• Link to LinkedIn
Telefono: 02 36 52 29 61 | info@studio-pandolfini.it
Franchising in Italy
  • HOME
  • ABOUT US
  • THE ITALIAN ENVIRONMENT
  • SERVICES
  • RESOURCES
    • Subscribe to our newsletter
    • Clients
    • Video
  • BLOG
  • CASE STUDIES
  • CONTACT US
  • Menu Menu
area development contract used italian franchise practice

Area Development: a contract increasingly used in Italian franchise practice

11 September 2020/in Franchising, Franchising agreement, News

The Multi-Unit franchise model is increasingly widespread in the world, including Italy. According to the MUF model the franchisor has relationship with franchisees which in turn own several points of sale. Within the MUF model, a role of primary importance is played by the Area Development Agreement. The Area Developer is a franchisee to which the franchisor grants the right to open its own franchise units in a specific area, for a specific period of time and according to a specific development plan, on an exclusive basis. The Area development scheme offers many advantages to both parties. Crucial aspects for success of an Area Development agreement are a careful selection of the Area Developer and a realistic drafting of the Development schedule.

Index

1.Multi-unit franchising in Italy

As is known, the Multi-Unit franchise (MUF) model is increasingly widespread in the world; Italy is not an exception.

Unlike the traditional Single-Unit Franchisee (SUF) – according to which the franchisor has contractual relationships with individual franchisees – according to the MUF model the franchisor has relationship with franchisees which in turn own several points of sale (POS), thus essentially acting as intermediaries between the franchisor and the individual POS.

The reasons for the success of the MUF formula are many: in fact, compared to the traditional SUF model, it allows for a higher and more accelerated rate of development and penetration, greater financial and risk sharing, faster cash flow, etc.

It is estimated that, in the world, over 60% of POS belonging to a franchising network are managed by MUF; in Italy, around 40% of franchises are based on a MUF model.

MUF is particularly used in the initial phase of a franchise network development; but it is also used in its maturity phase, often in combination with the traditional SUF model and with the Master Franchising.

2.Area development: structure and characteristics

Within the MUF model, a role of primary importance is played by the Area Development Agreement (ADA), which is increasingly used in Italy as well.

The Area Developer is a franchisee to which the franchisor grants the right to open its own franchise units in a specific area, for a specific period of time and according to a specific development plan, on an exclusive basis.

Unlike what happens in the Master Franchising, the Area Developer does not have the right to sub-franchise the franchise package, but only to open franchise units (or POS) it owns, thus acting as an intermediary between the franchisor and individual points of sale.

The opening of the various franchise units by the Area Developer in the given territory takes place according to a specific development schedule, regulated in detail in the area development agreement. It includes the geographical dimension of the territory, the opening time schedule, the scope of exclusivity, the consequences of non-compliance with the program, etc.

The franchisor may contractually reserve the right to open its own units in the territory reserved for the Area Developer, in certain strategic areas (for example, airports, stations, sports fields, parks, etc.). In any case, the franchisor’s consent is generally required for the opening of the various franchise units, albeit on the basis of predetermined criteria.

Typically, the Area Developer pays the franchisor a development fee at the signature of the contract, which represents the consideration for the granting of exclusive development rights in the territory and is generally lower than the fee paid by a Master Franchisee. Additional franchise fees are also envisaged at the time of the opening of the individual franchise units, generally to a proportionately reduced extent compared to the entry fees and royalties paid under a traditional SUF model.

3.The advantages of the Area development

The advantages that the Area development scheme offers to both the franchisor and the Area Developer are many.

Firstly, if the POS are controlled by an Area Developer, the levels of uniformity and adherence to the network standards are generally higher than if the franchisees remain completely independent from each other.

Furthermore, the Area Developers, although not as easily replaceable as an area manager, generally give greater guarantees of reliability to the franchisor, as their remuneration is strictly linked to their performance, and therefore having a direct involvement in the network.

Finally, the franchisor can in this way optimize and reduce the costs of selection, training, marketing and supply chain, entrusting this task to the Area Developer who knows the Italian market and is generally more experienced and reliable than a single unit franchisee.

On the other hand, the Area Developer can count on exclusivity in the territory (which allows it not to suffer the competition of other franchisees, at least as long as the ADA is in force) and on fees and royalties lower than those that would correspond. for individual franchise units or as part of a Master Franchising.

4.How to optimally structure an Area development agreement

Two aspects are crucial to ensure success of an Area Development agreement and minimize risks.

Firstly, it is necessary to proceed with a careful selection of the Area Developer, which must provide adequate guarantees to the franchisor not only in terms of capacity and experience but also in terms of financial capacity, in accordance with the agreed program for opening franchise units.

For this reason, the Area Developer generally is an investor (often a company) of considerable size, organizationally and financially well structured, with experience and who has already been successful in the Italian market and/or in the reference sector (for example, the owner of a restaurant chain).

Secondly, it is necessary to prepare the Development schedule in a very precise and realistic way, avoiding in particular to grant the Area Developer too large a territory for a substantial period of time, with the risk of delaying the development of the network and/or jeopardizing the image of the brand.

In this regard, it will obviously be advisable to carefully study the Italian market and plan the development by providing a series of subsequent steps, in order to verify the progress of the Area Developer and provide appropriate remedies.

In fact, if, for various reasons, the opening program of the franchise units should not be respected by the Area Developer, before termination of the relationship it will be appropriate to provide for various intermediate steps in the contract, such as the reduction of the territory granted exclusively or the loss of exclusivity.

Conversely, if the Area Developer completes the development plan in advance of what is expected or in any case is in line with the contractual provision, option or pre-emption rights may be envisaged for the exclusive extension of the territory.

 

Avv. Valerio Pandolfini

 

For other in-depth articles on issues relating to franchising: visit our blog.


The information contained in this article is of a general nature and is not to be considered an exhaustive examination of the various issues, nor is it intended to express an opinion or provide legal advice. Specific legal advice must be provided with regard to individual cases.

Share this entry
  • Share on Facebook
  • Share on X
  • Share on WhatsApp
  • Share on Pinterest
  • Share on LinkedIn
  • Share by Mail
https://franchisinginitaly.com/wp-content/uploads/2020/09/area-development-contract-used-italian-franchise-practice.jpg 801 1200 Valerio Pandolfini https://franchisinginitaly.com/wp-content/uploads/2020/12/franchisinginitaly-pandolfini-logo.png Valerio Pandolfini2020-09-11 10:47:342024-07-17 12:02:22Area Development: a contract increasingly used in Italian franchise practice

About the author

Avv. Valerio Pandolfini
CONTACT US

Latest posts

  • Franchising in Italy confirms to be healthy also in 20233 July 2024 - 10:35
  • The food & beverage franchising sector is flying in Italy17 October 2023 - 15:00
  • Franchisors: why and how to adapt their Disclosure Document and Standard Franchise Agreement for Italy1 August 2023 - 10:26
  • Franchising confirms to be a growing business model in Italy also in 202230 May 2023 - 15:16
  • expanding franchise italy main features pros and cons why when
    Expanding a franchise in Italy through Master franchising: a brief guide17 February 2023 - 09:09

Search

Search Search
Subscribe to our Newsletter

For further information and to schedule a first telephone interview or a non-binding fact-finding meeting, you can fill in the form to be contacted:

By phone:

+39 02 36 52 29 61

By mail:

info@studio-pandolfini.it

Or, filling out

the following form:

I authorize the data controller to use my personal data for sending communications relating to this contact request in accordance with the provisions of the privacy policy Privacy Policy

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.

This contact form is deactivated because you refused to accept Google reCaptcha service which is necessary to validate any messages sent by the form.
Studio Legale Avvocato Pandolfini | VAT nr. 04848740967 | C.F. PNDVLR64M04D612F | Polizza Generali INA-Assitalia n. 764104068 | Polizza Elite Insurance n. 2015/R/130223
Mail: info@studio-pandolfini.it | Telefono: 02 36 52 29 61 | Privacy Policy | Cookie Policy | Manage Consent | Realizzazione sito web: Alkimedia Web Agency Milano, Realizzazione siti web Milano
Link to: Expanding a franchise in Italy through Master franchising: how to face (and avoid) possible problems Link to: Expanding a franchise in Italy through Master franchising: how to face (and avoid) possible problems Expanding a franchise in Italy through Master franchising: how to face (and...expanding franchise italy master franchising problems Link to: The Area Representative Agreement Link to: The Area Representative Agreement area representative agreement franchisingThe Area Representative Agreement
Scroll to top Scroll to top Scroll to top
We and selected third parties use cookies or similar technologies for technical purposes and, with your consent, for other purposes as specified in the Cookie Policy. You can freely give, deny, or withdraw your consent at any time by clicking "Manage Consent" at the bottom of the page. You can consent to the use of such technologies by using the “Accept All” button or deny and close the notice by using the "Reject All" button. Settings

Reject All Accept All
Manage Consent

Privacy Overview

This website uses cookies to improve your experience while you navigate through the website. Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may affect your browsing experience.
Necessary
Always Enabled
Necessary cookies are absolutely essential for the website to function properly. These cookies ensure basic functionalities and security features of the website, anonymously.
CookieDurationDescription
_GRECAPTCHA5 months 27 daysThis cookie is set by the Google recaptcha service to identify bots to protect the website against malicious spam attacks.
cookielawinfo-checkbox-advertisement1 yearSet by the GDPR Cookie Consent plugin, this cookie is used to record the user consent for the cookies in the "Advertisement" category .
cookielawinfo-checkbox-analytics11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Analytics".
cookielawinfo-checkbox-functional11 monthsThe cookie is set by GDPR cookie consent to record the user consent for the cookies in the category "Functional".
cookielawinfo-checkbox-necessary11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookies is used to store the user consent for the cookies in the category "Necessary".
cookielawinfo-checkbox-others11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Other.
cookielawinfo-checkbox-performance11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Performance".
CookieLawInfoConsent1 yearRecords the default button state of the corresponding category & the status of CCPA. It works only in coordination with the primary cookie.
viewed_cookie_policy11 monthsThe cookie is set by the GDPR Cookie Consent plugin and is used to store whether or not user has consented to the use of cookies. It does not store any personal data.
Analytics
Analytical cookies are used to understand how visitors interact with the website. These cookies help provide information on metrics the number of visitors, bounce rate, traffic source, etc.
CookieDurationDescription
_ga2 yearsThe _ga cookie, installed by Google Analytics, calculates visitor, session and campaign data and also keeps track of site usage for the site's analytics report. The cookie stores information anonymously and assigns a randomly generated number to recognize unique visitors.
_gat_UA-154928096-61 minuteA variation of the _gat cookie set by Google Analytics and Google Tag Manager to allow website owners to track visitor behaviour and measure site performance. The pattern element in the name contains the unique identity number of the account or website it relates to.
_gid1 dayInstalled by Google Analytics, _gid cookie stores information on how visitors use a website, while also creating an analytics report of the website's performance. Some of the data that are collected include the number of visitors, their source, and the pages they visit anonymously.
Save & Accept