Like many international food service retailers, Duskin Corporation, a successful Japanese franchiser and owner of the Mister Donut brand, met with little success when they entered the Shanghai market in 2000. After 9 years of effort and only 5 stores to show for it, the Japanese Company recently decided to give up going alone and partner with the large Taiwan Group, President Chain Store, and to invest a combined $16.5 Million in a new Joint Venture to kick start the brand. President Chain Store, franchisee of Starbucks, Cold Stone Creamery and 7-11 convenience stores among others, has a long and successful operating history in China with significant financial investments. This is a great marriage that has an excellent chance of success given the capabilities of both partners, the success of the Mister Donuts brand in Japan and Taiwan and the market entry strategy of its key competitor, Dunkin Donuts. China is just too large and complicated a market to be developed by offshore franchising as most companies have already figured out. Dunkin Brands certainly has the financial resources to build their own stores in China to gain some visibility and attract excellent partners over time but they chose to enter the market with the least risk strategy and this usually leads to the lowest rewards. If I am right, then you can look forward to a very large and successful Mister Donuts brand presence as the retailer quickly becomes the dominant donut brand in China.
Yoshinoya, the Japanese beef bowl concept with over 1000 stores in Japan, has been an offshore franchiser to China with a 180+ store presence in Greater Shanghai and Beijing. This concept has excellent potential on the Mainland given the Chinese love of protein over rice (“Donburi”) as a quick and filling meal. The Company is now convinced of the high potential for the brand in the China market and announced at the end of July its intention to partner with another Taiwan food service giant, Ting Hsin, and to invest a combined total of 100 Million RMB ($15 Million) in a new joint venture with the intention of building a 1000 stores in the next 5 years. I believe this goal is very achievable and that the China market will far outstrip the Japan or US market for Yoshinoya in the years to come.
Both the Mister Donut and Yoshinoya stories have common threads.
(1) Japanese brand owners are taking China seriously and investing serious money to develop their brands.
(2) They have chosen experienced Taiwanese operators as their partners rather than Mainland companies or doing it all themselves with 100% WFOE entities.
(3) They realize that they cannot establish a major presence in China without direct investment and control.
Some good lessons here for other international food service retailers who are sniffing around China trying to figure out how to get a piece of the pie!