Chain store way to success
While some chain store businesses – like fashion and laundry services – are reaching saturation point, there is still great potential in areas like education and training, hotel chains, food speciality stores and restaurant chains.
BASED on a conservative count by the China Chain Store and Franchise Association, the country has close to 10,000 chain store businesses and brands, including some 5,000 franchise systems.
With the surge in such business models in recent years, China has among the highest concentration of chain store businesses in the world.
But the association’s secretarygeneral Pei Liang said that while some sectors had shown great promise, others were experiencing a bottleneck in further growth.
“There are many chain stores in the fashion business in China. For instance, in (Fujian province’s) Jinjiang or Xiamen city alone, you can see a few hundred fashion brands using the chain store model,” he said in a recent interview.
“Last year, the fashion and accessories sector experienced an inventory backlog problem. For many listed apparel companies, their backlog in products made up about 50% of their total assets. Many of them are now gradually transforming their businesses.”
He said the supermarket sector was quite saturated now and many companies were eliminated by the market or acquired by other supermarket giants because of stiff competition.
“Same goes for laundry service providers; now, it is hard to develop your laundry outlets on a large scale. I think the number of chain stores in these sectors will be reduced in future,” he said.
Pei Liang, however, believed that the car care service sector had bright prospects.
He said this sector was still in its infancy and many investors would open more car care outlets to meet the demands from the increasing number of car owners.
He said other sectors like education and training, hotel chains, food specialty stores and restaurant chains had a lot of room for growth.
Among the few established Malaysian chain store brands are Parkson and Secret Recipe, with about 70 outlets in China between them.
According to the Malaysian trade authorities’ statistics, 47 Malaysian brands have expanded in over 10 countries with 108 outlets, of which 68.5% were in China.
While Parkson has been listed among China’s top 100 chain store companies for many years, Secret
Franchising is one of the fastest ways to grow a business. However, it can be the reverse if it is not carefully monitored. — DATUK STEVEN SIM
Recipe is one of the fastest-growing cafe chains from Malaysia, setting up 20 outlets in the last five years.
“We have plans to open about 80 directly-owned stores by 2014, with a set-up cost for each being 925,000 yuan (RM444,000),” said Secret Recipe founder and chief executive officer Datuk Steven Sim in an email.
He said the company’s current business plan would also include upgrading of its existing production facilities and building of new central kitchens near Shanghai.
Sim said Secret Recipe would focus on brand awareness, supply chain, product consistency and team support management before embarking on franchising, a model that had brought much success to the company in Malaysia.
“Franchising is one of the fastest ways to grow a business. However, it can be the reverse if it is not carefully monitored.
“Our brand and concept are highly acceptable here, on par with other established international F&B brands. We are very positive about our China market and are projecting an over 50% growth in the next five years. One day, Secret Recipe will be a successful foreign franchise brand in China,” he added.
Pei Liang is disappointed that Malaysian companies such as England Optical did not leverage on the market boom and establish itself as a household name in China when it made inroads into the country about a decade ago.
“The optical retail market has grown tremendously over the past 10 years, with Baodao from Taiwan becoming one of the biggest and most popular brands. Those looking for quality glasses at affordable prices will go to Baodao.
“If England Optical formed ventures with Chinese companies then to invest in opening stores in Beijing or Shanghai, they could have made it big.
“I know (England Optical Group founder) Datuk Chin See Keat personally and it seems that they did not position themselves properly,” he said.
Currently, England Optical sells its products in shopping centres and hypermarkets like Parkson and Carrefour in Shenyang, Shanghai and Beijing cities and other provinces.
As land, labour and operating costs rise and inflation reigns in China, many chain store companies face greater challenges to stay in business or expand further.
But Pei Liang is optimistic that things will become better with more government support policies in the pipeline.
“In recent years, we managed to standardise electricity rates for commercial and industrial sectors.
“We ran a Low Carbon Store campaign, starting with foreign stores such as Carrefour, Wal-Mart and Tesco to encourage them to invest in energy-saving equipment and facilities.
“Through this initiative, the companies could save about 10% of electricity costs apart from receiving special grants and incentives from the government.
“Soon, the surcharge of 2% to 3% for payment using cards at restaurant, supermarket and other businesses will be reduced by about 50%,” he said.
The surcharge is paid by the operators to the banks and credit card companies.
With the reduction of such operating costs, it will not only help operators sustain business but it will also boost consumption, he added.