Cooperative Corporations vs. Franchising

February 5, 2013

Although franchising has many benefits, it doesn’t provide much freedom to the franchisees. After all, their primary job is to maintain the brand’s image, which just so happens to be whatever their corporate bosses say it is. They can also fall victim to larger trends that have affected their parent company. For instance, an entrepreneur named Jerry Merrill lost his Baskin-Robbins franchise in 1999, along with 600 other franchisees the company could not afford to keep. Merrill and 34 other former franchisees ended up suing Baskin-Robbins while they figured out their next move.

They ended up finding a way to create a company that boasted all the reproducible benefits of a franchise, but with far more control for storeowners. Called KaleidoScoops, at first glance the company would be just another ice cream chain. Rather than institute a top-down franchise system, however, the entrepreneurs formed their business as a cooperative corporation. This means all the members of the co-op own the company, which is run by an elected board of directors. “When you have a corporation that is publicly owned, it has to answer to stockholders,” says Merrill, now KaleidoScoops’ chairman of the board. “We answer to our membership. A public corporation’s focus is not always on its franchisees.”

Still, starting a co-op is no small feat. When a big corporation opens a franchise, the new owner usually receives an abundance of resources and assistance from the resource-rich company. With co-ops, though, money is usually much tighter, leaving many first-timers on their own. This also puts co-ops at a disadvantage in terms of national advertising. But according to happy co-op members like Merrill, the lack of a corporate overlord outweighs the limited resources. With no franchising fees or royalties to pay, Merrill and company are allowed to run their co-op on a lean budget and their terms.


  1. What promotional tools must co-ops rely upon to ensure growth and success?
  1. What advantages can businesses gain by joining a cooperative?


Source: Jason Daley, “Cooperative Companies Offer an Alternative to Franchising,” Entrepreneur, November 30, 2012. Photo courtesy of Cascadian Farm.