Visitors attend an international franchisers expo in Beijing. Growth in terms of total stores and franchised stores last year was down 4 percentage points and 2.9 percentage points, respectively, from a year earlier, suggesting weaker expansion for the franchising sector. WANG JING/CHINA DAILY
Wages, rents take a toll on chain store, restaurant profitability, new survey finds
Fewer new retail outlets are being opened by franchisers, indicating slower growth in sectors ranging from supermarkets to convenience stores, alcoholic beverages and restaurants, an industry survey has shown.
According to the China Franchise Development Report, released by the China Chain Store and Franchise Association, the top 120 franchising retailers in 2013 had 139,701 stores.
But growth in terms of total stores and franchised stores last year was down 4 percentage points and 2.9 percentage points, respectively, from a year earlier, suggesting weaker expansion for the franchising sector.
Revenue grew more slowly for a wide range of businesses that offer franchises, such as convenience stores, budget hotels, training and education operations, laundries and home decoration companies.
Revenue was hit by surging operating costs, including labor and rents. The report showed that nearly 80 percent of enterprises experienced increases in labor costs of more than 5 percent. For 40 percent of the companies, the increase was more than 10 percent.
As for rents, about 68 percent of companies saw rents rise by 5 percent and more than 20 percent of the companies said rents were up by more than 10 percent.
Profitability was relatively high in the training and education sector, with margins of more than 25 percent in 2013 and 2012. In comparison, the general retail industry's average profit margin was about 2 percent.
Due to the slowdown of the economy, rising costs and difficulties in finding staff, the licensing industry is expected to have fewer directly operated stores and more franchised ones.
Second- and third-tier cities will be the major battlegrounds for franchised stores, according to the report.
Despite the weakened momentum in opening new stores, Pei Liang, secretary-general of the franchise association, said coffeeshops, education services and Chinese fast food are attracting more investors this year.
Pei commented during a franchise exhibition held in Beijing earlier this month.
Caffe Bene, a South Korean coffee chain brand, plans to open more than 5,000 cafes by 2015. "Most of the investors are now in their early 20s, and they're attached to Korean brands and products," said Pei.