Under the Carls Franchise Agreement, is a franchisee granted an exclusive territory?
Carls Franchise · 2024 FDDAnswer from 2024 FDD Document
You will not receive any exclusive territory under the Franchise Agreement. You may face competition from other franchisees, from outlets that we own, or from other channels of distribution or competitive brands that we control. You do not receive the right, under the Franchise Agreement, to develop or operate more than one Franchised Restaurant. Our prior written consent is required before you relocate the Franchised Restaurant. If your right to possession of the Franchise Restaurant premises is lost through no act or failure to act on your part, you may relocate the Franchised Restaurant if: (1) we accept the new location; (2) you construct and equip a Franchised Restaurant at the new location in accordance with the then-current System standards and specifications; (3) a Franchised Restaurant at the new location is open to the public for business within 6 months after the loss of possession of the original franchised location; and (4) you reimburse us for all reasonable expenses actually incurred by us in connection with the acceptance of the new location.
Source: Item 12 — TERRITORY (FDD pages 54–56)
What This Means (2024 FDD)
According to Carls's 2024 Franchise Disclosure Document, franchisees do not receive an exclusive territory under the Franchise Agreement. This means that a franchisee may face competition from other franchisees, outlets that Carls owns, other channels of distribution, or competitive brands that Carls controls. The franchisee also does not receive the right to develop or operate more than one franchised restaurant under the Franchise Agreement.
Carls retains significant rights, including the ability to use any other channel of distribution, such as the Internet, to make sales within the franchisee's area using the Carls Jr. marks or different proprietary marks. Carls also does not impose geographic restrictions on a franchisee's ability to solicit customers, although Item 13 addresses Internet restrictions. However, franchisees must participate in any online ordering and delivery programs that Carls designates and comply with the terms and conditions of those programs, including any geographic or other delivery restrictions.
While a franchisee does not receive an exclusive territory under the Franchise Agreement, the Development Agreement offers a Development Territory, which is mutually agreed upon by CJR and the franchisee. This territory considers the area's density and the number of franchised restaurants the franchisee agrees to develop. However, even with a Development Agreement, Carls reserves the right to operate and license others to operate Carls Jr. Restaurants in non-traditional locations such as travel plazas, gas stations, airports, train stations, and other similar venues within the Development Territory. Carls also reserves the right to award national or regional licenses to third parties to sell products under the Proprietary Marks in foodservice facilities primarily identified by the third party's trademark.
These conditions mean that while a Carls franchisee might have some level of geographic expectation, Carls maintains considerable freedom to operate and license others, even within a Development Territory. Prospective franchisees should carefully consider the implications of these non-exclusive arrangements and the potential for competition from various sources, including Carls itself and its affiliates.