Overview of the Chinese Franchise Market with Focus on Food & Beverage, Apparel,...

Tue May 20, 2008 9:05pm EDT

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Overview of the Chinese Franchise Market with Focus on Food & Beverage, Apparel, Education, and Fitness

DUBLIN, Ireland--(Business Wire)--
Research and Markets
(http://www.researchandmarkets.com/reports/c92389) has announced the
addition of "China: Franchising Industry" to their offering.

The objective of the report is to provide an overview of the
Chinese franchise market with focus on four sectors: food & beverage,
apparel, education, and fitness, beyond the already established cities
of Shanghai, Beijing, and Guangzhou.

Summary

Market overview. China is now the largest franchise market in the
world in terms of the total number of franchised outlets - there are
over 2,600 brands with some 200,000 franchised retail stores in over
80 sectors. Franchising has also experienced significant growth of
about 35% - 40% annually in the last few years due to rising
disposable incomes and an increasing number of Chinese entrepreneurs
willing to adopt franchising models.

Regulatory environment. China's first franchise law was enacted in
1997, but there were several uncertainties and "grey" areas,
particularly for foreign franchisors. More regulations were issued in
2005 and in March 2007, which further clarified the law; for example
cross-border franchising2, which was previously in a grey area, is now
permitted. This opens up opportunities for mid-sized US franchisors
that do not necessarily want to or have the resources to set up a
legal presence in China.

Key sectors. The franchising model has been used to different
degrees in the four sectors analyzed in this report. The F&B sector
was one of the first to use franchising in China, but majority of
franchisors are domestic; many international F&B brands have few
franchised stores in China. In the apparel sector, franchising is
mainly used to expand in Tier 2 or Tier 3 cities, while stores in Tier
1 markets are usually kept as direct-owned outlets. There is a large
presence of foreign companies in both the education and fitness
sectors. In education, the use of franchising is limited by
regulations. In the fitness sector, franchising is still a common
strategy for expansion, although several large gym chains are moving
away from it and using Joint Ventures or direct-owned stores instead.

Key emerging markets. Key Tier 2 emerging markets for franchisors
are still concentrated on the East Coast, e.g. Qingdao and Nanjing.
Inland Tier 2 cities - such as Xian and Chongqing - offer potential in
the longer term since disposable incomes there are still relatively
low. It is generally difficult to find good potential partners in Tier
2 cities, and many strong hospitality groups are large domestic or
Hong Kong companies with a national presence.

Key opportunities and challenges. There are good opportunities in
all four sectors for US franchisors, especially for mid-market or
high-end brands. However, there are several key challenges to adopting
the franchising model, including the difficulty of finding good
partners or franchisees, lack of control over store quality, need for
localization, etc. Companies need to be prepared to invest a
significant amount of time, commitment, and resources to manage China
operations.

Market access. Foreign franchisors can enter via either
cross-border franchising or establishing a local legal entity
(WOFE/JV3). If the local legal entity is to be a franchisor, it must
operate two direct-owned stores for at least one year, before it can
have franchisees. However, more time is still needed to observe how
the new franchising law is implemented. Although a higher capital
investment is needed to set up a direct presence in China, it offers
the foreign company greater monitoring/control over Chinese
franchisees.

Key Topics:

-- Introduction

-- Executive Summary

-- The Demand Side: Food Processing Market

-- The Supply Side: Food Processing Equipment Market

-- Industry Highlight: Food Safety & Testing Equipment

-- Considerations for Foreign Companies

-- Top Regional Markets for Food Processing Equipment

-- Market Overview: Tianjin

-- Market Overview: Dalian

-- Market Overview: QingdaoMarket

-- Overview: ZhuhaiMarket