Ann: KFC Netherlands Acquisition Completed, page-7

The answer is in the nature of the franchise model. The master franchisor who owns the rights to the brand is the entity which sets the rules for opening and operating a franchise, including locations and pricing. Like most businesses the master franchisor wants to maximize their profit long term, this isn't entirely done by saturation of the market. In fact its a delicate balance of strategic positioning of franchises to compete for consumer dollars against competing brands whilst avoiding cannibalization of their own client base from other same branded franchises.

Remember that the master franchisors main ongoing income should be from clipping the ticket on the licensed product to the consumer rather than once off sale of a franchise license to a franchisee. As such the master franchisee doesn't benefit from cannibalization. In fact quite the opposite. Cannibalization reduces franchisee margins which makes it hard to increase the margin on the licensed products sold to franchisees. A healthy franchisee margin is best for both franchisee and franchisor.

Not all franchisors get this and some are willing to sell as many low margin franchises as they can in order to maximize their growth and reply upon initial sale of franchises to drive their own profit. At some point it becomes apparent that buying their franchises are a bad investment and their growth stalls. Its not hard to look around and find some examples of this type of franchisor. The big international franchisors are much smarter than this and have it down to an art.

Companies like CKF and RBD tend to operate within territories in which they try and dominate. This gives them clout and bang for buck on marketing conducted within given territories. RBD for example have KFC franchises in NZ, Southern California and NSW. CKF dominate in Australia, and have been seeking to grow territory in Netherlands and Germany. Its true to say they compete but its more competition to acquire good territory from the master franchisor than directly competing for consumer sales. The master franchisor makes sure of that.

When you ask "what stops these 2 and others from competing and driving margins down to a slither?", the simple answer is the master franchisor stops this from happening for the reasons described above. I hope this helps to answer your question.