Business Intelligence on Retailing, Franchising, and Consumerism in China

CCFA Releases Annual China Franchise Survey Results

The China Chain Store and Franchise Association has just released the results of a survey it conducted earlier this year.

In August 2005, China Chain Store and Franchise Association (CCFA) conducted a comprehensive investigation on the status of foreign franchise systems' development in China. The available sample questionnaires included 78 companies covering most of the industries, such as food and beverage, restaurant, real estate services, automobile services and convenient stores.

The survey result shows that over 50% of the foreign franchise brands that have already entered the Chinese Mainland originated from the US.

According to the "US Franchise Brands Top 200, 2004" released by US-based Franchise Times, 14 of the top 20 in the list have entered the Chinese Mainland, accounting for 65% of total franchise foreign brands in China.

The next largest group of companies come, in order from largest to smallest, from Singapore, Japan, South Korea, Hong Kong, Taiwan, Germany, France, Britain and Italy.

At present, of all the foreign franchise brands in China, half of the franchisers engage in restaurants.

The results also show that most of the US Top 20 brands have entered the Chinese Mainland except those whose businesses fall into industries currently restricted by the Chinese government, leading to the conclusion that government policy is a fundamental factor that affects foreign franchise brands entering the Chinese market.

In addition, the development stage of a particular industry is another important influential factor in foreign franchisers' entry decision.

In contrast with some domestic franchise brands who do not charge franchise fees or royalties, all of the 78 foreign franchise brands charge franchise fees and royalties, and some are quite large.

The royalties are collected by four different means. The most common is to take a percentage on sales revenue, a practice 77% of the total foreign brands take part in.

According to the statistics of CCFA, the number of foreign franchise brands that have entered the Chinese Mainland has been increasing by over 10% each year in the last 5 years.

In general, foreign franchise brands focus on the cities of Beijing, Shanghai and Guangzhou and open franchised outlets intensively in these cities. The influential factors in the decisions of entering a new geographical area, including: the period of corporate development, legislation and policy, the level of income, the level of education, local practices and customs.

The survey also shows that the majority of foreign franchise brands operate their businesses in the Chinese Mainland with multi-unit franchise arrangements, such as master franchise and area development.

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