In Japan, you can receive uniform service from chain stores wherever you go, including convenience stores and family restaurants. However, it seems that there are surprisingly many people who do not know well what kind of theory this kind of chain business is based on. Therefore, in this article, we will explain the outline of the theory of chain business, ” chain store theory”, and the types, characteristics, and advantages of chains.
What is the important “chain store theory” in store business?
” Chain store theory ” is a business method that centralizes management strategy, product development, finance, purchasing, etc. at the head office, and each branch concentrates on operations to improve management efficiency. To begin with, a “chain store” generally refers to a store that has a headquarters in the center and has more than 10 stores under the same brand. In Japan, the term “chain store” may be more familiar.
Chain businesses are deployed all over the world in the retail industry, restaurant industry, and many service industries. For example, McDonald’s, Starbucks, Uniqlo, etc. are examples of chain stores around us. The chain store theory appeared in the United States in the 1900s and spread in Japan after the 1960s.
In the chain store theory, each branch basically offers standardized products based on the policy of the headquarters. As a result, companies can centrally purchase large amounts of goods, which can reduce the purchase price accordingly. Consumers who visit a chain store can receive uniform, manual service and products of the same type and quality no matter which store they go to.
There are three main types of chain stores
Chain stores can be roughly divided into three types. Each feature is explained below.
franchise
“Franchise chain (hereinafter: FC)” refers to a business form or store in which the ownership and operation of each store are owned and operated by an external owner while following the business model and guidelines set by the headquarters company. Each owner (merchant) pays a certain amount of royalties in exchange for various support from headquarters.
The FC business structure is a win-win for both companies and merchants. FC is an opportunity for companies to reduce costs and expand their business. On the other hand, merchants can benefit from the business model and brand that the company has built over time, the products and services it has developed, and its marketing activities.
However, merchants must basically follow company guidelines regarding business hours, products that can be sold, pricing, suppliers, and other important aspects of store management. Also, even if the store management is not going well, it is necessary to pay the compensation to the headquarters.
Corporate
“Corporate chain (hereinafter: CC)” refers to a business form or store in which a parent company directly owns and operates a chain store. In Japanese, the word “company store” corresponds to this. In CC, the parent company procures and owns stores, equipment, and human resources. Therefore, all the profits and losses raised by each store are directly linked to the business performance of the company.
Due to the nature of CC, it is easy for the head office to operate and manage each store. Therefore, if sales at a particular store are poor, the head office can intervene directly to resolve the problem, or even vacate the store. On the other hand, CC is a store that is managed by the company’s own cash flow, so there is also a disadvantage that it is difficult to expand the store development if the company itself does not have the physical strength.
voluntary
“Voluntary chain (hereinafter: VC)” refers to a business form or store in which individual independent retail stores use a common name or symbol to create a structure similar to a chain business. An FC is managed by an existing company and each store owner by signing a contract, but in the case of a VC, the headquarters itself is formed by the affiliated stores in the first place. It is an image like a gathering household to compete with big capital.
In VC, each member store can jointly carry out purchases that had to be done independently in the past with other stores. This makes it possible to keep the purchase price down, just like a chain business. Another advantage is that, unlike franchises, which are basically operated on a one-to-one basis (vertically divided relationship) between the headquarters and member stores, it is easier to create horizontal connections between member stores, making it easier to form mutual partnerships and provide support. This will make it easier to understand the purchasing needs specific to the region and manage the business in a community-based manner.
Disadvantages of VC include, “Whether or not the management of each store goes well depends largely on the skill of the manager” and “Compared to large-capitalized chains, brand recognition is inferior.”
Advantages of using the chain store theory in management
The main advantages of using the chain store theory in management are as follows.
Streamlining store operations
The merits of chain stores are, first of all, store operations efficiency ofThe operations and manuals for each store in a chain business are created by the headquarters. In other words, each store can use the know-how of the headquarters company as it is without preparing these contents from scratch, and can quickly start efficient and standardized operations.
Cost reduction of purchasing and inventory management
In management based on the chain store theory, the head office has jurisdiction over purchasing and other matters due to the development of multiple stores. In general, there is a characteristic that “the more products you purchase, the more advantageous you can proceed with price negotiations with suppliers.” In other words, chain businesses can expect a reduction in purchase and operating costs.
What are the disadvantages of the chain store theory?
While there are the above advantages, the chain store theory also has the following disadvantages.
High initial cost
One of the disadvantages of the chain store theory is that the initial cost tends to be high. Chain stores are a suitable business method for opening new stores one after another, but opening each store requires a high initial investment. This is especially true for CC, which operates its stores entirely with its own capital. If the number of poorly managed stores that cannot recover their capital investment increases, there is even the risk of falling into a vicious cycle in which the financial condition of the entire company deteriorates.
Recruitment and training costs are high
A chain store must have the same type and level of operations and services in every store. Therefore, in order to develop a chain business, it is necessary to hire a large number of human resources and train them to the same level. In addition, by following the principle of store management in a uniform manner for all stores, it is difficult to manage according to individual stores and regional characteristics, and there is a disadvantage that wasteful costs are likely to occur.
Optimize your chain store business with Dream Arts
Dream Arts Co., Ltd. provides IT solutions for optimizing chain store business. “Shop Ran”, one of DreamArts products, is a solution that can be used for chain stores of various industries and sizes. It also supports multiple languages such as English, Chinese, and Korean, so it is suitable for companies that operate chain stores overseas and companies with many foreign staff.
In addition, the UI that supports multiple devices such as tablets and smartphones as well as PCs is also attractive. If you use Shop Ran’s unique easy-to-understand “screen for stores”, even part-time staff will be able to carry out operations smoothly.
summary
The chain store theory is a business method in which the head office comprehensively develops business models and products, and each store concentrates on operations in accordance with it. By introducing the chain store theory, companies can provide consumers with uniform services and products while keeping costs such as purchasing prices low.
