Seven-Eleven Beijing Co Ltd has received the long-awaited nod from the Ministry of Commerce to expand using its franchise model, making it the first overseas retailer to obtain a franchise certificate in China.

The company, a joint venture with Seven-Eleven Japan Co Ltd, announced on May 2004 when its first outlet opened that it would launch 100 new stores within a year, and 500 by 2010. The annual sales volume was expected to reach 2.8 billion yuan (US$345 million) by the end of the decade.

However, only 27 Seven-Eleven convenience stores have opened so far.

Seven-Eleven Beijing's Deputy President Li Yong attributed this to the limitations on Seven-Eleven's key penetration model - the franchise.

Foreign companies were forbidden to use the franchise model in China until Feb 2005, and they still require certification.

"The municipal government encourages the establishment of convenience stores, as residential communities are growing and there is more rural to urban movement," said Yan Ligang, spokesman with the Beijing Commerce Bureau, commenting on the decision.

"Because of the limitation on franchises in China, Seven-Eleven cannot expand as quickly as expected," said Li. "Franchise is the common expansion model in Japan and the US."

A detailed development plan, involving franchise fees, locations and business area requirements, as well as targeted number in a certain period of time, has not yet been formulated, said Li.

The certificate paves the way for the world-leading retailer to speed up its efforts in the city, which will be a concern to domestic counterparts.

At the moment a group of domestic retailers including Chaoshifa, Wu-mart and Hualian occupy greater market share, and are actively expanding.

A spokesman at Wu-mart said the company had over 100 stores at the moment, but wouldn't give an exact figure as it is increasing rapidly.

While there are currently approximately 2000 convenience stores in the capital, statistics from the Beijing Commerce Bureau indicate that the threshold in the city might be as high as 6,000.

The most recent financial statement from Seven-Eleven Beijing Co Ltd showed that the venture, with total assets of over 200 million yuan (US$24.69 million) at the end of last June, made a net loss of 7 million yuan (US$864,000) in the first half of last year.

Fan Yanru from the retail enterprise committee of the China Commerce Association for General Merchandise indicated the threat from Seven-Eleven was not immediate, as the market still had much room for expansion

"The competition will come in the long run, when the market reaches saturation," he said.

(China Daily February 16, 2006)