BEIJING
- Seven-Eleven Beijing Co Ltd has received the
long-awaited nod from the Ministry of Commerce to
expand using its franchise model, making it the
first overseas retailer to obtain a franchise
certificate in China.
The company, a joint
venture with Seven-Eleven Japan Co Ltd, announced
in May 2004, when its first outlet opened, that it
would launch 100 new stores within a year, and 500
by 2010. Annual
sales volume was expected to
reach 2.8 billion yuan (US$347.9 million) by the
end of the decade.
However, only 27
Seven-Eleven convenience stores have opened so
far. Seven-Eleven Beijing's Deputy President Li
Yong attributed this to the limitations on
Seven-Eleven's franchise business model. Foreign
companies were forbidden to use the franchise
model in China until February 2005, and they still
require certification. "Because of the limitation
on franchises in China, Seven-Eleven [could not]
expand as quickly as expected," said Li.
"Franchising is the common expansion model in
Japan and the US."
"The municipal
government encourages the establishment of
convenience stores, as residential communities are
growing and there is more rural-to-urban
movement," said Yan Ligang, spokesman with the
Beijing Commerce Bureau, commenting on the
decision.
A detailed development plan,
involving franchise fees, locations and business
area requirements, as well as targeted store
numbers in a certain period of time, has not yet
been formulated, said Li. But the certificate
paves the way for the world-leading retailer to
speed up its efforts in the capital city, which
will be a concern to domestic counterparts.
At the moment a group of domestic
retailers including Chaoshifa, Wu-mart and Hualian
occupy greater market share, and are actively
expanding. A spokesman at Wu-mart said the company
had over 100 stores at the moment, but wouldn't
give an exact figure as it is increasing rapidly.
While there are currently approximately 2,000
convenience stores in the capital, statistics from
the Beijing Commerce Bureau indicate that the
market in the city might support as many as 6,000.
The most recent financial statement from
Seven-Eleven Beijing Co Ltd showed that the
venture, with total assets of over 200 million
yuan at the end of last June, made a net loss of 7
million yuan in the first half of last year. Fan
Yanru, from the retail enterprise committee of the
China Commerce Association for General
Merchandise, indicated the threat from
Seven-Eleven was not immediate, as the market
still had much room for expansion. "The
competition will come in the long run, when the
market reaches saturation," he said.
