The world's largest convenience store franchiser, 7-Eleven, is seeking to duplicate its Japanese success story in China. However, it could be a bumpy road as its path appears to be riddled with hurdles.

Embarking on a franchising system, the US-based 7-Eleven Inc which is 70 percent owned by Ito-Yakado Co, Japan's biggest retailer, is currently seeking proper licensees for its China operations.

Analysts caution that China's restrictions on foreign-invested retailers and the country's overheated retail sector bodes ill for 7-Eleven.

However, the convenience store operator is unfazed, pointing to the country's rising affluence and increased consumer spending.

Taiwan-based Uni-President Chain Store Corp, a subsidiary of food manufacturer Uni-President Enterprises Corp, has been licensed to operate 7-Eleven outlets in Beijing. Uni-President has a permanent franchise agreement with 7-Eleven Inc to run stores in Taiwan.

The Beijing joint venture, invested by Ito-Yokado, Uni-President and Beijing Shoulian Commercial Group, had hoped to open the capital's first 7-Eleven outlet on July 11. It also planned 20 outlets by the end of this year.

To date, not a single 7-Eleven store has materialized in Beijing. Insiders say the plan was suspended because of a dispute over licensing fees between the Beijing venture and 7-Eleven's US headquarters.

"We haven't reached a consensus on the fee for using the 7-Eleven brand," said an unidentified official with Ito-Yokado. "Technical problems stopped us from getting the operations license."

Pei Liang, deputy secretary of the China Chain Store and Franchise Association, believes 7-Eleven would be unlikely to expand rapidly due to restrictions on foreign-invested retailers.

Shanghai is widely expected to be 7-Eleven's next stop after Beijing.

In the absence of an official announcement on 7-Eleven's licensee in Shanghai, industry insiders say Ito-Yokado has won the Shanghai operation rights.

"Ito-Yokado hopes to set up a wholly owned subsidiary to operate stores in Shanghai in 2005," said Gu Guojian, director of the Shanghai Chain Store Research Institute.

"It's not easy to find a proper local partner as 7-Eleven wants big partners with huge sales networks," he added.

And therein lies the rub. Big companies, apparently, would be loath to fly under the wings of 7-Eleven.

Yuan Jianjun, an analyst with China Securities, said the investment restrictions on foreign-invested retailers may block 7-Eleven from setting up a wholly owned branch in Shanghai.

China now allows foreign partners to hold a maximum 65 percent stake in a joint-venture retailer. The limit will be lifted in 2005 in line with China's commitments to the World Trade Organization.

Unlike Beijing, Shanghai has seen a mushrooming of convenience stores in the past two years.

"Shanghai has more than 3,500 convenience stores now. The later 7-Eleven comes, the higher it will cost (them to operate)," Gu said.

7-Eleven Inc prospered in Japan after Ito-Yokado Co bought 70 percent of its shares for US$430 million in 1991.

Under a licensing system, 7-Eleven stores are operated by Ito-Yokado in Japan. The company has more than 3,000 outlets nationwide.

In Thailand, Chia-Tai Group runs about 1,700 outlets while President Chain Store has more than 3,000 stores in Taiwan.

In Hong Kong and Guangdong Province, the Hong Kong-based Dairy Farm Co Ltd is the licensee.

In Guangzhou and Shenzhen, there are now about 100 stores since first opening in 1992. Dairy Farm Co Ltd expects to launch 300 more stores in the two cities.

(Shanghai Daily October 27, 2003)