Pizza franchise in China: lucrative business
Papa Johns is now looking to international expansion after a period of notable growth during the pandemic. Papa John’s Pizza announced Friday that it has signed its largest ever franchise deal with FountainVest Partners, a Chinese private equity firm. The partnership will see 1,350 new restaurants open in South China over the next 20 years.
Lynch explained to Nation’s Restaurant News that the slogan used to be, “If you wanted to own Papa Johns and you could find a spot along a street with enough capital to build it, we would allow you to open a restaurant.” “We are much more selective about who our partners will be now. People who want to join the system have more requirements: They must have the capital and operating experience to create restaurants on a large scale.
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FountainVest is one example of China’s largest private equity company. It also bought a majority share in CFB Group, the current Papa Johns franchisee. CFB Group owns and operates around 160 restaurants in Shanghai and other parts of southern China.
Papa John has a presence in 50 countries while their competitors in the pizza industry are in more than 100. Pizza Hut has a strong presence in China and is a popular part of many Asian countries’ mainstream culture. He believes Papa Johns could capitalize on its relative whitespace in Asia and gain traction in areas where it has no presence or in markets where its brand is less well-known.
Amanda Clark, chief development officer at Papa Johns, said that “we are looking at countries that have high GDPs, large populations, and a lot of people who want pizza. Places where our competitors don’t exist.” What are the countries we should be targeting? How can we increase our growth rate?
Papa John has always been committed to accelerating its growth. The company’s 2020 development was slow with five net store openings. However, in September 2020, it signed its largest North American development deal with 49 stores in the Philadelphia area. A record-breaking announcement by the Louisville-based pizza chain was made in September with a 100-unit franchise deal in Texas.
Papa Johns remains confident in its ability to expand internationally, despite labor market and supply chain issues.
“We want to ensure that when we enter a market, we have a strategy and a plan that give franchisees the best chance of success,”
Mr. pizza: the emerging Chinese pizza market
Pizza has been a popular western food in China for the past 15 years. There are many famous American pizzerias like Pizza Hut and Dominoes. They can be found in all major Chinese cities. Pizzerias across the United States are constantly trying to increase sales and find ways to reduce labor costs and increase revenue. This is a staggering number considering China’s population of nearly 1.4 billion. Imagine how lucrative it would be for pizza businesses if everyone in China had one pizza per week. You can almost guarantee a 30-minute wait to get a table at most Pizza Huts in China. Pizza Hut is China’s largest and most successful international business. Pizza Hut is the industry leader but there are many other Chinese pizzerias that have been very successful and are unique. They are known for their unique recipes, which make them stand out from larger chains. Good service and hospitality are also key factors in their success. Mr. Pizza is a prime example of this popularity.
Dodo Pizza in China.
Three critical issues can undermine any new venture in China’s pizza delivery market.
Delivery platforms hold total control over the market. Everybody uses them, and it’s nearly impossible to switch customers to your delivery service for a new brand.
There are hundreds of family-owned businesses competing for customers’ attention on these platforms. Usually, they do not offer exceptional quality but have low prices.
Although pizza is still the most popular delivery product in the West, East Asians are used to ordering all types of food. Pizza is not their favorite option, but it is one of the options.
It is now obvious that our first venture into China was doomed to failure.
Domino’s in China
Domino’s has 300 stores in China and China is its key market. Domino’s sees China as a significant source of growth and wants to do more.
Jeff Lawrence, CFO, stated that if we are to achieve our long-term brand aspirations, China must be a thriving marketplace for us. read more
Domino’s has 173 international restaurants, with nearly 11,000 located in international markets. The coronavirus and its effect on overall development slowed growth outside the United States last quarter.
In spite of the pandemic, Domino’s international same-store sales increased 1.3% in the quarter ending June 14. This was the 106th consecutive quarterly increase in international comps. It is probably the most surprising result given the difficulties in many markets during a pandemic.
There are big opportunities and huge challenges. Brand awareness is increasing alongside Chinese consumption. The Chinese are becoming more aware of the market and are willing to pretend more than ever before.
Companies must therefore invest heavily to create products that are competitive and attractive marketing campaigns that reach their target.
China F&B is the largest industry in the franchise sector.
However, the majority of industry revenues are generated by entities other than franchises. The sector also grew by 7,8% over the previous year. Both data indicate a high growth margin in China for franchisors.
- China’s F&B franchise market is experiencing new trends
- Mobile commerce is a key component of e-commerce
- Delivery platforms
- Restaurant chains in cities of the 3rd or 4th tier
- big data analysis
- New generations are more concerned about a healthy, fashionable lifestyle
- E-commerce grocery sales and online restaurant delivery are all growing rapidly in the F&B industry.
The rise of smartphones and the popularity of mobile commerce is driving digitalization. Big data analysis and new marketing tools are creating new sales channels and new marketing tools. This improves the interaction between consumers and merchants in the retail sector.
To cater to the needs of younger customers, new market segments are emerging in the services sector, such as trendy and healthy lifestyle services.
When entering the Chinese market, which can be large and dynamic, global franchisors need to be aware of these trends and challenges.
Legal in China
China is a country where trademark infringements are common. It is important to remember to register the trademark according to Chinese law. Check more information here about Legal issues of Franchise in China.
Starbucks trademark infringement case serves as a precedent. A local coffee shop chain nearly copied its logo and name, violating Starbucks’ trademark. Starbucks lost this lawsuit because it registered its trademark only in Taiwan and not mainland China.
Before you open a Chinese business, you can register your trademarks there. It is not uncommon for local companies to register your brand name and logo in Chinese. This has happened to many foreign cosmetic brands, including KIEHL’s, Coppertone, and Hera.
When disclosing information about franchisees, be sure to protect your brand. You must sign confidentiality agreements. This agreement should clearly state the confidentiality obligation as well as the responsibility.
Chinese are more used to western foods and have more faith in them than they do in products made in China. This is due to the many food scandals in China.
Chinese trust only brands and products with a good reputation.
Let’s conclude with how to develop a franchise in China. Foreign companies should consider investing in China, as it is the future. Even if you are worried about its technological advancement, there is no reason to be afraid. There are many partners who have extensive experience in helping you navigate through the complex Chinese digital ecosystem.