What is encroachment, and how does that relate to an impact study?
Encroachment exists when a facility has established a market, then a second facility is built that results in a diluting of business in the first facility. Encroachment can happen, for example, when one pizza restaurant opens across the street from another. That’s just healthy competition, and happens every day. It is a different matter, however, if the two pizza restaurants are franchisees from the same franchisor. Franchisors desire growth, and franchisees desire profitable units. While these two interests often coincide, sometimes they do not. In general, franchise impact studies (a study performed to determine if encroachment will indeed be significant if a new facility is constructed) are performed by the franchisor. Not surprisingly, they often find that significant encroachment will not take place if they (the franchisor) allow another facility to be built close to the first franchisee’s unit. Because of this, many in the industry question the fairness of impact studies when the
