1851

Brand recognition is vital to a concept&rsquo;s success and growth. Whether it&rsquo;s a retail or restaurant franchise, maintaining a consistent product and service is essential to fostering this recognition. Item 8 in the Franchise Disclosure Document (FDD) focuses on these restrictions on sources of products and services, and to fully understand this section, 1851 Franchise sat down with its Chief Development Strategist Sean Fitzgerald and Tom Spadea, a franchise attorney at Spadea Lignana, to get their expert insight.

Fast food giant McDonald&rsquo;s, for example, has crafted an empire by creating a brand image that&rsquo;s globally recognized. From the McDonald&rsquo;s Happy Meal to the classic Big Mac, people can point out a McDonald&rsquo;s product and packaging because several thousands of locations work together to serve up the same consumer experience.

&ldquo;Everything is standardized so one location isn&rsquo;t different than another. If a consumer goes to a McDonald&rsquo;s where the owner is using a different point of sale system that&rsquo;s slower, the entire brand suffers because that negative experience carries over to other locations,&rdquo; says Fitzgerald.

That&rsquo;s why Item 8 in an FDD is incredibly important. It outlines the service and sourcing standards that are currently in place across a brand&rsquo;s system. While these can be slightly negotiated on a case-to-case basis, Fitzgerald says that franchisees should be weary of franchisors who don&rsquo;t communicate the importance of these guidelines and are too loose, allowing for significant changes at locations.

When reading through Item 8, Spadea says that prospective franchisees should take a closer look at the ties between the franchisor and supplier of goods.

&ldquo;There are some franchise systems that make a lot in royalties based on the products and services that franchisees buy. People need to be aware and understand the percentage that the franchisor is taking in and whether that pricing is fair,&rdquo; says Spadea.

While changes in Item 8 are rarely accommodated, Item 12 in the FDD, which deals with territory agreements, is a commonly negotiated area. But it&rsquo;s also one where potential franchisees often get the language and specifics confused. That&rsquo;s why it&rsquo;s important to understand what the term &ldquo;protected territory&rdquo; means and what exactly it encompasses.

&ldquo;An exclusive territory implies that the franchisor can&rsquo;t do anything, but a protected territory means that they won&rsquo;t put another brick and mortar location there even though they may conduct business in that area through other channels,&rdquo; says Fitzgerald. &ldquo;These other channels could be online, mobile locations, airports, shopping malls &ndash; you really have to read the fine print in this section.&rdquo;

Subway, with almost 45,000 locations, is a unique exception to most in that franchisees have no radius territory of any kind in their agreements, meaning that there could be a Subway on every block if there&rsquo;s enough demand. When negotiation is on the table, however, determining territory radius is typically based off of population or the number of homes in a specific market. Fitzgerald says the most important aspect to keep in mind when reading a brand&rsquo;s Item 12 is to make sure the territory is large enough to have a viable business and to have a thorough understanding of what the franchisor defines as protected territory.

Spadea says another common misconception is the difference between &ldquo;search area&rdquo; and &ldquo;territory.&rdquo;

&ldquo;You may have the rights to open three stores in a county. While you can search anywhere throughout the county, you don&rsquo;t get your agreed-on territory until you sign a lease for the location. So, franchisors will often have several people looking in overlapping search areas until a lease is signed, blocking off that radius around the protected territory,&rdquo; notes Spadea.

Negotiating the largest territory possible may seem beneficial to block out competition, but it has the potential to hurt the brand&rsquo;s growth potential in a market if the franchisee doesn&rsquo;t develop within a territory that is large enough to fit multiple locations.

&ldquo;You&rsquo;re shutting out opportunities to grow brand awareness, visibility, impressions in that area if you&rsquo;re not maximizing market potential. When you have multiple locations in a marketplace, all of them typically see an increase in sales,&rdquo; says Fitzgerald.

Before signing the franchise agreement, it&rsquo;s important to consult with a franchise lawyer who can help navigate the agreement and FDD to make sure all of the terms are laid out and properly negotiated. Items 8 and 12 directly impact the profitability and long-term success of your business, so take time to fully understand both along with the concept you&rsquo;re investing in.&nbsp;

Navigating, Understanding & Negotiating Supplier, Territory and Customer Restrictions: FDD Items 8 & 12

1851 Franchise

Items 8 and 12 in a brand's FDD have the potential to directly impact the profitability and long-term success of a franchise.

navigating-understanding-negotiating-supplier-territory-and-customer-restrictions-fdd-items-8-12

Beansquad

Navigating Sales Tax Compliance for Franchises: Insights from BeanSquad

navigating-sales-tax-compliance-for-franchises-insights-from-beansquad

DoodyCalls

Scoop Success: 5 Smart Reasons Why DoodyCalls Is the Ideal Franchise Opportunity

scoop-success-5-smart-reasons-why-doodycalls-is-the-ideal-franchise-opportunity

Mister Sparky Electric

How Mister Sparky’s Culture of Support Helps Franchisees Power Up Their Futures

how-mister-sparkys-culture-of-support-helps-franchisees-power-up-their-futures

Senior Care Authority

Senior Care Authority Strengthens Executive Team To Drive Growth and Strengthen Franchisee Support

senior-care-authority-strengthens-executive-team-to-drive-growth-and-strengthen-franchisee-support

America's Swimming Pool

America's Swimming Pool Co. - ASP - Franchisee Profile - Joel Davis - Frisco, Texas - 1851 Franchise

Father‑Son Duo Making Waves: Joel Davis’ Journey with America’s Swimming Pool Company in Frisco

americas-swimming-pool-asp-franchise-joel-davis-frisco-texas

Buying a Franchise Masterclass

 Franchise Opportunities

Get Support Buying a Franchise

How to Buy a Franchise White Paper

How to Buy a Franchise

How to Sell Franchises

How to Grow a Franchise

Find a Franchise Supplier

1851 Franchise Opportunities

Franchisor News

Franchisor Power Rankings

FranCamp Mastermind Summit

Franchise Development Website Builder

Franchise Resources

What ALEC-Laffer's Report Means for Franchising

Website Awards

Power Rankings

About 1851

Advertise on 1851

Contact 1851 Editorial

Terms of Use

1851 Login

GROWTH CLUB LOGIN

facebook

instagram

twitter

linkedin

youtube

McDonald’s Launches New Extra Value Meals as Consumer Demand for Value Continues to Climb

mcdonalds-launches-extra-value-meals

Power Eats: Smoothie King Rolls Out Food Nationwide To Fuel Franchise Growth

smoothie-king-food-menu-power-eats

Keurig Dr Pepper Splits in $18 Billion JDE Peet’s Deal, Creating Global Coffee Giant

keurig-dr-pepper-splits-in-18-billion-jde-peets-deal-creating-global-coffee-giant

McDonald’s Rolls Out Major Value Push To Win Back Customers Amid Inflation

mcdonalds-rolls-out-major-value-push-to-win-back-customers-amid-inflation

Photo of Paris Baguette pastries and beverages 

Paris Baguette Celebrates 250th Café Opening in Frederick, Maryland, Accelerating Expansion and Reviving the Neighborhood Bakery Café

paris-baguette-250th-north-america-cafe

Hooters Leans Into Franchising With Closure of 30 Company-Owned Stores - Agg - 1851 Franchise

Hooters Leans Into Franchising With Closure of 30 Company-Owned Stores

hooters-franchise-model-company-owned-closures

Wendy's CEO Kirk Tanner Steps Down - Breaking News - 1851 Franchise

Wendy’s CEO Kirk Tanner Steps Down Amid Challenges, Leaving Franchisees Facing Uncertainty

wendys-ceo-transition-kirk-tanner-franchisee-uncertainty

Planet Fitness Franchisees Donate $100K to Support Texas Flood Relief - 1851 Franchise

Planet Fitness Franchisees Donate $100K To Support Texas Flood Relief

planet-fitness-texas-flood-relief

graphic image of a franchisee spotligh aman kaur of voodoo brewing

How This Trio of Friends Is Brewing Up Community With Voodoo Brewing Co. in Prosper, Texas

voodoo-brewing-franchisee-aman-kaur-prosper-texas

Franchise Deep Dive graphic with i9 Sports logo

i9 Sports Franchise Costs, Fees, Profit and Data for 2025

i9-sports-franchise-cost-fees-profit

Hely and Hiral Patel Bring Their Longtime Dream to Life With The Brass Tap

brass-tap-franchise-pasadena-maryland-hely-hiral-patel

Franchisee spotlight graphic with photo of Ricki Oberoi and Layne's Chicken Fingers logo

Multi-Unit Wendy’s Operator Signs 12-Unit Deal With Layne’s Chicken Fingers

ricki-oberoi-laynes-chicken-fingers-growth

How Vishal Juneja Turned a Family Tradition Into a Paris Baguette Franchise

How Vishal Juneja Turned a Family Tradition Into a Paris Baguette Franchise Built on Heart and Community

paris-baguette-franchise-rockaway-new-jersey-vishal-junjea

Navigating, Understanding & Negotiating Supplier, Territory and Customer Restrictions: FDD Items 8 & 12

MORE STORIES LIKE THIS