The franchise is primarily used by the businesses when they want to expand their market share and the overall reach but at a low cost. It refers to a joint arrangement amidst two parties, i.e. franchisor – the company who grants franchise, and franchisee – the person who purchases the right of marketing and selling the franchisor’s products and services.
A franchise establishment is a form of chain business. Chain store refers to a retail enterprise with multiple branches at different geographical locations, with single central management. The chain stores vary as per the kind of products sold or services rendered by them.
In this session, we will talk about the differences between franchise and chain.
Content: Chain Vs Franchise
|Basis for Comparison||Franchise||Chain|
|Meaning||The franchise is a form of business in which the franchisee buys the right to sell the products and services belonging to the franchisor, by way of legal agreement.||Chain implies a cluster of stores of the same brand, offering the same product or services and spread nationally or internationally.|
|Scope||Part of chain.||It can operate as a single parent company or a franchise.|
|Based on||Relationship between the brand owner and the affiliated dealer.||Multiple branches, irrespective of the location.|
|Ownership||External party i.e. franchisee owns and operates the store.||The parent company owns and operates all the units.|
|Risk||A certain degree of risk is passed on to the franchisee.||All the risk is borne by the parent company.|
|Profits/Losses||Divided between franchisor and franchisee.||Parent Organization assumes all the profits and losses.|
|Employees||The employees of the franchise are hired by the franchisee.||The employees of the chain are hired by the parent company.|
|Control||The franchisor does not have complete control over the business and its operations.||Full-fledged control over the business and its operations.|
|Expenses||Shared by both the parties.||Incurred by the owner.|
|Example||Walmart is one of the finest example representing the chain of supermarkets.||Domino's and McDonald's are examples of the franchise.|
Definition of Franchise
Franchising is a business arrangement, in which a multinational enterprise (franchisor) grants the right to undertake the business of marketing and selling the products or delivering services, to an individual or a group of individuals, using the franchisor’s business model.
So, in a franchise, the franchisee purchases several rights from the franchisor. It may include the right to use:
- Brand name
- Business procedures,
- Intellectual property, i.e. software, trademark, etc.
- Marketing materials
- System of doing business to the franchisee.
The franchisor and franchisee sign an agreement for a definite period, with which the franchisor acquires distribution of their products and service through affiliated dealers, i.e. franchisee.
A small amount is paid as consideration by the franchisee to the franchisor as an upfront franchise fee, along with annual fee as royalty, for the use of tradename, rights and continuous assistance from the franchisor in training and merchandising.
Further, the franchisee must adhere to the defined business protocol, guidelines and the corporate policies established by the franchisor. These are commonly stated in a franchise agreement.
McDonald’s, KFC, Burger King, Dunkin’, Tacobell, Baskin-Robbins, 7-Eleven, etc
Definition of Chain
Chain refers to the series of retail outlet, located at different geographical areas, owned by a single company, offering the same products and services. A chain store is one such retail outlet. It aims at dominating the concerned industry and so, they are spread across the nation or globe.
Chain stores may range from supermarkets to restaurants, to multiple shops. Chain stores are a bunch of retail stores of similar brand, owned by and operated under single central management. It represents a network of branches, located and operated at different parts of the country.
Further, the market they are in competition with, are primarily local markets.
Characteristics of Chain Store
Chain Stores are characterised by:
- Similar architecture
- Similar infrastructure and design
- Variety of products
- Price uniformity
- Central management and supply chain
A chain store is known by different names in different countries, i.e. In Europe and other western countries, it is called as multiple shops.
Wal-Mart, Costco, The Kroger Company, Target, Safeway and many more.
Key Differences Between Franchise and Chain
The difference between franchise and chain can be drawn clearly on the following grounds:
- A chain store refers to a retail sales establishment, owned and managed by a company and follow standardized business methods and practices. On the other hand, Franchise is a form of business, owned and run by an individual, however, it is branded and managed by the original multinational corporation.
- Franchise depends on the relationship between the brand owner and the affiliated dealer, who is the local operator. On the other hand, a chain store is represented by a network of various physical outlets, irrespective of their location.
- In a franchise, the outside party, i.e. the franchisee owns and operates the store. As against, all the units of the chain business are owned and operated by the parent company.
- The franchisor, passes a certain degree of risk to the franchisee, whereas all the risk is borne by the owner in case of a chain.
- In case of a franchise, the profit/loss is divided between franchisor and franchisee. In contrast, whatever profit made or loss sustained by the store belongs to the parent firm.
- Employees of a franchise are recruited by the franchisee, as per the assistance and guidelines of the franchisor. However, the recruitment and training of the employees of the chain store, are looked after by the parent company.
- The franchisor does not have full control over the business and its operations. Contrastingly, the parent firm has full-fledged control over the business and its operations of the chain stores.
- In case of a franchise, the expenses are shared by both franchisor and franchisee, whereas in a chain, the expenses are incurred by the parent firm only.
Most companies across the world are using franchise as their growth strategy, to increase their distribution, as well as the companies need not invest their own money in order to open the outlet at a certain location.