareness of the Carvel brand may be increased by the availability of the product at non-franchised locations, thereby increasing traffic at the chain's franchised outlets. A similar set of potentially negative and positive impacts on franchisees can occur with internet sales, non-traditional franchised or company outlets, and any other alternative route used to reach the ultimate customer.