What Is The Difference Between A Chain And A Franchise?

As already mentioned, franchises are typically owned by local individuals. Chains are not. Chains are owned by corporations and do not sell the ... JoinaFranchiseAsafirst-timefranchiseeWithpriororcurrent franchiseeexperienceCLOSEDRAWERScaleYourFranchiseOutsourcingfranchisesalestoOakscaleViaaventurefundingdealwithOakscaleCLOSEDRAWERConverttoaFranchiseFromasingleormulti-unitbusinessCLOSEDRAWERContactAboutOakscaleFranchiseNewsOurFranchisesContactUsFranchiseBasics:WhatIsTheDifferenceBetweenAChainAndAFranchise?April30,2020,byJosephSextonArticleTopicsFirstTimeFranchiseePriorFranchiseeExperienceFranchiseConversionEquityInvestmentDealsUnitDevelopmentDealsFranchiseBasicsWhat’sTheDifferenceBetweenAChainAndAFranchise? SeveralyearsagoItookanUberfromSantaMonicatoOrangeCounty.Forthoseofyouthatdon’tknowLosAngeles,thatcantakeanywherefrom45minutesto2hoursdependingontraffic.Needlesstosay,conversation,unwantedorotherwise,tendstopopuponalongtriplikethat. Thisparticularconversationwasfrustrating.MyUberdriverarguedwithmeformorethanhalfthedrive,contendingthatachainstoreandafranchiseareexactlythesamething.ThetopicaroseafterpassingaStarbucksandmydrivermentioningthathemuchpreferssupportinglocalbusinessesoverfranchises. After13yearsinfranchising,Ihadafewthoughtsonhiscomment:StarbucksisnotafranchiseWewroteanentirepostfocusedjustonthispoint,soIwon’tbelaborithere.TheshortversionisthatonlyStarbucksshopsthatyoufindinhotels,airports,grocerystores,etcarefranchises,andallofthestand-aloneorinlineretaillocationsareownedbyStarbucks,thecorporation.Starbucksblursthelinebetweenafranchiseandachain,butthelargemajorityofitslocationsarenotfranchises,soit’sanimproperclassification. Franchisesare(mostly)ownedbylocalindividualsWhenyougotoyourlocalcoffeeshop,youaresupportingasmallbusinessowner.Similarly,whenyougotoacoffeeshopfranchise(again,notStarbucks)likeDunkin’DonutsorCoffeeBean,youarealsosupportingasmallbusinessowner.What’sthedifference?Thelocalcoffeeshopownerstartedeverythingfromscratch.Thefranchiseownerboughttherightstouseabrandnameandproprietarysystemsandhastopayaroyaltytothefranchisebrand. However,bothinvestedasignificantamountofcapitalinbuildingtheirlocationsandbothhaveoperatingcostslikerent,labor,andsupplies.Bothownersaretryingtomakeenoughincometoputaroofovertheirhead,feedtheirfamilies,andbuildavaluablebusiness. Again,thedifferenceisthatoneofthempaysfeestoabiggerentity,andtheotherdoesnot.Buttheirinvestment,goals,struggles,andcontributionstothecommunity(i.e.hiringlocalworkers)remainthesame. Thereareexceptionsasprivateequityhasbecomemoreinvolvedinfranchising,acquiringfranchiseedevelopmentrightsforlargeareasandthenhiringpeopletomanagetheoperation,buttheirfootprintisstillquitesmall,andthemajorityoffranchiseownersarestilllocalindividuals.FranchisesarenotthesameaschainsAsalreadymentioned,franchisesaretypicallyownedbylocalindividuals.Chainsarenot. Chainsareownedbycorporationsanddonotselltherightstousetheirbrandnameandproprietarysystems.ExamplesofchainsincludeIn-N-OutBurger,Chipotle,andBestBuy.Whenachainstorecloses,thecorporationlosesout,butthere’snotalocalownerthathasitsindividualpersonalfinancesaffected. FranchisesandchainshavedifferentstrategiesWhenabrandchoosestoofferfranchises,it’susuallyduetotwofactors:capitalavailableandspeedtomarket. Ifitcosts$300,000toopenalocationandyouhave$600,000inthebank,youcanopen2morelocations.Toopenadditionallocationsbeyondthat,youwouldneedtowaituntilyou’verecoupedanadditional$300,000fromthose2locations,raisemoneyfrominvestors,orborrowmoneyfromalender.Chainstoresoftentakeonearlyinvestmentorborrow.However,ifyoudon’twanttogiveupequitytoinvestorsorcarrydebt,yourisklosingoutonmarketsharebynotmovingquicklyenoughinexpandingyourbusiness. Enterthefranchisestrategy.Franchisingenablesbrandstogrowmuchfasterusingotherpeople’smoney,butwithoutgivingupequity.Inthescenarioabove,youinvestyour$600kinto2locations.Butwhatifyouinvested$200,000intosettingupyourbrandasafranchise,andthensold5franchisestoindividualslookingtoopentheirownbusiness?Nowyouget5locationsopeninsteadof2,andyouretain$400,000inthebank. Now,obviouslythescenariosaboveexistinavacuumandnotinrealityintermsofdollarsandcents,butIthinkitpaintsthepictureforwhysomehouseholdbrandnamesarefranchisesandothersarechains. ***Ifyouwanttosupportlocalbusinessownersratherthanchains,Ifullysupportit.Justrememberthatfranchisesarenotchains,andareoperatedbyyourneighbors.SupportingyourlocalfranchiselocationsISsupportinglocalbusinessowners. <>withprior/currentfranchiseeexperience>>InformationAboutScalingyourfranchiseviaunitdevelopmentdealwithOakscale>>viaventurefundingdealwithOakscale>>InformationAboutConvertingtoafranchiseconvertingyourbusinessintoafranchise>>ContactusI'mmostlyinterestedin...Selectone...Joiningafranchiseasafirst-timefranchiseeJoiningafranchisewithprior/currentfranchiseeexperienceScalingmyfranchiseviaunitdevelopmentdealwithOakscaleScalingmyfranchiseviaequityinvestmentdealwithOakscaleConvertingtoafranchisefromasingleunit/locationbusinessConvertingtoafranchisefromamulti-unitorchainbusinessSomethingelseIprefertobetexted,ratherthancalledThankyou!Yoursubmissionhasbeenreceived!Wewillgetbacktoyouin1-2businessdays.Oops!Somethingwentwro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