July 6, 2006

Dairy Queen stoking China’s franchise boom one blizzard at a time

Filed under: Automotive,Retail — Administrator @ 5:01 pm

Dairy Queen outlet – XuJiaHui, Shanghai

Earlier this week, I was playing rugby next to Shanghai stadium, contemplating why New Zealanders are so much better at this game than Americans, when out of the corner of my eye I spotted heaven on earth – Dairy Queen. For those in the know, DQ makes up a quarter of what we in America call our cultural soul (the remaining three quarters include, American Idol, any credit card, and Oprah).

After downing two Monster Cookie Blizzards, braving the associated (and excruciatingly painful) “brain freeze”, and finally, marveling at my new found little piece of haven, I headed off to do a little research on DQ in China.

And what I found was very interesting – DQ is a US$3 billion ice cream retailer based out of Minnesota and owned by Warren Buffets’ Berkshire-Hathaway – 99% of DQ’s revenues are generated via franchising. DQ has a franchisee in Beijing responsible for 41 outlets, a second deal with Shanghai-based RCS Group Co Ltd, and a third agreement with Guangdong Foison to open 14 DQ locations in China – DQ expects China to become its largest market in five years.

I haven’t looked at franchising plays in a long time – I think it was back in 1993 while I was a student at Nankai University in Tianjin that I first decided I wanted to rollout Subway outlets in China (Beijing’s railroad administration bested me in a franchisee battle royale) – maybe it is time to start reconsidering this model again?!

According to the U.S.-China Consulting Group in Beijing, China now has about 1,500 franchise companies – local and foreign concepts – with 70,000 franchisees. In 2003, sales from franchised stores increased 44% from the previous year, but franchising still makes up only 2% of all retail sales.

Compare China’s 2% to that of the United States where over 33% of all retail sales are from franchised stores – this US figure could climb as high as 50% by 2010, according to Naisbitt Group’s The Future of Franchising – we could be just a the beginning of something beautiful – this of course assumes Chinese consumers are as much interested in consumption as their American friends across the pound – anyhow, with the right blend of product, brand, and customer service we could see some spectacular growth from of this sector in the coming years.

For example, franchised used car dealerships…

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