The key difference between chain and franchise is that chain has a single owner operating all the business locations, whereas franchise has separate owners, operating in individual locations.
Chain and franchise are two contrasting business models, which are equally important in the modern world. A chain is a group of stores owned by one company, but spread nationwide or worldwide. In contrast, a franchise is a business model where one party grants another party the right to use its trademark or trade-name and certain business systems and processes.
CONTENTS
1. Overview and Key Difference
2. What is a Chain
3. What is a Franchise
4. Side by Side Comparison – Chain vs Franchise in Tabular Form
5. Summary
What is a Chain?
A chain is a business model where one parent company operates all individual locations. With this business concept, one organization handles all of the management for their entire business.
In general abbreviation, the term “chain” refers to any business with a handful of locations. For example, a person would not refer to a business as a chain if it has one, two or three business locations, but by the fourth store, people would definitely refer to the entire business as “chain”. Moreover, we sometimes call chain stores as retail chains.
Figure 01: Walmart is an Example of a Chain
We can notice some common features in chain stores. All locations in a chain store share a brand. Moreover, they have a central management, which is a management that manages all the stores. In addition, they use identical business concepts and practices. Furthermore, they share the same supply chains and training programmes for staff.
Moreover, the chain stores can exist in one state or across the globe. The existence of chain stores depends on the brand, nature of the products they sell and the popularity of the store. There are a variety of chain stores including restaurants, supermarkets, speciality shops, etc. Walmart, Target, Macy’s, The Home Depot, The Body shop, Waffle House, and Costco are some examples of world-renowned chain stores.
What is a Franchise?
A franchise is a business model where one brand is operated by separate entrepreneurs in different locations. In other words, franchise refers to a business model in which individuals pay to license the brand or intellectual property of another business.
Franchise businesses involve a franchiser and a franchisee. The franchisor is the one who establishes the trade name or trademark of the brand. The other party, franchisee, is the one who pays the initial fee to conduct the business under the franchisor’s brand name and the system. Mainly, the franchisee is the operator of the business in his or her specific location by paying the fees and royalties to the franchisor over an agreed time period.
Moreover, the legal agreement between the two parties is the ‘’franchise”; however, often, people use this term to refer to the actual business operated by the franchisee.
Figure 02: McDonald’s is an Example of a Franchise
Brand value is the most important factor in Franchise business. In certain instances, franchisors provide all the necessary support for the business. As examples, the franchisor provides systems, tools, brand standards, and training for staff to uplift the customer satisfaction and ensure the goodwill of the business.
McDonald’s, SUBWAY, Mariott International, KFC, and Baskin Robbins are some of the popular franchise brands in the world.
What is the Difference Between Chain and Franchise?
Ownership is the key difference in chain and franchise. Franchise stores always have different owners, whereas chain stores have a single owner for all business locations. In terms of risk sharing, a chain accepts all risks on its own, while in franchise, the franchiser and franchisee share the risk. Profit sharing is another significant difference in chain and franchise. In a chain business model, the owner gains all the profit, while in a franchise, the franchisor and franchisee share the profit among them under the agreed terms and conditions.
Moreover, a chain has the full control of its business, but a franchise does not have the full control of the business. Furthermore, this is the same in business expenses as well; a chain bears all the business expenses while, in a franchise, all the expenses are shared between franchisor and franchisee. So, this is also a notable difference between chain and franchise.
Besides, in terms of business policies, a chain has its own procedures and rules for all business locations whereas, in a franchise, all policies are normally set up by the franchisor and agreed upon by the business. However, this may vary from store to store.
Summary- Chain Vs Franchise
Chain and Franchise are two business models. In summarizing the key difference between chain and franchise, the chain is operated by the central management system, whereas the franchise is operated by different entrepreneurs. More importantly, the franchise stores mainly target the consumers who are more brand oriented, while chain stores, mainly, aim the customer convenience.
Reference:
1. “Franchising.” Business Dictionary, Available here.
Image Courtesy:
1. “Walmart” By Mike Mozart (CC BY 2.0) via Flickr
2. “McDonald’s logo” By McDonalds inc – Created by converting the Encapsulated PostScript file available at Brands of the World (Public Domain) via Commons Wikimedia