Franchise Business is a HUGE business in China. Haidilao, one of the most famous hotpot Franchise Chain in China, get a valuation of about 79 times its historical earnings.
Yes 79 times its all history earning
Haidilao is certainly one of the most expensive restaurant stocks in Hong Kong.
Food Franchise is a big business in China
In China, most of fast-food franchise are company-owned or operated in joint venture with local companies. But, the opportunities are not only in the restaurant sector and the number of franchise in various sectors is expected to grow given that China launched standardized franchising regulation.
In 1997, China set up the China Chain Store and Franchise Association (CCFA) and, in 2001, the country joined the World Trade Organization, and with the Chinese’s market growing needs, many multinationals choose to open their franchise in the country.
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How to launch successfully your franchise in China ?
With a franchise business in China, a franchisee has the right to market a brand of a franchiser in return for a fee. Franchising is now a niche strategy in China because you can launch your franchise in many sectors: food service, business service or customer service.
Even if western brands are highly regarded compared to domestic franchises and given the cultural, social, political and infrastructure differences, you need to adapt your strategy to the country in order to successfully launch your franchise in China.
What franchisee buy? A Famous Brand with Good Reputation
Chinese franchisee are searching for famous brands chain, not something conceptual. Starbucks is very successful in Chinese franchise business partly thanks to its big efforts in digital marketing and online reputation. China’s first Starbucks was opened in Beijing in January 1999. At that time, even drinking instant coffee was a rare thing in China. Today, in less than 20 years, Starbucks has opened more than 3,000 stores in 130 cities in China, and stated that Starbucks’s goal is to operate 5,000 stores in mainland China by 2021.
If you want a flourishing franchise, you must think about the location strategy:
- Downtown with the commercial and cultural center, but it has high rents.
- Special economic zones are the site of many multinational corporations and government offices.
- Upscale residential where millions of people moved thanks to many infrastructure projects.
For your franchise you also need to determine the target:
- Foreigners, expatriates or tourists have high incomes and are willing to pay for a premium service with quality.
- Business people and young professionals are more receptive to new ideas, possess sufficient income and value foreign products.
- Young emperors have an influence on family buying decisions.
Your company needs to adapt its strategy concerning the price because average income in China is still lower than in the Western countries. Consequently, an effective strategy includes portioning some products that can be purchased at very low price. Besides, by emphasizing the fact that you are selling western products, include novelty products and a strong customer-experience, your franchise will be more successful.
Pass China’s regulations for franchise
Franchise’s regulations changed several times, but the Chinese government final published favorable regulation for foreign franchises to improve new franchise’s management ability and increase the probability of success for foreign companies.
In order to establish your franchise in China, the regulation states that your company must have owned and operated at least two franchises anywhere in the world. Moreover, you must own and operate a store for at least a year.
To recap, thanks to the Chinese government’s new regulations to standardize franchises, launching a foreign franchise in China is easier. Moreover, a franchise in the country will bring you opportunities and benefits due to the 80s and 90s generation seeking for foreign products. However, you need to adapt your strategy due to cultural, social, political and infrastructures differences between China and western countries. The market is vast and great potential exist in various sectors to launch your franchise in China.
What are the opportunities and the challenges for foreign franchises?
Launching your franchise in China has many opportunities thanks to a large development potential.
According to a study, 76% of Chinese families will reach the middle-class level in 2022. These middle-class customers have created a very appealing market for brand franchises.
The 80s and 90s generation are seeking after a high quality of life and have a strong ability to accept new and modern products with a higher price. Therefore, these Chinese consumers from the middle-class are now an important part of the market.
Hypermarket chains and restaurants franchise have a great growth potential in China. Hypermarket implements low prices on dairy products to attract a lot of customers. Carrefour and Walmart are two foreign hypermarkets with a successful business in China since their first entrance in the late 90s. Chinese consumers appreciate going to foreign hypermarket because the brands are symbol of high quality.
Restaurants also have a huge market demand due to the importance of food in Chinese’s life. Consumers now like to taste different cuisine and many western restaurants emerged in China to grab the opportunity to start their franchise business in the country.
Franchiser Challenges in China
However, franchisers have to face several challenges when starting a business in China.
For example, intellectual property protection is quite weak and, even if the Chinese government regularly promulgate new laws to tackle the problem, a large part of products will be copied.
For a successfull Franchise in China you need: Adaptation – Localization
Another challenge for the foreign franchise is the fact that employees are mobile in China and find a well-trained local manager can be tough.
One of the most important challenges is the Chinese’s tastes that are different from western countries. Consequently, if you want to launch a food franchise you will have to adapt your products. For instance, McDonald’s added rice, chicken or home-grown spices to their foreign-based menu.
Franchises in China have to Invest in Branding
If you want to succeed in franchise business in China, branding is the key. Chinese consumer are very wary about unknown brands. If they have never heard about your brand, they will never enter in. This is the truth. These following advice is two essential steps for your franchise business in China:
- Invest in your Reputation first
- And then invest in your Awareness
Reputation and brand awareness play very important roles in Chinese market. There are many ways for brands to promote their brand recognition and reputation on the Internet. For example, Baidu SEO, social media marketing, PR, Website creation. However, keep in mind that all those marketing channels like Google, Facebook are blocked in China, so you can only use Chinese social platforms and search engines to reach your goal.
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Read more about Franchise in China:
- Top retailers of Fashion & Apparel Brands in China
- Mc Cafe: planning to challenge Starbucks & Luckin coffee
- Franchise success: how is Starbuck staying on track in China?