CHINA FRANCHISE NEWS
Vol. 3 , No. 8 - June 19, 2002
TOPICS THIS ISSUE:
- China Anticipates the Promulgation of Franchise Law
- Retail Consumption Boom in May
- Quanjude Roast Duck Restaurant Being Shut Down in Chengdu
- Beijing Will See Seven Retail Giants Within Three Years
- BP Stepping Into China Retail Oil Market
China Anticipates the Promulgation of Franchise Law
The 4th China Franchise Convention & Exhibition, hosted by the China Chain Store & Franchise Association (CCFA), was taken to a successful close on June 15, 2002. The Convention attracted many franchise businesses as well as numerous people who want to operate their own businesses through franchising -- "you may run your own supermarket only with a total investment of Renminbi 13,000 yuan (about USD $1,570), which includes 50,000 yuan as franchise fee and 80,000 yuan as deposit."
The types of franchise businesses are still concentrated on retailing or food services. The participating retailers include Tongrentang, Hualian Supermarket, Wumei Supermarket, and Guomei, while the restaurants include Quanjude, Jinsanyuan, Malan Noodle, and Xianzonlin.
Ms. Guo Geping, Chairman of CCFA, revealed at the conference that the Franchise Law expected to be promulgated within the second half of the year. The expected Franchise Law will regulate the activities of franchising in China.
Franchising is now regarded as one of the most valuable methods for investment and business expansion. Eighty percent of McDonalds and KFC stores are operated by franchisees, while only 20 percent are owned and run by McDonalds and KFC directly.
Franchising is still very new for many Chinese investors. On one hand, many potential franchisees are concerned on how to protect their rights and interests. On the other hand, franchisors are more worried about control over franchisees, keeping consistency in their operating system and maintenance of the quality of the products or services.
According to Ms. Guo, the bad credit rating of many domestic enterprises and lack of regulations on franchising are the main obstacles for developing franchise business in China. These are also the most important reasons why many famous foreign brands are unwilling to develop large scale franchise operations in China.
It is estimated that the proposed Franchise Law will define clearly the rights and obligations for both franchisor and franchisee, stipulate the capacities required for operating franchise businesses in China and provide the contents of the franchise contract as well as the liabilities for breach of contract.
(Source: Beijing Youth Daily)
Retail Consumption Boom in May
A report from the State Statistical Bureau (SSB) of China shows that retail consumption in May has hit a historical high of 320.2 billion yuan. Compared with the same period of last year, this is an increase of 9.3 percent.
According to figures released by the SSB, China's seven-day Labor Day holidays have boosted public consumption, with tourist and tourism revenue rising by 18.1 percent and 14.9 percent respectively, while the sales volumes of 128 shopping centers in 31 tourist cities rose by 15.2 percent. The continuous high temperatures in northern areas have contributed to the sales of air conditioners and electric fans. In addition, the sale of televisions, souvenirs and toys was boosted by the World Cup and International Children's Day.
Furthermore, the boom in chain stores in recent years in China has also been regarded as a powerful driving force in consumption.
(Source: Xinhua News Agency)
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Quanjude Roast Duck Restaurant Being Shut Down in Chengdu
Quanjude, one of the most famous restaurants in China, was forced to shut down its chain restaurant in Chengdu, the capital city of Sichuan province. Chengdu Quanjude has followed the same fate as those of Shenzhen Quanjude, Nanjing Quanjude and Hangzhou Quanjude, being brought to an end because of poor operation.
According to Fan Gang, the Chairman of the Cooking Association of Sichuan Province, Quanjude's withdrawal from Chengdu was expected. When the Chengdu Quanjude restaurant was opened in 1997, it was doubted whether Sichuanese would like the taste of Beijing Duck, as there are many local duck dishes in the province. After a few successful days at the beginning, with a daily turnover of 70,000 to 80,000 yuan, the restaurant went downhill. The least daily turnover was only several hundred yuan before the restaurant was finally shut down.
The reason for the failure of Quanjude in Chengdu can be summarized as follows:
Initially, Chengdu Quanjude imported all the necessary materials from Beijing for preparing its famous "Beijing Roast Duck", which led to very high costs and high prices. In order to lower costs, Chengdu Quanjude began to use local ducks, which taste different than Beijing ducks. However, Chengdu Quanjude did not lower the prices accordingly. Moreover, most quality restaurants in Chengdu sell "Beijing Roast Duck", many for much lower prices.
Though facing difficulties in its business expansion, Quanjude Headquarters is still confident in expanding business through franchising in China. Quanjude has taken efforts to attract more franchisees, especially in Chengdu and participated in the 4th China Franchise Convention & Exhibition.
(Source: Tianfu Morning)
Beijing Will See Seven Retail Giants Within Three Years
On June 12, the Beijing Committee of Commerce revealed that by 2005, Beijing would see 7 retail giants, with annul sales volumes of more than 5 billion yuan each, including two retailers, each of which would have an annul sales volume of about 10 billion yuan.
In order to do so, the Beijing government will adopt policies to help local enterprises to reorganize and integrate into large chain stores and groups. Meanwhile, local enterprises are encouraged to cooperate with both foreign and other local famous companies, especially with those foreign companies ranked in the Top 50 in the world.
After the initial reorganization and integration, several large retail enterprises have been formed, such as Wangfujing Dong'an, Xidan Friendship, Likelong, and Wumei. Until now, only one retailer with an annul sales volume of about 8 billion yuan has emerged in the Beijing market, while there are two other retailers with an annul sales volume of 5 billion yuan each, and three with annul sales volumes of 2 billion yuan each.
(Source: China News Services)
BP Stepping Into China Retail Oil Market
According to news reports, the oil giant BP is catching up with its rival Royal/Dutch Shell in China's retail market for refined oil products by setting up a joint venture with Sinopec, even as Shell is set to become the first foreign company officially admitted to the once tightly-controlled market.
Sinopec, as the second largest Chinese oil company, has submitted a feasibility study report to the competent authority of the central government on a joint venture with BP to operate 500 gas stations in Zhejiang Province within 3 years. The agreement was signed on June 10 in Beijing by Sinopec Chairman Li Yizhong and BP Group's Chief Executive Lord John Browne. The total amount of the proposed investment of the joint venture will be US $ 264 million dollars, 60 percent of which will be controlled by Sinopec while BP will hold the remaining 40 percent of the investment during the "initial operation period". BP still plans to add 150 stations under the joint venture every year upon approval, by either acquiring existing stations or building new ones.
If the feasibility report is approved, BP would be the second foreign company officially allowed to enter the retail market for gasoline and diesel fuel after Shell, though some have already run a handful of petrol stations by acquiring them privately.
Besides Shell and BP, Sinopec has also agreed with ExxonMobil to operate another 500 stations in Jiangsu, Zhejiang and Fujian Provinces within three years. The agreement between Sinopec and Shell, BP and ExxonMobil are part of the deal for the three world largest oil companies to back Sinopec's overseas listing in 2000.
However, according to observers, it is likely that the BP and ExxonMobil deals, which were originally scheduled to be completed before June, would be postponed until next year because the government has only granted the approval for Shell's plan this year.
Late last month, Shell released the news that they will be the first to set up their new stations with Sinopec in Jiangsu province.
With the quick development of the China auto industry, it is expected that the demand for refined oil is growing at 4.5 percent annually, which attracts more and more foreign companies to enter the China market. However, foreign companies are still not allowed to fully engage in the retail market until three years after China's accession to the World Trade Organization (WTO).
According to government officials, it is a special case for Sinopec's cooperation with foreign companies to set up joint ventures as the government is hoping to help Sinopec, one of the largest State-owned enterprises, remain viable on the world financial market.
Currently, China's refined oil market is mainly controlled by two State-owned enterprises, Sinopec, which sold 67.7 million tons of refined oil in 2001, accounting for 65 percent of national total consumption, and PetroChina, which takes 20.6 percent. Half of the country's petrol stations are owned by either Sinopec or PetroChina, while the rest are owned by private companies and local governments. The competition in the China retail market for gasoline and diesel fuel is very tough. Companies are struggling to acquire more stations to dominate the market.
(Source: Xinhua News Agency)
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The China Franchise News is intended to be used for news purposes only. It should not be taken as comprehensive legal advice, and Lehman, Lee & Xu will not be held responsible for any such reliance on its contents.
