This lesson is part of our free Franchise 101 course.

When you’re looking for a franchise to join, growth in general is a good sign. Local growth, on the other hand, could be bad. The sudden appearance of lots of outlets can show the business’s potential, or it can mean that the market is over-crowded and you should steer clear.

How can you tell whether your local growth is healthy?

Why Excess Growth Happens

Sometimes, a franchise expands rapidly in an area because there’s lots of demand, which is a good thing. It means that you have an enthusiastic pool of customers to dive into with your new business.

But sometimes franchisors become so eager to open new locations that they allow too many new ones, to the detriment of franchisees.

One reason for this is overconfidence. The franchisor doesn’t pay enough attention to the customer base and misjudges demand for their product.

The other reason is a strategic choice. Some brands have been infamous for opening more outlets than a city can sustain, so that the weight of their presence will drive local competitors out of business. For the franchisor, it doesn’t matter if some of their own local outlets suffer, as long as the competition does too and they emerge with a larger market share.

Why This Growth Hurts Franchisees

The problem for franchisees here is obvious: too many locations close together compete against each other, cannibalizing market share.

This means that individual franchisees will see less custom and may struggle to make ends meet. It also makes it harder for local franchisees to collaborate on issues like marketing the brand, as they are turned into competitors rather than collaborators.

Because of this, you should be careful if your community is in a high-growth area for the franchise. You need to make sure that there won’t be too many locations near you.

Symptoms of Excess Growth

To judge whether this is a problem, ask a couple of questions when you contact the franchise.

First, ask what kind of expansion plans they have for your local area. The bigger their plans, the more carefully you need to tread. Expansion can be good, reflecting a strong customer base and encouraging the franchise to invest in regional marketing. It’s excess expansion that’s dangerous.

The second question is there to check for that excess: does the franchisor know how many locations can thrive in each area? If they can provide an answer for your area, and data supporting it, then you can judge for yourself if there’s enough of a market. If not, then the lack of information is a warning sign. Either the franchisor hasn’t done their homework, or they know that the results won’t look good for you.

As always, balance what you learn against everything else you know about a franchise. But remember, while you need growth to make space for your business, too much growth could be its undoing.

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