CHINA FRANCHISE NEWS
Vol. 2 , No.9 - April 18, 2001
TOPICS THIS ISSUE:
- McDonald's Won't Open Franchise Business in China Within Two Years
- China Promotes Creditable Shopping Streets
- Walmart Plans Office in Shanghai
- Talks Continuing between Kodak and Lucky
- Overseas Retailers Growing Well
- Foreign Express Companies Make the Cake Bigger
- Retail Sales up in China
McDonald's Won't Open Franchise Business in China Within Two Years
Recently it was reported that McDonald's would develop franchise business in China by late 2002. Yesterday, however, McDonald's Asia-Pacific headquarters in Hong Kong denied the report and confirmed that McDonald's will not open franchises in China within the next two years.
Among McDonald's 20,000 restaurants worldwide, more than 70% are operated as franchises. McDonald's cooperation with China's operators is primarily in the form of land purchasing or leasing. The company's business strategy in China differs from its strategy in other countries for cultural and legal reasons.
Analysts believe that McDonald's will be forced to franchise its business for fear that its main U.S. competitor, KFC, will outperform it. By the end of 2000, the number of KFC's chain restaurants had exceeded 400 in China, compared to McDonald's 340.
According to a survey conducted in 20 major Chinese cities, 27.8% residents claim that they often go to KFC restaurants, whereas only 18.2% go to McDonald's. Statistics show that KFC has become No.1 in China's fast-food service sector.
However, McDonald's executives do not believe the company has lost the competition with KFC. Lai Linsheng, president of McDonald's north China operation, said, "I don't think the performance should be judged by the number of restaurants. KFC has an edge in south China, where local residents favor chicken, but McDonald's advantages in north China, especially in Beijing, are significant." According to the plan, the number of McDonald's restaurants in Beijing will hit 100 by 2003. Lai said he was confident of that projection.
(Source: Beijing Youth Daily 04/12/01)
China Promotes Shopping Streets
China now has 75 accredited shopping streets. This concept has won national approval. A new measure adopted by the China State Bureau of Quality and Technical Supervision (CSBTS) aims to encourage the development of more such shops.
"This method will increase the quality of Chinese goods and regulate the market order. We hope to lead consumption behavior and serve good companies," said Li Chuangqing, director of CSBTS. Shopping streets create a favorable shopping environment for consumers. The shops in these streets will ensure the quality of goods and after-sale services.
(Source: Xinhua News 04/09/01)
Walmart Plans Office in Shanghai
The world's top retailer Walmart plans to set up an office in Shanghai this year to purchase goods from the local market for its retailing network in China, according to the Shanghai Foreign Economic Relations & Trade Commission.
The purchases of Walmart in China account for at least 5 to 6 percent of its global sales. It will hold a purchase seminar in Shanghai in May and its branch offices in the Republic of Korea and China's Taiwan will be invited to purchase goods in Shanghai.
"Many well-known multinational enterprises plan to set up purchasing eoffices in Shanghai," said Xu Li, an official with the commission. The Shanghai purchase office of General Electronics of the United States buys goods across the country worth US$400 million annually, including US$130 million worth of products from Shanghai. Christophe Roussel, managing director of Carrefour Global Sourcing Asia, said Carrefour buys more goods from China than anywhere else in the Asia-Pacific region.
Attracting more multinational chain stores and their purchasing offices to Shanghai is currently high on the commission's agenda, according to Li Mu, director of the trade promotion department of the commission. "Apart from purchases for their outlets in China, another task of these buyers is to export products made in China to outlets in foreign countries, which benefits the local economy a lot," added Xu Li.
(Source: Xinhua News 04/09/01)
Talks Continuing between Kodak and Lucky
US filmmaker Eastman Kodak has not given up on hopes of forging a relationship with the nation's only film producer, China Lucky Film Co., Ltd.
Lucky is reported to be seeking to establish a cooperative venture with Kodak's global rival Fuji Photo Film Co. Ltd., but the two parties have not yet reached an agreement. Kodak and Lucky have been in negotiations about potential business opportunities for years, but both sides have insisted on taking a controlling share in any joint venture.
"We are open to different types of cooperation. There are many fields in which we can cooperate and cooperation could take different forms. A joint venture will not necessarily be the best choice," said Henri Petit, chairman and president of Kodak's Asia-Pacific operations. But Du Changtao, general manager of Lucky, insisted that one of Lucky's principles in any business cooperation is to hold a controlling interest.
Petit said his company, which was invested US$1.2 billion in China, is looking for new investment opportunities. The company plans to provide more services at its 6,000 Kodak Express Stores across the nation. "Our goal for growth in China is to beat China's gross domestic product growth rate," Petit said. Its investment program in China, which started in 1998, has enabled Kodak to become a leader in China's imaging market, especially the color film market. It has established manufacturing bases for film, paper and medical x-ray film in Xiamen, Shantou and Wuxi. China has grown from Kodak's 17th to second biggest market in the world.
China is expected to replace the US as the leading consumer of film products by 2010. Kodak is the most popular film brand in China, according to a survey conducted in 35 major Chinese cities last year by an investigation center affiliated with China Central Television.
(Source: China Daily 04/03 /01)
Overseas Retailers Growing Well
Although overseas-funded retail companies occupy a minor part of Beijing's market, they are growing more quickly than their local rivals.
Statistics from the Beijing Commerce Commission revealed that during the first two months of this year, the capital city's retail sales were worth 26.89 billion yuan (US$3.24 billion). Overseas-funded retailers contributed 1.07 billion yuan (US$128.9 million), only 3.98% of the total.
But the growth rate of overseas-funded companies reached 28.3% from the same period last year, 8.9 percentage points higher than the local retailers. The opening up of the commercial sector has given businesses from overseas more opportunities to explore the market and develop faster.
To maintain their dominant position, local rivals are beginning to make themselves more competitive via mergers, acquisitions and consolidations. For instance, Shanghai Hualian has joined hands with Beijing Xidan and Chaoshifa to set up a retail group that plans to open 100 chain stores in the capital city.
Some insiders are pessimistic, but others believe domestic retailers will keep the upper hand in the future. "Even if [foreign retailers] were to occupy 20 to 30 percent of the market, local counterparts would still have room to develop," said Huang Hai, director of the market trade department of the State Economic and Trade Commission, arguing that this was possible because of China's vast market potential and the opportunities open to domestic retailers both in China's remote areas and overseas.
(Source: Xinhua News 03/28/01)
Foreign Express Companies Make the Cake Bigger
The first flight of the US-based express service giant United Parcel Service (UPS) landed at Beijing's international airport on April 3, kicking off a new round of competition in the domestic express delivery industry.
According to Daniel Chen, managing director of UPS (China), the direct flight will improve efficiency and reliability. UPS's current routes serve China through Hong Kong with its Chinese partner Sinotrans. Chen said the shortened route will save customers' money, enhance delivery speed, and complete its service network in Asia. The company, which now holds 5% of the market share, plans to cover 120 major cities in China this year, with branch offices in 40 cities. UPS's rival FedEx has 10-15 percent of the domestic market share.
Chen said UPS's direct flight will enable the company to bring its e-commerce service to China. This will give UPS some advantages over its competitors, and help China build up its own logistics system. UPS has provided online purchasing and other online parcel delivery services to more than 60,000 clients in the past three years.
FedEx, the sole foreign express company permitted to fly directly to China before UPS, is prepared for the UPS challenge. FedEx said it plans to add one more flight to its current 11 in April. Over the next two months, FedEx is expected to inaugurate new infrastructure facilities in Nanjing, Hangzhou, Dongguan and Ningbo. These facilities, together with its current three express service centers in Beijing, Shanghai and Shenzhen, will provide an extensive service network.
The company said its development strategy is to enlarge the total market, adding that it plans to double its market share to 35% in the next five years. It also plans to expand its business to an additional 100 cities in the next five years, based on its current service network of 190 major cities.
(Source: Business Weekly 03/27/01)
Retail Sales up in China
Retail sales boomed in China last year, according to a report issued by China General Chamber of Commerce (CGCC) on April 11.
CGCC announced China's top 100 retailers for 2000, whose gross sales volume surpassed 164.68 billion yuan, up 22.8% over the previous year. The total volume of retail sales was 137.03 billion, an increase of 25.5% over 1999.
The overall sales of the top 10 retailers account for about 34% of the total sales volume of the top 100. The first-ranked retailer, Lianhua Supermarket Co., Ltd., recorded a sales volume of over 10 billion yuan.
"Most of these big retailers are located in Eastern China or big cities. Shanghai and Beijing have 29 retailers among the 100 best," according to a CGCC official.
In recent years, supermarkets and warehouse outlets have revitalized China's retail sector. They now comprise 25% of the 100 top retailers.
(Source: Xinhua News 04/11/01)
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