What are the 3Ss that lead to successful chain operations?

What is chain operation?

The concept that describes the methodology for multi-store management is called “ chain store theory,” and the specific management method to realize it is chain operations. This management method has three major characteristics:

1. Centralize purchasing operations to headquarters
2. Sales are handled by stores, and overall functions are handled by headquarters.
3. Standardize store operations

The first thing to consider when implementing multi-store expansion is to “concentrate purchasing at the headquarters and purchase products and raw materials under advantageous conditions.” In the retail and restaurant industries, the purchasing price is an element that directly affects the selling price of the products offered. In other words, if you can keep the purchasing price as low as possible while maintaining quality, this will be reflected in the selling price, allowing you to offer products at a lower price than your competitors, and also improving your profit margin. So, what are the keys to successful price negotiations with suppliers? The answer is “Buy in bulk.”

Basically, the more products and raw materials you purchase, the more discounts will be applied. However, if each store purchases items separately, the absolute number of products purchased will decrease, making it impossible to even negotiate prices, making it impossible to reduce sales prices or improve profit margins. Therefore, by centralizing purchasing operations at the headquarters, we will be able to increase the absolute number of purchases and purchase products and raw materials under favorable conditions. The aim is also to ensure that the quality of products at each store is consistent.

Advantages of chain operation

The benefits of running a multi-store chain operation are not limited to lower purchasing prices. By allocating sales to stores and other functions to headquarters, it is possible to improve management efficiency. If management and operations are carried out separately for each store, it will be difficult to integrate management information at the headquarters, making it impossible to formulate management strategies based on data analysis. In addition, not only will store operations become more complicated, but there will be differences in the management skills of each store, leading to unification of sales, which is likely to lead to a decline in sales for the business as a whole. .

Standardization of store operations also brings various benefits. First is the “uniformization of brand value.” What is essential for successful multi-store management is that consumers can purchase the same products and receive the same service no matter which store they visit.

For example, people who always visit the same affiliated family restaurant come to the restaurant expecting the same food, same taste, and same service. In other words, we are looking for a certain level of quality. In order to meet consumer needs, we must strive to standardize store management so that we can standardize brand value and provide products and services of the same quality at all stores.

Standardization includes office work, training and education, and it is important to standardize not only stores and services but also the quality of human resources.

Chain store classification

A large number of stores developed through chain operations is called a “chain store.” There are three classifications:

1. Regular chain (corporate chain)

This is a typical chain store in which a single company opens directly managed stores in various locations, and the management of these stores is centrally managed by the headquarters. This is a chain operation that mainly involves supermarkets, specialty stores, and restaurants.

Store management is centrally managed by the headquarters, making it possible to purchase in large quantities, reducing purchasing prices and making procurement activities easier. Having high purchasing power allows you to negotiate prices advantageously, and it is also possible to establish a business with low profits and high sales.

2. Franchise chain (franchise contract)

A company (franchisor) with superior products and sales methods recruits member stores (franchisees), gives them certain sales rights within the region and organizes them. It is a chain operation that is centrally managed. Mainly seen in convenience stores and food and beverage businesses.

Franchise chains are characterized by the fact that although franchised stores are financially independent, they pay certain contract fees and royalties to the headquarters. Generally, thorough management guidance is provided by a “supervisor,” and franchisees are required to follow the policies and guidance of the headquarters.

The advantage of a headquarters company developing a franchise chain is that it is directly invested in by the franchisees, and the market can be expanded in a short period of time without investing a large amount of capital. The franchise rate for convenience stores is over 90%.

3. Voluntary chain (voluntary chain store)

Although franchise chains maintain management independence, they suffer from strict headquarters control and are unable to demonstrate their uniqueness as stores. Therefore, we create a voluntary chain, a chain operation that allows us to demonstrate our uniqueness as a store while maintaining management control.

This is an organization for small and medium-sized retailers to pursue economies of scale by jointly conducting purchasing and sales promotion activities while maintaining management independence. They are often found in apparel stores and grocery stores.

Voluntary chains allow stores to maintain their uniqueness, making it possible to establish a brand for each member store. On the other hand, the disadvantage is that it is difficult to carry out unified activities as an organization due to loose headquarters control.

Three principles for successful chain operation (3S)

The three principles that are considered essential for successful chain operations are called the “3S” by their initial letters. These are “ Standardization ,” “Simplification,” and “Specialization.”

1. “Standardization”

When managing multiple stores in a chain operation, standardization refers to finding common points and unifying tasks so that all stores achieve similar results. This creates a constant cycle from purchasing products and raw materials to production, inventory, and sales, eliminates management differences between stores, and standardizes brand value.

2. “Simplification”

Simplification is the process of simplifying a task so that everyone can easily understand it at once. In order to standardize brand value and optimize education costs, it is necessary to break down complex tasks into smaller pieces and simplify each task one by one. Stores often employ not only full-time employees but also part-time workers, so they must be able to perform the same tasks even if their positions are different.

3. “Specialization”

The third principle is for everyone working there to deepen their understanding of the products sold in the store and engage in sales activities as experts. This is called “Specialization.” Of course, even though it is specialized knowledge, it is basically knowledge that can be understood by the general public. Thorough “Specialization” with even simple information greatly improves the quality of service at the store.

What do you think? Successful multi-store management requires excellent chain operations. Why not take this opportunity to review your chain operations and aim for more efficient chain operations?