Direct Chain PK Franchise Chain: VC Perspective

When the chain stores such as home, small fat sheep and real Kung Fu managed to get the investment of VC (venture capital), many enterprises saw the tendency of VC in the field of franchising. It seems that only direct chain stores are more concerned by VC.

In fact, VC also saw the value of some products linked chains.

Enterprises with service as their links should be more direct.

Direct and franchise have their own advantages and disadvantages, but in the field of service products, direct business has more advantages, especially catering industry.

Kung Fu is a Chinese fast food enterprise which is mainly owned by direct battalion. The number of stores has already been over 200, and Wen Bao Ma, a partner of its investors today, said that besides focusing on the potential of the industry represented by this enterprise, he paid more attention to its direct chain mode.

Coincidentally, another small restaurant in the catering industry introduced the 3I group and the $25 million fund of the fund to spend three years to clean up its franchised stores, and change the opening line of "joining the main business and focusing on direct operation" as the "direct business oriented, regulated Affiliate", and acquired most of the equity of agents and franchisees.

In addition to standardizing the role of the market, this direct camp strategy is very beneficial to the financial statements of the allies.

Zhang Fan, a partner of Sequoia Capital, said that direct and franchising have their own advantages and disadvantages, but in the field of service products, direct business has more advantages, especially in the catering industry.

Gobi investment partners believe that this is related to the dependence of franchisees on the system. Many franchisees are easy to conceal their financial status when they learn the way of management and gain profits from their operations.

In addition, this "master" will train the franchisee, and is likely to cultivate his own competitors in the local area.

Because of this risk, many venture capitalists prefer direct chain businesses.

In depth, the commonalities of these direct enterprises are deeply explored. In fact, these enterprises that are mainly direct battalions are linked by "service" as a profit link.

Because services are more difficult to standardize, and both headquarters and chain stores serve the source of profits, and both sides eat a piece of cake. For headquarters, regulation is a difficult problem.

It's easy to eat the first bite, but in the long run, it's hard for franchisees to create a stable source of profits for the allies.

Take the above three enterprises as an example, as a chain headquarters, all are linked by "service". If we adopt the way of franchisee, the headquarters will charge the chain stores the share of the turnover and the brand use fees. The headquarters will provide brands, management techniques and charge the corresponding fees to the chain stores, and the control and financial supervision will be weakened with the invisible inputs and the long-term joining of the franchisees.

Venture capital is more concerned about direct investment in such enterprises.

BELLE expands from franchise to successful listing

Not all franchises have been left behind, but BELLE has joined the way of franchising and won the attention of venture capital.

Recently, the brand aesthetic degree of beauty salons based on franchising received frequent attention from venture capitalists, and the amount of financing contracted with a venture capital firm in Hongkong amounted to 15 million US dollars.

In 1992, Deng Yao, the head of BELLE, started the wholesale business of BELLE shoes in Shenzhen and Guangzhou.

But it didn't last long, and counterfeit goods soon appeared. In 1993, Deng Yao decided to set up a monopoly point to develop a sales network with a franchise mode.

In 1997, BELLE entered into a regional exclusive distribution agreement with 16 independent distributors across China.

According to the agreement, distributors act as retailers to open exclusive stores in their respective districts and exclusively distribute BELLE shoes.

In this way, the number of BELLE stores has exceeded 1000 rapidly.

Although 2005 Deng Yao bought 1681 franchised stores in the form of capital operation, it quickly increased 2147 franchises.

It is easy to understand the concern that BELLE, a product franchised franchisee, has won VCs. Every franchised store sells a pair of shoes to BELLE to make certain profits.

In 2004, the net profit of BELLE was 75 million yuan, up to 235 million yuan in 2005, and net profit reached 977 million yuan in 2006.

Before listing in 2007, the number of stores reached 3828, or mainly by franchised stores.

In Morgan's report, "marketing network is BELLE's most valuable asset".

The success of BELLE fully embodies the advantages of franchising: franchisees not only provide funds to open chain stores according to headquarters mode, but also invest a lot of energy in managing and handling local connections, and increase market share in a short time. Headquarters can focus on developing their own brands, ensuring product quality and keeping up the brand awareness rapidly.

Who is the next BELLE?

It is easy to understand the financing of products linked enterprises like BELLE.

But the beauty salon's attraction to VC must be explored.

"We are the next BELLE," said the general manager of the aesthetic China district.

Studying the aesthetic degree of business model is indeed different from BELLE's.

In the 1500 chain stores nationwide, although most of them are franchised stores, the link between franchisees and franchisees is products, not services.

Franchisees have strong adhesion because franchisees must buy products from headquarters when they join, and headquarters provide brand and technical support to franchisees.

Because the profits of franchisees come mainly from services rather than products, and customers have strong loyalty to product brands, therefore, franchisees do not have to abandon the headquarters purchase channel, nor do they need to conceal their financial affairs.

Unlike the franchising relationship based on service, headquarters earn products and profits in the aesthetic profit making mode, while chain stores earn sales profits and service profits generated through products based on headquarters promotion programs.

There is no contradiction for everyone to eat each cake.

In fact, there has been a precedent in the beauty industry. Natural beauty is already a listed company. It has 87 stores in the end of 2005, but in 2006, in order to avoid the huge investment in the direct investment mode, it also reduced the number of outlets to 5.

Its net profit increased from 70 million yuan to 100 million yuan, and its market value increased from 1 billion 500 million yuan in 2006 to 3 billion 800 million yuan at present.

In addition, another factor in the beauty of VCs is customer and network. The sales terminals of the 1500 stores are facing a large number of high-end female customers, and their network can become headquarters distribution channel at any time.

It is understood that there has been foreign body underwear brand and aesthetic negotiation agreement.

VC believes that the beauty industry can produce another BELLE.