The Differences between Chain Stores and Franchises
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A franchise is a prearranged business that provides the purchaser with the right to sell or buy a service or product. Such business form is usually known as the franchisor, and the purchaser is called the franchisee. California Pizza Kitchen, McDonald’s, and Boston Market are examples of well-known franchises. Wal-Mart is the largest retail chain of the world.
The chain is created when one parent company decides to open additional stores and has possession of all its business locations, while franchised business concept is based on the operating of individual stores by independent owners. Thus, in the case of the chain store, one company runs the entire business, but there is no central ownership of the franchises; many operators can handle all the management for just one location.
When a company chooses an expansion, it can enlarge on its own by buying the equipment and necessary country estate or sell franchises. When the company adapts to franchise, it can transfer its brand and established business system to an investor. With chain stores, the parent company controls quality in each individual setting. In the case of the franchises, the control is performed by separate business owners in each independent location.
The amount of risk is one of the main differences between chain stores and franchising. When the company decides to expand with the chain store, it bears all the risks solely, because it funds the whole growth plan. On the other hand, when the company franchises, the parent company has less risk, as it transfers some parts of the risk to other investors. Nevertheless, it shifts the risk to the franchise.
The owners should consider the involved potential during expansion of their business. With chain stores, the full risk of expansion is expected, but, at the same time, the owners gain higher potential for profit. As opposed to a franchise business model, owners receive only a certain percentage of the profit that lets down the whole potential of earnings for the owners. However, the franchise stands as the optional form for building chain stores and distribution of goods and services.