The terms ‘chain’ and ‘franchise’ are sometimes used interchangeably when discussing big brand names, but they don’t actually mean the same thing.
While both deal with successful, established brands with resources to expand, one of the main differences between them is ownership. Here, we break down how the two models differ and which allows you to head up your own business.
What is a Chain?
A chain refers to a group of stores operating under the same brand name, identity and systems that are all owned entirely by the same parent company. Every location is corporate-owned and run, rather than being owned by an individual.
As a chain business, the single parent company is responsible for all decisions regarding how particular locations are run, including management, daily operations and assuming any financial losses.
Well-known chains in the UK include various supermarkets and high-street retail brands such as:
- Sainsbury’s
- Marks & Spencer
- Boots
- Waterstones
The chain model is used across sectors, spanning banking, travel, property, food, retail and more. Various businesses may choose to open numerous locations and expand into a chain once reaching a certain level of success, following proof of concept and repeatability.
What is a Franchise?
Initially, franchises may seem like the same thing: multiple stores operating under the same brand name and systems. However, the crucial difference here is that each store is owned and run by an individual, rather than falling entirely under centralised corporate control.
The franchise business model blends business ownership with support from an established brand to give entrepreneurs a surer path to profitability. Like chains, franchises benefit from brand loyalty, proven concepts and market expertise, but these benefits are funnelled back to the individual business owners.
While franchise owners must still operate within the parameters of the franchise agreement, they will have a good level of business freedom. Rather than being subject to complete oversight or taking direct orders for every decision like a corporate-run branch, franchisees retain a degree of control and get access to franchisor support. Franchisees are responsible for running everyday operations, and they take on the financial responsibilities of the business.
Like with chains, many kinds of successful businesses may choose to franchise as an expansion strategy. Examples of franchises include renowned high street names and big brands such as:
- McDonald’s
- Specsavers
- Anytime Fitness
- Esquires Coffee!
The franchise business model operates on a fee-based system. This can make expanding with new stores quicker for franchisors than chains as individuals fund the new locations. Franchisees pay a one-off franchise fee when joining the franchise and continue to pay weekly or monthly royalty fees, usually calculated as a percentage of gross sales.
Chain Store Vs Franchise
If you’re interested in being your own boss and running a business, investing in a franchise can provide some great opportunities to do so. On the other hand, being involved in a chain would likely mean being part of a larger corporate system, providing a totally different experience and set of responsibilities.
Ownership & Management
Chain: All stores are owned and run by a parent company.
Franchise: Stores are owned and run by individuals who have the license to operate under the franchisor’s name.
Control
Chain: Control and decision-making powers are centralised, likely managed by a board of directors or heads of the parent company.
Franchise: Franchisors have final say over products, policies, operations and factors affecting the brand at large, but franchisees will have a certain level of autonomy and business freedom to run their location how they see fit.
Risk & Profit
Chain: The parent company bears all risks and retains all profits of each location.
Franchise: Franchisees assume the risks of the venture, while also directly benefiting from its success.
Investment
Chain: The parent company funds all new stores and expansion plans.
Franchise: The franchisee funds their own business and provides the capital to open a new store, while the franchisor provides support in other ways.
Consistency
Chain: Highly consistent across stores, with each location offering a near-identical experience.
Franchise: While still adhering to the standards of the brand, there is more opportunity for changes when it comes to adapting to local markets or the wishes of the individual franchisee.
Ultimately, chains and franchises are two different business models – one, corporate-controlled and the other leading to individual business ownership.
If you’re interested in harnessing the benefits of the franchise model, a UK coffee franchise could be your perfect next step, providing a venture that not only meets your business goals but brings communities together! Find out more about becoming a franchisee.
