Difference Between Franchise and Chain - Key Differences

A chain store refers to a retail sales establishment, owned and managed by a company and follow standardized business methods and practices. Thefranchiseisprimarilyusedbythebusinesseswhentheywanttoexpandtheirmarketshareandtheoverallreachbutatalowcost.Itreferstoajointarrangementamidsttwoparties,i.e.franchisor–thecompanywhograntsfranchise,andfranchisee–thepersonwhopurchasestherightofmarketingandsellingthefranchisor’sproductsandservices. Afranchiseestablishmentisaformofchainbusiness.Chainstorereferstoaretailenterprisewithmultiplebranchesatdifferentgeographicallocations,withsinglecentralmanagement.Thechainstoresvaryasperthekindofproductssoldorservicesrenderedbythem. Inthissession,wewilltalkaboutthedifferencesbetweenfranchiseandchain. Content:ChainVsFranchise ComparisonChart Definition KeyDifferences Conclusion ComparisonChart BasisforComparisonFranchiseChain MeaningThefranchiseisaformofbusinessinwhichthefranchiseebuystherighttoselltheproductsandservicesbelongingtothefranchisor,bywayoflegalagreement.Chainimpliesaclusterofstoresofthesamebrand,offeringthesameproductorservicesandspreadnationallyorinternationally. ScopePartofchain.Itcanoperateasasingleparentcompanyorafranchise. BasedonRelationshipbetweenthebrandownerandtheaffiliateddealer.Multiplebranches,irrespectiveofthelocation. OwnershipExternalpartyi.e.franchiseeownsandoperatesthestore.Theparentcompanyownsandoperatesalltheunits. RiskAcertaindegreeofriskispassedontothefranchisee.Alltheriskisbornebytheparentcompany. Profits/LossesDividedbetweenfranchisorandfranchisee.ParentOrganizationassumesalltheprofitsandlosses. EmployeesTheemployeesofthefranchisearehiredbythefranchisee.Theemployeesofthechainarehiredbytheparentcompany. ControlThefranchisordoesnothavecompletecontroloverthebusinessanditsoperations.Full-fledgedcontroloverthebusinessanditsoperations. ExpensesSharedbyboththeparties.Incurredbytheowner. ExampleWalmartisoneofthefinestexamplerepresentingthechainofsupermarkets.Domino'sandMcDonald'sareexamplesofthefranchise. DefinitionofFranchise Franchisingisabusinessarrangement,inwhichamultinationalenterprise(franchisor)grantstherighttoundertakethebusinessofmarketingandsellingtheproductsordeliveringservices,toanindividualoragroupofindividuals,usingthefranchisor’sbusinessmodel. So,inafranchise,thefranchiseepurchasesseveralrightsfromthefranchisor.Itmayincludetherighttouse: Brandname Knowhow Businessprocedures, Intellectualproperty,i.e.software,trademark,etc. Marketingmaterials Systemofdoingbusinesstothefranchisee. Thefranchisorandfranchiseesignanagreementforadefiniteperiod,withwhichthefranchisoracquiresdistributionoftheirproductsandservicethroughaffiliateddealers,i.e.franchisee. Asmallamountispaidasconsiderationbythefranchiseetothefranchisorasanupfrontfranchisefee,alongwithannualfeeasroyalty,fortheuseoftradename,rightsandcontinuousassistancefromthefranchisorintrainingandmerchandising. Further,thefranchiseemustadheretothedefinedbusinessprotocol,guidelinesandthecorporatepoliciesestablishedbythefranchisor.Thesearecommonlystatedinafranchiseagreement. Example McDonald’s,KFC,BurgerKing,Dunkin’,Tacobell,Baskin-Robbins,7-Eleven,etc DefinitionofChain Chainreferstotheseriesofretailoutlet,locatedatdifferentgeographicalareas,ownedbyasinglecompany,offeringthesameproductsandservices.Achainstoreisonesuchretailoutlet.Itaimsatdominatingtheconcernedindustryandso,theyarespreadacrossthenationorglobe. Chainstoresmayrangefromsupermarketstorestaurants,tomultipleshops.Chainstoresareabunchofretailstoresofsimilarbrand,ownedbyandoperatedundersinglecentralmanagement.Itrepresentsanetworkofbranches,locatedandoperatedatdifferentpartsofthecountry. Further,themarkettheyareincompetitionwith,areprimarilylocalmarkets. CharacteristicsofChainStore ChainStoresarecharacterisedby: Similararchitecture Similarinfrastructureanddesign Varietyofproducts Priceuniformity Centralmanagementandsupplychain Achainstoreisknownbydifferentnamesindifferentcountries,i.e.InEuropeandotherwesterncountries,itiscalledasmultipleshops. Example Wal-Mart,Costco,TheKrogerCompany,Target, Safewayandmanymore. KeyDifferencesBetweenFranchiseandChain Thedifferencebetweenfranchiseandchaincanbedrawnclearlyonthefollowinggrounds: Achainstorereferstoaretailsalesestablishment,ownedandmanagedbyacompanyandfollowstandardizedbusinessmethodsandpractices.Ontheotherhand,Franchiseisaformofbusiness,ownedandrunbyanindividual,however,itisbrandedandmanagedbytheoriginalmultinationalcorporation. Franchisedependsontherelationshipbetweenthebrandownerandtheaffiliateddealer,whoisthelocaloperator.Ontheotherhand,achainstoreisrepresentedbyanetworkofvariousphysicaloutlets,irrespectiveoftheirlocation. Inafranchise,theoutsideparty,i.e.thefranchiseeownsandoperatesthestore.Asagainst,alltheunitsofthechainbusinessareownedandoperatedbytheparentcompany. Thefranchisor,passesacertaindegreeofrisktothefranchisee,whereasalltheriskisbornebytheownerincaseofachain. Incaseofafranchise,theprofit/lossisdividedbetweenfranchisorandfranchisee.Incontrast,whateverprofitmadeorlosssustainedbythestorebelongstotheparentfirm. Employeesofafranchisearerecruitedbythefranchisee,aspertheassistanceandguidelinesofthefranchisor.However,therecruitmentandtrainingoftheemployeesofthechainstore,arelookedafterbytheparentcompany. Thefranchisordoesnothavefullcontroloverthebusinessanditsoperations.Contrastingly,theparentfirmhasfull-fledgedcontroloverthebusinessanditsoperationsofthechainstores. Incaseofafranchise,theexpensesaresharedbybothfranchisorandfranchisee,whereasinachain,theexpensesareincurredbytheparentfirmonly. Conclusion Mostcompaniesacrosstheworldareusingfranchiseastheirgrowthstrategy,toincreasetheirdistribution,aswellasthecompaniesneednotinvesttheirownmoneyinordertoopentheoutletatacertainlocation. 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