Japanese retailer 7-11 to open franchise stores in China

The Japanese company 7-11, a convenience store superpower, has been given the green light by the Ministry of Commerce to open franchises in China.

The ruling will make 7-11 Beijing Co. Ltd the very first foreign-funded retail chain to set up franchises on the Chinese mainland, the Beijing Business Today newspaper reported.

So far, all the 27 convenience stores opened by 7-11 in Beijing are regular chains. The go-ahead will make the retailer's ambitious plan of opening 350 stores in the capital before 2008 a realistic target.

Franchising has been the trump card of 7-11's global business strategy. In the United States, 60 percent of the 7-11 outlets are franchise stores, compared to 40 percent of regular chains.

The loosening of the law is anticipated to bolster the heavyweight's market expansion in China, which has aroused concern in local competitors.

Huang Zhen, deputy general manager of Beijing's supermarket chain Chaoshifa, said his company may have to face fierce competition from the Japanese rival.

Huang said the market has tremendous potential and return on investment will be achieved in the long-run, but he also admitted that most of the convenience stores owned by his company are currently losing money instead of making it.

However, Lai Yang, deputy secretary of the Beijing Association of Business Economics, said the loss of most domestic convenience stores is largely ascribed to inappropriate management rather than mounting competition from overseas retailers.

Noting that 7-11's edge lies in its unique structure of commodities, for example, Lai said fast food is an eye-catching growth market in its business, yet domestic convenience stores are just mini-supermarkets.

He said Beijing has a market capacity for over 6,000 convenience stores and it is imperative for domestic operators to improve their business methods.

Huang said 7-11's decision to expand into China is largely due to the threshold set for a new franchise, which the newspaper said would be 10,000 yuan (some 1,250 U.S. dollars) plus 30,000 yuan deposit.

The 7-11 is the world's largest chain store operator. It opened its first store in Beijing in 2005.

Source: Xinhua