The world's leading fast food providers, McDonald's and Kentucky Fried Chicken (KFC), will both resort to franchises to further expand their presence in the Chinese mainland.
McDonald's said it will begin to grant franchises for opening McDonald's outlets to domestic individuals until 2003.
Peter Chen, president of McDonald's China Development Company, said that to be a qualified franchisee, the person must have good ethics, a successful commercial experience and capital of 3.5-4 million yuan (US$422,700-US$483,000).
He said McDonald's will offer franchises to individuals but not companies.
Qualified individuals will also be required to accept a training period of at least one year.
Chen said McDonald's will provide the operating locations while the franchisee will invest in the equipment, trademark and furbishing.
The partner will earn profits from his or her McDonald's franchise while paying rental and franchising fees to the McDonald's Company.
"It is expected that a long-term win-win situation for both sides will be created,'' Chen said.
Two months ago, McDonald's denied that it planned to grant franchises in the Chinese mainland and said McDonald's will not do so over the next one or two years.
Currently, McDonald's has established a joint venture with Beijing Agricultural, Industrial and Commercial Federal Corporation to expand its presence in the domestic market.
But in other countries and regions, including Hong Kong, McDonald's has offered franchises, which is widely considered as an efficient way to open more chains.
Chen said that given China's large territory, it is hard to promote McDonald's to various regions without help from a franchising system, especially in the small and medium cities and the far hinterland regions.
As a result, the first batch of five franchises will be offered to small and medium cities.
Coinciding with its global rival, KFC has also targeted China's medium and small cities.
KFC said it prefers to locate its franchises in small cities with relatively high demand because the industry is experiencing fierce competition in large cities.
The company said franchises will become the major strategy for KFC's expansion.
KFC opened franchises on the Chinese mainland in 1993.
However, the qualifications required to be a KFC franchise is very high.
A potential partner can buy a KFC chain store with 8 million yuan (US$966,100).
To date, there are only 20 KFC franchises.
Yu Xianyang, a professor at Renmin University of China, said increasing competition between McDonald's and KFC will make the weak domestic fast food sellers suffer even more.
(China Daily 06/26/2001)