Fast-food chain KFC has started offering franchise opportunities in Beijing for a minimum investment of about 2 million yuan ($320,300), the Beijing Times newspaper reported Sunday.
KFC introduced its franchise plan at the 2014 China Franchise Expo held in Beijing Saturday, according to the report. This would be the first franchising opportunity offered by KFC in a first-tier city on the Chinese mainland.
An unnamed KFC staff member was cited by the report as saying that there is no upper limit for franchise investment and it will be better if the investors have 4 million to 6 million yuan for a franchise store.
Investors need to invest 2 million yuan for a franchise store, including decoration, equipment and training, the report said.
Moreover, they should pay 300,000 yuan as an initial franchise fee and afterward they will pay 6 percent revenue as franchise fee and 5 percent revenue as promotion fee, according to the report.
Investors do not have to build new stores. KFC will authorize franchises to run KFC stores that have already made profits for more than two years, the report said.
"KFC's new move is a reaction to the rival chain McDonald's opening the franchise door to investors in two first-tier cities Shanghai and Shenzhen at the beginning of 2014," Li Weihua, a professor from the Franchise Research Center of China University of Political Science and Law, told the Global Times Sunday.
As of the end of 2013, KFC has more than 4,500 stores in China and McDonald's, which currently only has 2,000 stores in China, also plans to have 4,000 stores in China in the coming three years, business news portal eeo.com.cn reported in February.
Before 2014, KFC and McDonald's only allowed franchise stores in China's second- or third-tier cities because they did not want to share high profits in first-tier cities with others, Li said.
Opening the door to investors in first-tier cities indicates that the Western fast food chains are feeling pressure in market competition but still want to expand store numbers, he said.
Franchising is a cost-effective way to expand market coverage and further boost brand recognition, according to Li.
In addition to the issue of increasing rents in China, the fast-food chains also face pressure on how to attract more customers,Liu Xiaofeng, an analyst at China Minzu Securities, told the Global Times Sunday.
"Western fast food is no longer attractive to Chinese customers and the public has become more interested in healthy diet rather than junk food," Liu said.
KFC started accepting franchise investment in 1999 and now has 278 franchise stores in China, media reports said.
McDonald's began franchising in the Chinese market in 2008 and Kenneth Chan, CEO of McDonald China, said in April that the company plans to increase the franchise stores percentage from 12 percent in 2013 to 20 percent in 2015.
Eighty percent of McDonald's stores in the whole world are franchise stores and they provided 70 percent of McDonald's profit, eeo.com.cn reported.
KFC and McDonald's did not promote franchise stores in China with much effort before due to concerns that the Chinese market was not mature enough and they prefer to be more cautious to protect their brands, Liu said.
After starting franchise stores in first-tier cities, the two companies need to attach great importance to supply chain management, as well as supervision and training on franchise stores, in a bid to ensure stable product quality in franchise stores, according to Li.
