What is a Chain Store?

A chain store is a retail store that is part of a larger organization that owns several other retail locations, all of which share the same branding, standards and product lines. Stores that belong to the chain can either be directly operated by the main organization that owns the brand, or they can be franchised to other operators.

Chain stores are also known as “Formula Retail”

How It Works

An organization first comes up with a unique formula for a retail business.

This formula constitutes of:

• The target customer
• The product assortment to serve these customers with
• The branding of the concept and its positioning

So it starts with a marketing exercise, that later on directs the strategy of the business.

It then uses this formula to guide further business decisions on where to open the stores, what products to carry in these stores, and all the other operating procedures to run the different locations.

The company will have a central unit that manages the business and makes decisions on buying, merchandising, store openings and expansions, financials, compliance, and other business decisions typically made by the management of a company. It can also have a central warehouse, or several distribution centers close to their stores.

Then, in addition to the central unit, there will be field teams. These teams are also managerial roles, responsible for the operations of their assigned regions or areas. For example, Regional Managers and District Managers.

Their role is to ensure that all the stores in their regions/areas operate as per the company’s standards (SOPs), which are dictated by the formula.

Read Also: Retail Organization Structure

Then, finally, there will be the store teams. These teams run the day-to-day operations of the chain stores and directly serve their customers.

Chain Store Benefits

There are many advantages for running a retail business in the form of chain stores, and often when an independent retailer starts having success with their primary location, a retail chain becomes the following logic step to expand & grow this business; although there are many other ways to grow a retail business without opening more stores, which we explain in the Retail Growth & Expansion Course.

Among the main benefits of chain stores is establishing economies of scale and higher bargaining power.

When a business has multiple chain stores, it can save money by dividing many fixed costs over more locations. For example a central warehouse cost will be allocated to all the stores that are served by this warehouse, which will reduce the cost for each individual store.

Also, as the retailer grows and adds more locations, it can negotiate better deals with suppliers, benefiting from its now higher bargaining power, and the fact that more suppliers will want to gain its business. This also extends to deals with landlords, and securing better rent rates or terms.

Some retail chains take advantage of these benefits and start dominating the category they belong to, and thereby become what is known as category killers.

Disadvantages of Chain Stores

Like any big business, as the retail chain starts to grow, it becomes more rigid and starts losing its entrepreneurial spirit. Also, the standardization of product sourcing and operations starts to affect the ability of the business to innovate and adapt quickly to changing trends in the market.

This gives smart independent retailers the upper hand in this area, and an opportunity to compete, using smart product sourcing and innovative business models.

Chain Store Examples

McDonald’s is an example of a restaurant chain, with more than 38,000 stores that share the same branding, products and operational practices. Some of these stores are owned and operated directly by McDonald’s, but the majority (approx. 93%) are franchised to other operators, who have to follow the same formula according to their franchise agreement with McDonald’s

Other examples of chain stores include:

• Walmart
• Target
• Home Depot
• Macy’s
• Starbucks

More Resources

Thank you for reading this article on chain store. We believe you might also find the following free resources useful:

• Independent Retailer
• Mass-Market Retailer
• Department Store
• Category Killer