Franchise Business is a HUGE business in China. Haidilao, the famous hotpot Franchise Chain, 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 (source)
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.
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 franchisor 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 Sexy for Chinese Franchisee (source)
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 the average income is still lower than in the western countries. Consequently, an effective strategy includes portioning some products that can be purchased at a very low price. Besides, by emphasizing the fact that you are selling western products, including novelty products and a strong customer-experience, your franchise will be more successful.
Pass China’s regulations
Franchise’s regulations changed several times, but the Chinese government finally published favorable regulations for foreign franchises to improve the 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 80’s and 90’s generation seeking for foreign products. However, you need to adapt your strategy due to cultural, social, political and infrastructure 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 challenges for foreign franchises ?
Launching your franchise in China has many opportunities thanks to 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 80’s and 90’s generation are seeking 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 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 hypermarkets because the brands are symbol of high quality.
2020 Update: Both Chaines are failing in China, being slowly replaced by online hypermarkets such as Heme or Suning. However, chains such as Aldi, that arrived in Shanghai in 2019, are doing great. They understood the need to adapt to China’s consumption habits. Quality cheap products and convenience with a well develop logistics strategy.
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.
Franchisors Challenges in China
However, franchisors 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.
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.
Invest in Your Branding
- Invest in your Reputation first
- And then invest in your Awareness
Good News, we can help you with this Challenge.
We are a Cost-Effective Marketing Agency
… and we have already a strategic Solution for your Franchise Business
- If you want to know this perfect plan, contact us
- If you want to see our Case studies, contact us.
- If you want to know our prices, contact us