CHINA FRANCHISE NEWS
Vol. 3 , No. 9 - July 03, 2002
TOPICS THIS ISSUE:
- Lianhua Supermarket Chain Plans To Raise 1 Billion Yuan in IPO
- McDonalds Releases Preliminary Entry Conditions for Franchising
- China Pharmaceutical Retailer Rises to Foreign Challenge
- Carrefour's Expansion Resumed After Legal Logjam
- Theme Seeks To Increase China Shops to 100 by End-2002
Lianhua Supermarket Chain Plans To Raise 1 Billion Yuan in IPO
Shanghai Lianhua Supermarket Holdings, one of the largest supermarket and convenience store chains in China, unveils its plans for going public in Hong Kong by issuing H-shares. According to a company official, the company is going to raise at least 1 billion yuan (HK$ 934 million) with an initial public offer in Hong Kong and Shanghai by the end of this year.
The company's vice general manager and senior economist, Jin Guang-wei, said at the Supply Chain Management CEO Summit in Hong Kong that the company has already finished the mandatory one-year guidance programme.
Under the guidance programme, the company's operation and accounts shall be supervised by a provincial regulator for one year before filing the list application with the China Securities Regulatory Commission (CSRC).
According to Jin, the funds raised by the listing will be used for Lianhua's aggressive business expansion in China's fast growing market, in competition with both other local and foreign rivals, including French retail giant Carrefour and US Wal-Mart.
Jin said several Hong Kong companies have already expressed their interests to become strategic shareholders of Lianhua.
Shanghai Industry Investment, which is the parent of locally listed Shanghai Industrial Holdings, owns 20 percent stake of Lianhua. Lianhua, established in 1991, currently has 650 convenience stores and 700 supermarkets across Hunan, Hubei and Western China, and is planning to open another 150 convenience stores by the end of this year and to quadruple its number of outlets in China to 6000 in five years.
Lianhua's earnings have grown steadily in the past few years, rising from 7 billion yuan in year 1999 to 11 billion yuan in year 2000, and to 14.1 billion yuan for the year 2001. Jin also anticipates that the revenues for the year 2002 will reach 18 billion yuan. The company also wants to establish 3 new distribution centers so as to strengthen the company's supply chain services and improve its competitiveness.
The supermarket business has attracted not only foreign companies but also Hong Kong investors. The local listed China Resources Enterprise plans to buy a 65 per cent controlling stake of Shenzhen Vanguard Department Store, the nation's biggest hypermarket, for HK$340 million.
(Source: Hong Kong IMail)
McDonalds Releases Preliminary Entry Conditions for Franchising
According to the news released by McDonalds China headquarters, McDonalds is now doing a feasibility study on its franchising plan in China. It is likely that McDonalds will launch their franchising business in 2003.
McDonalds announced at the 4th China Franchise Convention & Exhibition its preliminary entry conditions for joining McDonalds, which requires that the franchisee shall invest no less than $300,000 dollars. It has been further unveiled by senior officials of McDonalds that the proposed franchise business structure will be similar to that of KFC, firstly operating restaurants directly owned by McDonalds and then permitting franchisees to join the restaurant, which means that McDonalds will transform its directly owned restaurants into restaurant chains by franchising. It is expected that McDonalds will choose Beijing or Guangzhou to first develop franchising.
According to Ms. Chen of McDonalds China headquarters, the investment of $300,000 dollars includes the fees for decoration of the restaurant, the use of the equipment and brands, but with the exclusion of the rent and salaries. McDonalds has not decided the term of the franchise, while KFC, which has already started franchising in China, requires a no-less-than-10-year period.
Compared with an initial investment of гд8 million yuan required by KFC, McDonalds's $300,000 dollars seems more alluring. However, according to analysts, the differences between investment amounts required by the two companies will not be very large as McDonalds's franchise plan is still under research and the length of the term of franchise has not been decided yet.
According to analysts, McDonalds's announcement was intended to assess the market capacity and volume of demand in China.
(Source: Beijing Youth Daily)
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China Pharmaceutical Retailer Rises to Foreign Challenge
China pharmacies are undergoing a transformation as the retail medicine market gets ready to open to foreign competition in the year 2003.
Chinese patients are more willing to buy medicine in drugstores instead of taking the trouble to register and queue in hospitals. Spurred by the high returns, a large number of wholesalers have also stepping into retailing. Experts consider these two factors contributing to the rapid growth of China's medicine retail industry, in which chain stores are playing an increasingly important role.
According to statistics, there are 196 pharmaceutical enterprises with chain stores in China, with annual sales of around 8 billion yuan (US$967 million).
Tao Jianhong, an official of the State Drug Administration, said that retail business for non-prescription medicine would become a major player in the domestic pharmaceutical industry, though it was still not ready to compete with foreign rivals.
Tao said that most of the pharmaceutical chain stores scattered around the country were small, and lack advanced information technology as well as management skills. Their sales only account for 11 percent of the whole China market.
Peach Pharmacy, one of China's largest drug stores based in Chongqing Municipality, has only 300 stores. The scale of most domestic drugstores is far smaller than that of their American counterparts, which usually have thousands of outlets.
According to experts, foreign pharmacies and joint ventures are likely to take a big portion of the market share from domestic drug retailers with their advance information technology, supply chains and retail management after entering into the Chinese market.
In addition to medicine, medical device sales are also on the rise in drugstores. It is estimated that the sales of medical equipment will keep growing at a rate of 12 percent in the next 3 to 5 years, as more and more Chinese consumers are willing to buy high technology products for self-diagnosis or self health-care. Domestic drugstores are working on establishing new market concepts, increasing technology content and improving service levels.
(Source: Asia Pulse)
Carrefour's Expansion Resumed After Legal Logjam
French retail giant Carrefour has opened its 29th supermarket in China, which marked the resumption of Carrefour's business expansion after being halted by a dispute with authorities.
According to Carrefour's spokesman in Shanghai, the first shop in Changsha, the capital city of Hunan province, is set up through a joint venture with a local import-export firm. In satisfying the terms of the Chinese retail law promulgated in 1999, Carrefour owns 65 percent of the joint venture, while the local partner holds the remaining 35 percent.
The company's rapid expansion in China was suspended when the State Economic and Trade Commission told Carrefour it had violated the regulation by opening up stores without prior approval from central authorities.
After months of negotiations, the French firm announced a major restructuring of its Chinese operation late last year to put in place joint ventures at stores which were 100 percent owned by Carrefour.
According to their spokesman, Carrefour has set up more cooperative ventures in recent months, including a deal for a store in Guangzhou, 65 percent owned by Carrefour with the remainder held by a local company and a Taiwanese group. Further arrangements have been concluded in Kunming, the capital city of Southwest China' Yunnan province and Harbin in the Northwest, taking control of stores still wholly-owned by Carrefour.
Carrefour has been in China since 1995, opening the first supermarket in Beijing. Since then, Carrefour expanded rapidly in China, reaching 27 stores before experiencing regulatory problems at the end of 2000.
After an 18-month hiatus, Carrefour opened its 28th shop in the southwest city of Chengdu a fortnight ago.
According to Chinese press reports, which have not been confirmed by Carrefour, the company plans to open another 8 store by the end of this year and to double its Chinese operation by 2004. Carrefour's main competitor, the US-based Wal-Mart, has opened 19 shops in China, including eight last year alone.
(Source: Agence France Press)
Theme Seeks To Increase China Shops to 100 by End-2002
Theme International Holding Ltd. announced its expansion of the retail network in China by establishing more shops, which will bring the number of shops in China from 60 to 100, by the end of this year.
In the six months to March, the net profit of the company was $11.397 million HKD, compared with the profits of $761,000 HKD a year earlier, while sales dropped slightly to 111.043 million from 112.001 million previously.
In a statement releasing its results, the company said the sales of its Fall/Winter merchandise were sluggish, leading to lower gross profit margin and an extra provision for inventory.
The operational conditions in both Hong Kong and Taiwan were tough during the period, with turnovers from the two markets recording a drop of 4 percent for Hong Kong, but a slight 2 percent rise for Taiwan. It is also said that the company's Hong Kong operations recorded a loss of 5 million HKD.
During the period, Theme increased its number of franchised shops in China from 30 to 41.
(Source: AFX Asia)
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