If you have been researching franchises versus chains, you have likely come across some conflicting information. Have you ever asked yourself what the differences are between a franchise and a chain? Here we will answer your questions about these successful business models and how you can use them to grow your small business.
Let’s say that you own a bakery and would like to sell your baked goods wholesale. Maybe you’re planning to franchise your business, which is the same as selling your product or service wholesale. Wholesale represents how products are sold to non-retail customers (otherwise known as distributors). The other way is retailing, which means selling directly to end consumers. If you plan on selling your bakery wholesale, it will be considered a franchise. But if you open another store of the same business at another site, it will be called a chain. A single bakery with two areas would be classified as both a franchisee and a chain.
What is a Franchise & Chain?
A franchise is a company or organization that develops and licenses its trademark to independent business owners for a fee. The original company, or franchisor, provides support and guidance to franchisees with training programs and other services. A chain store is any retail outlet that has multiple locations that are either under the same management or owned by multiple owners. Chain stores usually sell the same items, brand products, clothes, and food as other locations with the intention to provide a consistent shopping experience to consumers no matter where they are. For example, while most Taco Bells are owned by franchisees who pay Taco Bell royalties on their sales, all Chipotle Mexican Grills are owned by Chipotle itself.
McDonald’s is an example of both a franchise and a chain. Think of McDonald’s as an example. The company has thousands of locations around the world, but they’re not all franchises. Many are company-owned and operated, while others are franchised to business owners who pay royalties and fees in exchange for using the brand’s name and reputation to sell food.
A franchise and a chain are similar, but they’re also very different.
Difference Between Franchise & Chain
Businesses with multiple locations can be called franchises, chains, or both. The difference between chains and franchises lies mostly in how the businesses are structured.
|1||Franchising is a means for a business to expand and allow individuals to own and operate their own business.||A chain is any business with two or more locations that are owned by the same person/company.|
|2||A franchise is a business that is owned and operated by individuals but is branded and marketed using the same business name as other franchisees in the company’s system.||A chain is a business with multiple locations that are wholly owned by the parent company.|
|3||A franchisee pays an initial fee to set up a location-based on an established business model, then purchases additional goods or services regularly from the franchiser, which receives an agreed-upon percentage of gross revenues in some cases.||A Chain store does not have to pay any royalty fees.|
|4||Anyone who meets the requirements can become the owner of the franchise store.||A chain store uses common branding for all its outlets but has no outside owners.|
|5||Franchisees must follow franchise agreements.||Chains are businesses that operate under the same name and ownership throughout multiple locations nationwide or internationally.|
|6||Franchises are limited to the brand’s products and cannot innovate.||Chain stores can change their products as per requirement.|
|7||Franchise businesses are independently owned and operated by franchisees.||Chain restaurants are owned by the company.|
|8||The franchisor can impose guidelines on everything from employee practices and dress codes to menu items and restaurant decor.||Chains do not have to follow guidelines, but they are regulated by the parent corporation.|
Similarities between Franchise & Chain
Chains and franchises have some things in common-including their benefits to both customers and the businesses themselves!
- Franchising and chains both rely on brand recognition.
- Both chains and franchises spread business ideas quickly.
- Both chains and franchises are regulated by law.
Franchise vs Chain: Pros and Cons
There are a few critical advantages and disadvantages of franchises and chains.
- First, franchises tend to be smaller businesses than chains. This is because chains can spread their costs over more locations, whereas franchises have higher overhead costs since they are independently owned and operated.
- Additionally, franchises typically offer more personalized service than chains. Since franchisees may need to go through training and rely heavily on their franchisors, they tend to provide more personalized customer service to build up their reputation.
- Chain businesses don’t have the same pressure because they are all owned by one company.
- Additionally, since each franchise is independently operated, there may be multiple people at each location who are responsible for directing food service operations.
- In contrast, chain restaurants typically hire shift managers or assistant managers who act as liaisons between the company and the store employees.
- Finally, franchisees typically focus on developing a single product or service (e.g., fast-food restaurants), while chains generally play in multiple markets (e.g., pizza delivery and small cookie stores).
As you can see, both franchise and chain businesses have their unique advantages and disadvantages. But at the end of the day, it depends on what you’re looking for as an entrepreneur. If you’re looking for a business model that’s proven to work time after time, then starting your franchise is the best option. However, certain benefits are associated with owning a chain (mentioned earlier), but they tend to come at an even greater cost.
So if you’re looking for lower overhead costs, less risk, and faster growth, then becoming a franchise owner may be just what you need. There are endless franchise opportunities all around us. All it takes is some research on the Internet, finding one that fits your situation, and applying for it online or in person.
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