What is the difference between a directly-managed store and a franchise chain store?

1. What is the franchise chain system?

To understand what a franchise chain system is, it is important to understand the meaning of a “chain development system” and its merits. After that, you will learn the differences between them and voluntary chain system.

1-1. What is a chain development system?

Chain development system is a style of management that expands administration with a single brand with multiple stores. Usually, it establishes the same brand in each region. This is the most popular business style among the food service industry like the fast food and diner retail businesses. They all have same the exterior, interior and signage because they are from the same brand.

The principal characteristic of the chain store business is that customers can get the “same service and quality” wherever they go. This is the main reason why people use them. From a perspective of management, they can expect a generalization of products and reduction effect on purchase costs by buying materials in bulk. Also, the bigger the store chain becomes, then they can provide more things like advertising because of the recognition of the brand name. You will definitely feel much secure with “7-11” than another unknown retailer franchise right?

By having more recognition, the stronger the competitiveness the brand can have. The franchise system business is a management style that can give this type of strong competitiveness.

1-2. Difference between a directly-managed store and a franchise chain store

The franchise chain system business has 2 types of management, the “directly-managed store system” and the “franchise system”.

The former is a store that the headquarters opened with its own money. Employees of their company also conduct its management. It’s merit is that the headquarters can do testing there. They can develop stores after they obtain knowledge and tips by running a directly –managed store.

On the other hand, the latter is a store that is accessed by the franchise headquarters. These stores have an owner that are from different organizations, or are independent individuals. The biggest merit of becoming an owner of a franchise chain store is that you are running a store using an established brand. For example, if you dreamed that you want to have a store like Starbucks, you can realize that dream by using this system. Because of that, many owners support the franchise chain system.

1-3. What is a voluntary chain system?

There is another type of a chain system called the “voluntary chain system”. This is an organization that is made by multiple business operators to purchase the same materials together. It looks the same as a franchise chain system, but the difference is that the partners do business together. In the case of a franchise chain business, the business partner is the “franchise headquarters”. You make contracts with the headquarters and they will provide you with their knowledge.

 However, the voluntary chain system is a team that the business owners make voluntarily. It would make it easier to have image that you ride a taxi with other customers. They are the partners to archive a same purpose. Especially when you run a store as a independent individual manager, this system would give you a big difference in the revenue. It is recommended that you should decide your system what kind of a business operator you want to be.

2. Main purpose of franchise chain development system

What is the main purpose of a franchise chain development system? We will find out by looking at the perspective of costs, and the opening store strategy.

2-1. Reduction of costs by using franchise chain development system

One of the biggest reasons of having franchise chain development system is the reduction of costs. There are 2 types of ways to reduce costs by using chain development.

One is the reduction of cost by purchasing in bulk or mass quantity.  The other is the reduction of costs by increasing the number of stores. “7-11”, which is one of the biggest convenience store chain groups from the United States of America uses this cost reduction method.

It achieves a massive amount of cost reduction by adopting a “dominant strategy” that focuses on opening stores in one particular area.

If you can reduce cost, you can allot money to creating new products, or running sales promotions. In other words, the reduction of cost can be a great money generator for a franchise owner.

2-2. Expand the number of stores early by using the franchise chain development system

By using the franchise chain development system, the franchise headquarters benefits by expanding the number of stores early. It is effective not only for achieving scale, but also dominates a market by expanding the number of stores.

But from the perspective owners, the merits can be different. With access to a large franchise headquarters, they can open their stores within a situation that has already reduced the purchasing, manufacturing and component costs.

In addition, if they have access to a franchise headquarters that has recently opened, the possibility that they can open stores in areas that they want to is much higher. Also the higher the brand value is, the more employees will desire to work there. Having those types of stores, the headquarters is able to improve its company’s brand.  

3. Resume

We have now summarized the merits of a chain development system, and the difference between a “franchise chain system” and a “voluntary chain system”.

Chain development is a “management style” that expands administration within a single brand and it’s multiple stores. Also the style is divided into 2 types, the “franchise chain system” and the “voluntary chain system”.

The franchise chain system is a style that allows contracts with a franchise headquarters. On the other hand, the “voluntary chain system” is a style that allows a collaboration with business operators that have the same purpose.

You should choose a proper chain style based on what kind of management style you want. If you choose the “franchise chain system”, the merits will be different depending on the scale and management style and ideals of the headquarters.