How Businesses in China Can Prepare a Practical Franchise Market Plan

Established businesses preparing to launch a franchise network can easily fall into the trap of treating their market plan as a brand introduction with a few store-opening targets attached. A useful plan should explain which markets to enter first, why that sequence makes sense and when expansion should stop. It serves both as a regulatory filing document and as a working guide for head office to manage the pace of franchise network growth.

1. Distinguish statutory documents from internal business plans

China has specific regulations governing commercial franchising. Article 8 of the Regulations on the Administration of Commercial Franchising lists a market plan among the documents required for filing. The Measures for the Administration of Commercial Franchise Filing also expressly require the franchisor to submit a market plan. Franchisors must apply for filing within 15 days of entering into their first franchise agreement, so drafting should not be left until the first franchisee has signed.

These rules require a market plan to be submitted, but they should not be read as setting standard legal targets for outlet numbers, growth rates or profitability. Businesses should prepare their documents in line with the receiving authority’s current requirements and ensure that the plan reflects their actual circumstances.

A sensible approach is to prepare a comprehensive internal version first, then use it to produce the filing version. The level of detail may differ, but the core facts and direction of expansion should not contradict each other. Nor can the plan replace statutory eligibility requirements such as the ‘two outlets, one year’ rule. Filing must not be presented as government endorsement of the venture’s financial returns.

2. Use market evidence to set priorities

The first question a plan should answer is ‘Where should we go first?’, rather than ‘How many outlets could we open nationwide?’ The success of existing company-operated outlets may depend on particular customer groups, the concentration of commercial activity or local supply conditions. It cannot simply be assumed that the same results will follow in other cities.

Potential markets can be divided into three categories: priority entry, further observation and no entry for now. Each decision should be supported by evidence, with any untested assumptions clearly identified:

• Demand: Are the target customers, purchasing occasions and purchase frequency similar to those in the existing business?
• Operating conditions: Is reliable information available on local rents, staffing, logistics and other essential operating requirements?
• Brand awareness: Do customers in the market already know the brand, or will trust need to be built from scratch?
• Barriers to entry: Are there constraints relating to delivery coverage, product suitability or seasonality?

For example, a high volume of enquiries from another region shows interest in becoming a franchisee; it does not establish sufficient local consumer demand. Record ‘franchise recruitment leads’ separately from ‘customer demand’. Where data is not yet available, specify how it will be verified, who is responsible and when the work is expected to be completed. Do not present estimates as facts.

3. Plan expansion in stages, not just annual totals

Once markets have been prioritised, divide the plan into stages: preparation, initial entry, monitoring and evaluation, and further expansion. For each stage, specify the conditions for proceeding, key actions, funding needs and the evidence on which a decision to continue will be based.

When first entering a new market, observe actual sales, fulfilment costs and the suitability of local operating arrangements before deciding whether to expand further. This is not about proving again that company-operated outlets can be profitable. It is about checking whether the established model can adapt to new market conditions.

At a minimum, target tables should distinguish between prospective outlets under discussion, signed outlets, outlets being prepared for opening and those already trading. The number of agreements signed is not a substitute for the number of outlets opened, still less for the number operating on a stable basis. These distinctions should also be maintained when announcing growth figures publicly.

Funding arrangements should separate head office expenditure on market research, regional support and initial set-up from franchisees’ investment in their outlets. Franchise fees not yet received should not be treated as assured funding, and franchisee investment should not be included in a budget that head office can spend at its discretion.

Assign a decision-maker to each stage and state what evidence is needed to approve further expansion. This prevents recruitment staff from assuming that a new lead means head office has already approved entry into that region.

4. Set conditions for pausing expansion and control document versions

A workable plan must allow the business to slow down. Depending on the nature of its operations, a company can agree in advance which circumstances will trigger a reassessment: for example, deliveries failing to meet agreed standards, essential local operating requirements remaining unresolved for an extended period, or actual expansion spending persistently departing from budget. Specific thresholds should be based on the company’s own data, rather than unsupported generic benchmarks.

When a trigger is reached, make clear whether the pause applies to new franchise recruitment, signing agreements or investment in new regions, and set a review date. An internal decision to pause expansion does not automatically release head office from its existing contractual obligations to franchisees.

The market plan should also be consistent with franchise recruitment materials, disclosure documents and contracts. The Regulations on the Administration of Commercial Franchising require franchisors to provide the prescribed information and a copy of the contract in writing at least 30 days before the agreement is entered into. The market plan cannot replace these materials, and its statements about support arrangements and operating facts should not conflict with the disclosures.

It is particularly important to distinguish internal targets from commitments to franchisees. ‘Planning to enter a city’ does not mean a commitment to establish a regional warehouse; ‘prioritising expansion in a region’ does not automatically confer exclusive rights. Whether significant arrangements become contractual obligations should be made clear in the relevant documents, rather than left to verbal explanations by recruitment staff.

For each update, record the version date, reasons for the changes, approver and affected documents. Where a change concerns a matter covered by the regulatory filing, follow the applicable procedures. Do not assume that every adjustment to the plan constitutes a change requiring an updated filing.

Practical takeaway: Start with a one-page table covering target markets, the evidence for entering them, expansion stages, funding sources and conditions for pausing. Then develop it into a formal plan. Rather than promising ambitious outlet numbers, ensure that every step of expansion is supported by evidence, has a named person responsible and includes a mechanism for stopping to review progress.