Overview Franchising in China

CHINA

Franchise Overview

Market

During the past 30 years, there has been dramatic economic growth in China and while franchising only started in the 1980’s it has also displayed rapid development. By 2012 the number of franchised stores exceeded 400,000 with 5,000 systems averaging 83 stores. The total annual sales of CCFA (China chain store & franchise association) members reached nearly $300 billion in 2010 and represented about 13 percent of total retail sales in China.

The growing wealth, consumption and density of population makes China a potentially lucrative and, for the foreseeable future, growing market. It is odd when we talk about a slowdown in China yet GDP growth is still above 7%-not to be sniffed at.

China’s retail sales grew by 13.1% in 2013 (National Bureau of Statistics of China) and according to Euromonitor is expected to continue to grow year on year by 8.7% between 2013 and 2018. This rapid growth, compared to the rest of the world, results in a growing middle class society with increasing disposable income.

As China becomes more open, their desire for foreign brands and new experiences grows in parallel. They value foreign brands higher than domestic brands as they are very much seen to be a status symbol. The resulting demand from these factors should be filled by savvy franchisors looking to expand out of their domestic market.

Only around 13% of American franchises have entered the Chinese market though 15 of the world’s top 20 franchises are already active in China. With foreign companies comes new business systems and despite foreign companies accounting for a relatively small share of the retail market their business experience produces highly improved operating efficiency and profit margins that outstrips their domestic peers.

The growth of China and the franchise market in such a short time combined with market potentials bodes well for new companies looking to enter China. The market and demand are much bigger than...