eli5 what is a franchised store?


I work at a franchised store but what is the difference between franchised and just a regular store

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A franchise is a company that is owned by an independent owner that uses the branding and products of the parent company. For example, McDonald’s corporation doesn’t own most McDonald’s stores. They are owned by independent owners who pay a franchise fee to McDonald’s and agree to keep a standard of quality and service.

In a franchised store, the large company does not own or run the store. An individual (franchisee) pays a fee to the large company for the right to open and run a store under that brand. The large company can enforce rules on how the store is run, and require that all supplies and procedures come from the large company. The franchisee pays for those, as well as ongoing monthly fees to use the name and processes.

In return, they have a ready-to-go business with name recognition and the backing of national advertising to help promote the store.

In a regular store, the owner gets to decide what product they sell, how they sell it and the price that they want to set. For small stores, this is both a benefit (freedom) and a difficulty. The owner has to source their material, do their own promotion etc which involves a lot of effort and the owner might not be able to get the best prices or quality for their needs.

In a franchise store, the owner has signed a franchise agreement with a franchisor. The owner agrees to only sell the products the franchisor provides, generally at prices the franchisor sets, decorates the store according to the franchisor standards and using supplies that the franchisor pre-selects or provides. The franchisor (say MacDonald’s) might have a good brand name, marketing and product R&D. This makes it easier for the owner to operate the store and make a regular profit but they have to give the franchisor a fee (usually a percentage of revenue).

There are name brand stores that you see everywhere. Mom and pop stores can’t compete in some areas or just want a turn key operation. So stores like a popular 24/7 convenience store, a clown based burger joint, a eleven inch sub shop, etc… will offer a franchised location. They’ll sell your the name brand products and cups, training, and they advertise for you. You pay a percentage of your sales to the company in exchange for their storefront. Some places have a bad rap, like a sandwich shop that sounds like a quiz based game show are known to make it near impossible for the owners to turn a profit and will repo and sell the same location, even if they know the new owners are set up to fail. The lesson here? Do your math and homework. Don’t take advice from salesman or your opponents/their lawyers.

When you start a store on your own, you have to make a bunch of decisions about various things such as:

– Name / color / logos
– What products to sell
– Where to buy those products
– Uniforms
– Staff training
– Cash registers
– Inventory tracking systems
– Financial accounting procedures and software

This is only the beginning. And a lot of it is absolutely critical; get it wrong, and you might go out of business.

There are plenty of existing companies that have already figured this stuff out. And some of those existing companies are willing to make a deal with you, where you can use their existing stuff. (Usually you have to pay them $ up front, $ per year, and a % of your profits.)