Franchise vs. Corporate: 6 Things You Need to Know

Franchise and corporate-owned retail stores are two different breeds. Casual shoppers shouldn’t notice the difference, as both types of stores have the same general appearance and product mix. But, when it comes to franchise vs. corporate, the people managing and running these stores will have a different experience.

Have a look at these comparisons below, and get helpful tips on managing a franchise vs a corporate-owned operation.

Franchise vs Corporate

Franchises and corporate-owned stores both result from the parent company’s success and desire to grow. Expanding via a franchise-based store enables the parent company to duplicate its brand without assuming most financial and management risks. Franchising also provides an additional source of capital.

A corporate-owned store helps to increase the parent company’s profits and give the company complete quality control. However, with a corporate-owned store the company also assumes all operational and capital risks.

Corporate-owned stores also require more support on the backend, including more head office staff to manage HR, training, operations issues.

Some companies operate with both franchised and corporate-owned stores. Doing so allows a company to both expand their footprint while honing their processes (like training or new products). Companies can develop strong examples of the brand at their corporate locations. Additionally, companies can use their corporate owned stores as “flagship” locations in prominent areas. These locations become a marketing tool to drive interest in their franchise operations.

FRANCHISE STORES

If you operate a franchise store, you’ve received permission to use an established business’ name, logo, merchandise, and other attributes associated with that company. You’re also capitalizing on the business’ brand recognition and, hopefully, its positive image with customers and the surrounding community.

To obtain these valuable usage rights, you pay a franchise fee and a percentage of store sales to the established business. Other fees may also apply. Examples of well-known franchises include Subway, McDonald’s, and UPS, among others.

Owning a franchise is appealing because it means not having to start a business from scratch and develop operations, marketing, and health and safety processes. However, some franchisees can find corporate oversight restricting. For instance, Subway franchisees are pushing back against Subway’s plans to reintroduce it’s $5 foot-long promotion. Subway’s franchise association argues, “Not since the first iteration of this campaign did the increase in sales from traffic offset the cost of the trade-down.”

Franchisees may also worry about “encroachment.” That is, corporate locations opened too closely and offering another source of competition.

Corporate-owned stores

When the corporation calls the shots, they’ll exercise considerable management oversight over those corporate-owned stores. As a bonus, the corporation benefits from reduced expenses thanks to volume-based contracts with companies that serve those stores. Organizations can also use their corporate owned stores a mini-warehouses to supply nearby franchised locations.

While the parent company enjoys these operational benefits and efficiencies, there’s also a downside to having corporate-owned stores: the corporation also accepts the stores’ operational risks. As an example, a poorly performing store generates lower profits for the parent company, potentially impacting the corporation’s bottom line as well.

Because franchisees are independent owners, they often have more to lose than store managers at corporate locations. As a result, franchised locations tend to perform better than company-owned stores.

managing a franchise vs corporate-owned store

Franchises and corporate-owned stores have similarities and differences in how they operate on a daily basis. Consider the following:

1. Day-to-day operations

Operations similarities

Whether the store is a franchise or a corporate-owned store operated by a retail manager, the nuts and bolts of the operation are the same. Typical day-to-day retail store operations include sales and customer service. Store inventory and merchandising functions get products on the shelves. Consistent attention to accounting and financial management will help to keep both types of stores afloat.

Operations differences

A franchise operator has a completely different motivation than a company-owned store manager. A franchise owner has invested their own money, and risks losing their investment if they don’t make efforts to operate efficiently. As such, the owner or manager of the franchise is likely more hands-on, and in some cases, they even make arbitrary decisions on how the store should run.

This can be both a good and a bad thing. Some decisions — like local initiatives — could be beneficial to the branch and franchise company as a whole. That said, certain actions taken arbitrarily — like lowering prices without the full support of HQ — can cost the bottom line. 

Those at the head office and individual store owners or managers should communicate openly and work together to find the right operational balance. On the one hand, HQ should recognize that local franchise owners know their market best, and they’re qualified to make certain decisions. HQ should draw the line when it comes to certain tasks requiring approval from the main office, such as pricing, employment regulations, or costly marketing initiatives.

Resources to improve franchisor/franchisee communication

• Franchising in Retail: 7 Ways HQ Can Support Franchisees
• Communicating with Franchisees During a Crisis
• Successfully Implement Communication Channels Between Stores/CPG Field Reps and Head-Office

In contrast, company-owned store managers don’t have a financial interest in the store’s success. Without the right training, compensation, or employee empowerment programs, their motivation could be somewhat lacking. Managers of corporate-owned stores are also less likely to make decisions on their own since everything has to come from corporate. 

Resources to support store managers

• How to Better Communicate with Your Store Teams
• 3 Ways to Support Retail Store Managers

And to reiterate, having the right employee development and franchisee training programs is critical to keeping each type of location humming smoothly. Additionally, it’s important for corporate to routinely check-in — both virtually and in-person — with both company and franchised locations. While training is essential, it is not enough. Conducting regular operations inspections or asking store to self-audit is a good way to reinforce brand best practices and ensure that programs and policies are being implemented properly.

• 6 Reasons Why You Should Audit Franchisees (It’s Not What You Think)
• Retail Audits – The Definitive Guide

2. Hiring and staffing

Hiring and staffing similarities

Whether you operate a corporate-owned retail store or a retail franchise, XpertHR notes that ideal candidates have a certain desirable combination of attributes. Even if their skill set doesn’t match up, their “soft skills” are an advantage, and they can learn the job logistics.

These favorable “soft skills” include a can-do attitude, ease of dealing with people, and a teamwork orientation. The candidates should also be emotionally intelligent, very competitive, and eager to learn. A passion for the brand is also a definite plus.

Whether you’re hiring for a franchise or corporate store, the best practices for evaluating retail staff are the same. You should observe the candidates’ ability to engage with typical retail store scenarios, by walking around the sales floor with each applicant. Encourage them to engage with customers, and ask an especially friendly customer if they’d be willing to role-play a specific situation with the candidate.

• 7 Ways to Maximize Retail Staff Productivity
• How to Turn Underperforming Retail Associates into A-Players

Hiring and staffing differences

In a corporate-based store setting, corporate HR personnel can provide hiring support to busy store managers. Corporate staff can answer questions about hiring protocols, address reasonable accommodation inquiries, and provide the latest guidance on employee leave requests. The Corporate HR department will also possess knowledge of employment law as it applies in the retail store environment.

Franchisees face similar issues but may not have an HR department to call for advice. In particular, smaller franchisees are engaged in running their businesses and meeting daily employment challenges. At the same time, they’re responsible for ensuring that they comply with state and federal employment and workplace safety laws.

Some franchisors may offer resources and materials around hiring and managing employees (and beyond). McDonald’s, for example, has various training programs and even its own worldwide convention that offers meetings, exhibits, training for those part of the company’s franchise family. 

If a franchise company doesn’t offer assistance around hiring and staffing, get in touch with fellow franchisees to gain insights and best practices. 

3. Marketing and sales

Marketing and sales similarities

Corporate-owned retail stores and franchise stores have two things in common: Both types of stores have coordinated, brand-centric marketing programs that are carefully crafted at corporate headquarters or with an industry-savvy marketing agency. 

Sales strategies are also top-down, with both types of retail businesses providing sales goals and guidelines for store-level managers and employees. There’s no shortage of sales and marketing pointers that retailers can implement, and the right strategies will depend on your specific business. 

But here are some general best practices that would apply to franchises and corporate-owned stores:

• Find out what your customers want. Conduct surveys, chat with customers in the store and talk to your staff. Whether you are dealing with a corporate store manager or franchisee, both can give you valuable feedback on your customer’s needs and wants. Implementing two-way communication channels to derive this feedback is essential for successful marketing efforts. 

• Make the in-store experience smooth and enjoyable. This could mean employing staff who can connect better with shoppers. In some cases, creating an amazing experience involves immersive retail design. For instance, L’Occitane is known for its immersive retail displays that use lights, technology, and sound to virtually transport consumers from their current location to the lavender fields of Provence.

There are also instances where improving the retail experience is as simple as opening another register to shorten the lines. Figure out what works in your particular store or situation and go from there. It also helps to get insights from the head office. The HQs of franchises and corporate-owned retail stores may have existing market research and resources to help stores execute great experiences. 

• Run promotions, but do so carefully. Discounts, freebies, and other offers can do a tremendous job at driving sales. If it makes sense for your brand, you should consider running promotions. How you implement your offers, though, will depend on what HQ deems appropriate. 

Marketing and sales differences

While company-owned retail stores generally develop their marketing programs at the corporate level, established franchise networks give their franchisees pre-made marketing materials to be adapted for the franchisee’s use. Some franchise systems allow franchisees to create their own marketing materials, although the franchisor must approve their use.

Although individual franchisors often distribute marketing materials to their franchisees, the original franchise implements its own comprehensive marketing program. This media-heavy effort typically includes advertising campaigns, Internet and social media ads, television and radio commercials, and direct mail pieces. This media saturation generally results in high brand recognition, which also benefits the franchisee. 

It’s important to note though that companies typically require franchisees to pay certain fees or a percentage of their sales to support marketing efforts. 

4. Inventory management and accounting

Inventory management and accounting similarities

Besides sales and customer service, every retail store engages in three major functions: product purchasing, inventory management, and store accounting. Employees in corporate-owned stores and franchises take a similar hands-on approach to getting inventory onto store shelves so it’s ready for purchase.

Inventory management and accounting differences

Product purchases and accounting are handled a bit differently. In a smaller corporate-owned store, you’ll compile your own product orders, although larger retail chains often centralize that activity. Accounting functions are also done at the corporate headquarters, requiring you to submit daily updates to the company’s accounting system.

In contrast, franchisees must adhere to their franchise manual’s guidelines on all three processes. Provided by the franchisor, the comprehensive franchise manual familiarizes the franchisee with the company’s operations and details virtually every function they’ll perform.

5. Auditing a franchised vs corporate-owned store

Audit similarities  

Franchises and corporate-owned stores follow a similar audit workflow. A district or regional manager typically comes in to evaluate certain components and programs using preset criteria, checklists, and guidelines.

For both types of stores, the audit may lead to the adoption of more efficient processes and procedures. Stores can implement improved inventory management and more effective visual merchandising and display practices. Achievement of preset Key Performance Indicators (KPIs) and financial metrics are also common audit benefits.

Audit differences

As a franchisee, your audit guidelines are likely contained in your franchise manual. If not, your franchisor may provide specific instructions for each audit, so you and your manager can evaluate your operations. 

A corporate-owned store often receives direction from the parent company. The corporate headquarters may dictate the audit schedule and audit criteria. Scheduled follow-up audits will gauge whether your store has successfully addressed prior audit discrepancies.

That said, corporations may also audit their franchised stores to ensure that the franchisee complies with their agreement and brand standards. The dynamic, however, is a little different, because people conducting franchise audits typically deal with the owner of the franchise store.

6. Relationship development -franchised vs corporate-owned store

Relationship development similarities  

When it comes to developing successful relationships between HQ and individual branches, franchises and corporations share a lot of similarities: they both require open communications and regular check-ins.

And in troubled times, it’s important for the head office to communicate a “We’ve got your back” message. HQ must also be proactive in offering resources — such as health and safety measures, operational best practices, and more. 

• Case Study: How a National Franchisor is Helping Franchisees During Covid-19
• Case Study: How to Communicate Policy Changes

They should also determine which branches are struggling the most so they can offer the necessary support.

Relationship development differences  

Franchisees (i.e., owners or managers) may feel that they have more autonomy compared to those working at corporate-owned store. Because of this, the franchise company must work hard to ensure that each franchisee feels like they’re part of the family. 

In addition to staying in touch, the franchise could create special events to bring other franchisees together. As mentioned above, McDonald’s does a great job at this with its bi-annual convention. The Michigan-based coffee franchise Biggby created it’s own hashtag, #BIGGBYNATION to encourage franchisees (and customers) to unit, share, and connect.

View this post on Instagram

A post shared by BIGGBY® COFFEE Cincinnati Mills Family (@biggbycoffeecincy)

If you’re working at the corporate headquarters of a franchise, see if you can cook up  initiatives that would strengthen the connection that individuals franchisees have with the brand. 

Wrapping up 

While the end-user experience in both franchises and corporate-owned stores are relatively similar, there could be vast differences happening behind the scenes. 

Regardless of what type of store you’re running, make it a point to adhere to the guidelines of headquarters (i.e., corporate or the franchiser) and keep lines of communication open. Doing so will promote a healthy relationship between your store and HQ and you’ll be able to perform better and offer top-notch in-store experiences to your customers.

About the author:

Francesca Nicasio is retail expert, B2B content strategist, and LinkedIn TopVoice. She writes about trends, tips, and best practices that enable retailers to increase sales and serve customers better. She’s also the author of Retail Survival of the Fittest, a free eBook to help retailers future-proof their stores.