CHINA FRANCHISE NEWS
Vol. 4 , No. 8 - December 4, 2003
TOPICS THIS ISSUE:
- Convenience Store: Franchising Is The Way To Expand fast
- Jinjiang Hotel Builds it Brands
- 7-Eleven Plots China Course
- Franchising Laws In The Cards
- German Metro To Open More Chain Stores In China
Convenience Store: Franchising Is The Way To Expand fast
Shanghai's convenience store chains are quickly expanding through franchising
Shanghai Maya 21st Century Commercial Development Co Ltd, a major player in Shanghai's convenience store sector, has franchised more than 100 stores among its 600 outlets to private investors since the company started its franchise program two months ago.
Meanwhile, Shanghai Buddies CVS Co Ltd, a joint venture between Shanghai Liangyou (Group) Co Ltd and Shanghai Xinmeng Investment Co Ltd, also announced aggressive franchising plans at the event yesterday.
The company now runs 600 21st Century convenience stores and 200 Maya audio and video product chain stores around Shanghai.
The company opened its first comprehensive store combining convenience store with Maya audio and video products last month.
21st Century intends to open nearly 100 such comprehensive stores in a short period, which it hopes will distinguish the company from other rivals. Most of the new stores will be franchised."
Shanghai Buddies CVS Co Ltd hopes to expand its franchised stores to more than 1,000 in six years, accounting for nearly 60 percent of its total outlets.
Currently, it has 130 franchised stores among its 500 outlets under the Liangyou Buddies brand.
Currently, Shanghai has about 3,500 convenience stores run by more than 10 convenience store chains.
Source: Shanghai Daily
Jinjiang Hotel Builds it Brands
Jinjiang International Holdings Co Ltd, China's largest hotel conglomerate, is aiming to build up seven brands, ranging from five-star to budget hotels, to facilitate its nationwide expansion.
The hotel chain has many famous brands, such as the Peace Hotel and Park Hotel. But, their brand awareness is still far less than that of foreign rivals.
Currently, Jinjiang International manages more than 10 hotel brands, many of which are used only in one market.
In Shanghai, for example, the group manages four five-star hotels under four different brands. They are the Peace Hotel, Jinjiang Hotel, Huating Hotel & Towers and Jinjiang Tower. The group also manages five four-star hotels. In addition, there are 14 three-star hotels.
In the budget hotel sector, the group has established the Jinjiang Inn brand through franchising. Under the brand are 23 hotels, including 17 in Shanghai.
Jingiang International are confident the Jinjiang Inn brand was capable of standing up to the forthcoming challenges from international hotel management groups, such as Intercontinental Hotels Group and Accor Hotels. Both have announced their plan to introduce their Holiday Inn Express and Ibis chains, respectively, to China soon.
Jianjiang International is of the opinion that its lower management fees give it a major competitive edge over the foreign rivals.
For instance, the company collects 300,000 yuan (US$36,145) from the 150-room Jinjiang Inn franchisee annually. In comparison, foreign hotel management companies could collect at least 1.5 million yuan.
Jinjiang International, created in June through the merger of Shanghai Jinjiang Holdings Co Ltd and Shanghai New Asia (Group) Co Ltd, plans to increase its hotels to 300 by 2008. Currently, the company owns and manages 105 hotels, including 43 locally.
The company has secured a 10 billion yuan credit line from the Industrial and Commercial Bank of China for business expansion.
Source: Shanghai Daily
7-Eleven Plots China Course
The world's largest convenience store franchiser, 7-Eleven, is seeking to duplicate its Japanese success story in China.
Embarking on a franchising system, the US-based 7-Eleven Inc, which is 70 percent, owned by Ito-Yakado Co, Japan's biggest retailer, is currently seeking proper licensees for its China operations.
Analysts caution that China's restrictions on foreign-invested retailers and the country's overheated retail sector bodes ill for 7-Eleven.
However, the convenience store operator is unfazed, pointing to the country's rising affluence and increased consumer spending.
Taiwan-based Uni-President Chain Store Corp, a subsidiary of food manufacturer Uni-President Enterprises Corp, has been licensed to operate 7-Eleven outlets in Beijing. Uni-President has a permanent franchise agreement with 7-Eleven Inc to run stores in Taiwan.
The Beijing joint venture, invested by Ito-Yokado, Uni-President and Beijing Shoulian Commercial Group, had hoped to open the capital's first 7-Eleven outlet on July 11. It also planned 20 outlets by the end of this year.
To date, not a single 7-Eleven store has materialized in Beijing. Insider's say the plan was suspended because of a dispute over licensing fees between the Beijing venture and 7-Eleven's US headquarters.
Pei Liang, deputy secretary of the China Chain Store and Franchise Association, believes 7-Eleven would be unlikely to expand rapidly due to restrictions on foreign-invested retailers.
Shanghai is widely expected to be 7-Eleven's next stop after Beijing.
Investment restrictions on foreign-invested retailers may block 7-Eleven from setting up a wholly owned branch in Shanghai.
China now allows foreign partners to hold a maximum 65 percent stake in a joint-venture retailer. The limit will be lifted in 2005 in line with China's commitments to the World Trade Organization.
Unlike Beijing, Shanghai has seen a mushrooming of convenience stores in the past two years.
7-Eleven Inc prospered in Japan after Ito-Yokado Co bought 70 percent of its shares for US$430 million in 1991.
Under a licensing system, 7-Eleven stores are operated by Ito-Yokado in Japan. The company has more than 3,000 outlets nationwide.
In Hong Kong and Guangdong Province, the Hong Kong-based Dairy Farm Co Ltd is the licensee.
In Guangzhou and Shenzhen, there are now about 100 stores since first opening in 1992. Dairy Farm Co Ltd expects to launch 300 more stores in the two cities.
Source: China Daily
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Franchising Laws In The Cards
The long-awaited regulations on commercial franchising are likely to be unveiled before the end of this year, according to a senior official with the Ministry of Commerce.
Draft laws have been submitted to the Legislation Office of the State Council, said Men Xiaowei, director of the ministry's commercial reform department.
"According to the legislation office timetable, if there are no major problems, the regulations will be released within this year," he said.
There are expectations that setting a firm legal foundation could boost franchising, under which people can sell products and services with name recognition.
However, because of a lack of a strong regulatory regime, copyright issues, disclosure of commercial secrets and other problems have cropped up in recent years in the sector.
Such problems have deterred some overseas franchise brands from entering China.
As a part of China's World Trade Organization (WTO) commitments, restrictions related to the franchise sector will be lifted three years following accession.
Sources said the new regulations would include detailed guidelines on qualification of franchise store operators and franchise brand owners, and formats and contents of agreements.
There will be an emphasis on ways to avoid fraud, information availability, advertising issues and punishments for violators of relevant rules.
China's franchise industry, which emerged only a decade ago and has seen rapid growth with sales rising by 40 per cent annually in the past several years.
According the China Chainstore and Franchise association, there are more than 600 franchisees in the country, operating in excess of 5,000 outlets.
Annual sales are estimated at 50 billion yuan (US$6 billion).
Most franchisees are in catering, retailing, individual services, education, family services and automotive care.
Source: HK Daily
German Metro To Open More Chain Stores In China
German Metro, a multinational chain-store group, plans to open 40 more supermarkets in China in the coming three to five years.
Metro's registered sales totaling 600 million euros in China last year, accounting for 1.2 percent of Metro global total sales.
Metro hopes to raise the ratio to 10 percent in the next three to five years.
Metro is the first foreign chain store group to open chain supermarkets in China and it opened the first chain store in China in 1996.
Metro has so far opened 18 supermarkets in China, with a total investment of over 300 million euros. It opened regional headquarters in Shanghai, Guangzhou, Wuhan and Beijing last year and plans to set up Metro-China training institute in Shanghai next year.
The fifth largest commercial company in the world, Metro has opened 2,300 supermarkets around the world.
Source: People's Daily
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