What Does Area Development Mean in Franchising?

Those who are in the process of franchise ownership, and don’t want to stop at one location, have likely heard the term “area development.” But what does it mean? 

An area development agreement grants franchisees exclusive territory rights in exchange for signing a contract to open a certain number of units in a particular market within a certain timeframe, according to the International Franchise Association. Franchisees may also qualify for other incentives when signing an area development agreement.

Reasons to Consider an Area Development Agreement

One of the biggest reasons to consider an area development agreement is exclusivity. This means that you won’t compete with other franchisees because your franchisor will not allow them to operate in your area. 

There are also usually financial incentives that come along with signing the agreement. For example, the initial franchise fee for new units you acquire could be lower, depending on the terms of the agreement. Additionally, area developers can benefit from lower royalty fees after establishing a certain number of locations. It typically costs less to support area developers, meaning franchisors are able to pass these savings on to franchisees. 

At Pearle Vision, for example, signing area development agreements in targeted locations is one of the brand’s top initiatives. “Area development agreements have been an important vehicle of growth for Pearle Vision,” General Manager Alex Wilkes told IFA. “Because the agreements involve a minimum of three locations within a certain geographic area in exchange for reduced fees and exclusive territory rights, they are extremely attractive to franchise candidates interested in multi-unit ownership. And, of course, they provide a vehicle to grow our brand more quickly in strategic markets because they eliminate the need to find and qualify more licensed owners.” 

Common Challenges in Area Development

For franchisors, one of the biggest risks of entering into an area development agreement is choosing an unsuitable franchisee. Franchisors must have trust that the area developer will be able to manage all the units in an exclusive territory in a profitable manner. If a candidate doesn’t reach their targets or maintain standards, there is a lot at stake. 

On the franchisee side, one of the most common challenges is meeting deadlines. There is usually an agreement to open a required number of franchise units by a certain deadline. If the area developer doesn’t comply with the necessary conditions, there is the risk of losing development rights. There is also the expectation that the area developer will be able to ensure all business is viable, guarantee performance and finance multiple locations. 

However, the benefits of area development may outweigh the cons. Driven and passionate franchisees can overcome these challenges and reach their goals while turning a great profit.