Franchisors look to follow KFC’s lead

Updated: 2013-11-06 08:08

By YU WEI in San Francisco (China Daily USA)

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Diners in Chongqing, Nanjing and Dalian looking for authentic American food may soon have more options than KFC and McDonald's.

Sponsored by the International Franchise Association, the Franchise Times and the US Commercial Service, eight US franchise companies are meeting with Chinese investors and seeking business opportunities in four Chinese cities on a six-day trade mission.

"The goal of the trade mission is to both introduce the brands to investors in China and to also educate them about the markets and the culture," said Nancy Weingartner, editor of the Franchise Times.

The group began their China trip on Sunday in Beijing, where the delegation got an overview of the Chinese market and legal requirements, from trademark registrations to regulations.

Then they flew to Chongqing, where the brands individually presented to about 65 to 70 local investors and investment groups. Representatives had a chance to meet one-on-one with interested parties to answer questions about their offerings, Weingartner said.

The delegation is currently in Nanjing and will wrap-up the trip in Dalian on Friday.

Although the trip started in Beijing, Weingartner said that Chongqing, Nanjing and Dalian are their target markets.

"Those three cities that were chosen are considered second-tier cities in China. However, they are large markets, larger than most cities in the US, and should be able to support the build-out of many units for the brands," she said.

"Real estate costs are more reasonable in these locations than in the major cities," Weingartner said. "Usually, franchises enter the large cities first, but in this case, it is a good strategy to start in the second-tier cities and then move into the larger ones once the brand is established."

US franchisors such as Yum! Brands — parent company of KFC and Pizza Hut — and McDonald's have achieved huge success in China since entering the market two decades ago. Still the largest fast food chains in China, McDonald's has about 1,800 units, KFC has 4,429.

There are about 1,300 franchise companies in the US but only 15 percent of them have entered the Chinese market.

Franchises such as Wing Zone, CKE, Rita's, Fuddruckers, Round Table Pizza, Right at Home, Jani-King and Sotheby's International Realty are hoping to follow KFC's path to success and view China as a great long-term growth opportunity.

"Food and beverage brands are usually the first to enter international markets, and we believe more US restaurant brands will come to China, following the success of the large franchisors," Weingartner said. "Aftermarket auto repair services are a good fit, as well as health and fitness and children and adult education."

Scott Lehr, senior vice-president at US-based International Franchise Association, said so far the trip has been successful. "We have been very impressed with the quality of the candidates that our members have had the opportunity to speak and meet with," Lehr said. "It is important for our members to actually see an area to understand the market potential."

One challenge for those US franchisors, Lehr said, is to understand the financial and operational commitment they need to make to the market.

"A successful partnership starts with finding the right partner in China, but certainly the franchisor needs to be prepared to support their partner for many years to come and trust the partner to make the right decisions to grow the brand in China," Lehr said.

"US brands generally have a reputation for quality and service and I am sure that these brands will deliver on that exceptional quality, which is demanded by US consumers and the Chinese market will desire as well," he said.