How Can Foreign F&B Brands Enter China? Food Franchising Models and Market Entry Considerations

Foreign food and beverage chains are expanding in China through franchising and local capital. We compare the entry models open to foreign F&B brands and the compliance steps that determine success.

Foreign F&B brands do not all enter China as franchisors from the outset. Many begin with a small number of directly operated stores, using them to test and refine menus, pricing, sourcing, and store economics before introducing franchising at scale. Others enter through a master franchise partner from day one, prioritising speed and local market expertise.

In practice, foreign brands tend to expand through four broad models, which are best understood as points along a spectrum of control, capital commitment, and speed rather than fixed long-term structures.

See also: China’s Food Franchising Market in 2026: US Chains Return as the Industry Consolidates

Choosing the right China market entry model

These models are not mutually exclusive over a brand’s lifecycle. A brand may operate one to three stores directly for several years, a restaurant operator, not yet a franchisor in the legal sense, before franchising once the concept is validated. Under the “2+1” requirement, a franchisor must have owned and operated at least two direct outlets for at least one year; outlets abroad generally count if properly documented, but directly operated China stores demonstrate to prospective partners that the model works locally.

Finding and vetting the right local partner

For franchised and equity models alike, the local partner is the single largest determinant of success. Due diligence should verify financial capacity, multi-unit operating experience, landlord relationships, delivery-platform capabilities, and the background of shareholders and affiliates. Development agreements should build in store-opening milestones, performance remedies, and defined exit and step-in mechanisms so an underperforming partnership does not lock the brand out of the market.

Structuring the entry, and complying with China’s franchise rules

A local entity is not legally required to franchise into China, but a WFOE or joint venture materially simplifies trademark enforcement, supply chain contracting, and royalty repatriation. Brands that franchise are governed by the Regulations on the Administration of Commercial Franchising (2007) and MOFCOM’s filing and disclosure measures:

• The “2+1” rule: at least two direct outlets owned and operated for at least one year (outlets abroad generally count, but must be documented);
• Filing: within 15 days of signing the first China franchise agreement, with central MOFCOM for foreign franchisors, using notarised and legalised documents; changes must be updated within 30 days;
• Disclosure: prescribed written disclosure to the franchisee at least 30 days before signing; and
• Contract terms: a minimum three-year term plus a cooling-off clause, with Chinese franchisee protections applying regardless of the contract’s governing law.

See also: Key Regulatory Developments in China’s F&B Sector: Implications for Industry Stakeholders

Structuring and protecting your China business

Beyond the choice of entry model, foreign brands need to establish the legal and commercial framework that will protect the business as it grows.

Registering trademarks before approaching partners

China’s first-to-file system makes registration essential before market entry is announced and before any partner discussions begin. Registrations should cover the core mark and Chinese-language versions (transliteration and translation) across all relevant classes, including restaurant services and packaged food. Recipes, operating manuals, and training systems handed to franchisees should be protected as trade secrets through confidentiality and non-compete provisions enforceable under Chinese law.

Managing agreements and dispute risk

Franchise and development agreements should be designed for the full lifecycle of the relationship rather than only the launch phase.

Brands should address royalty auditing, renewal rights, termination triggers, performance obligations, brand-standard monitoring, and procedures for updating regulatory filings when relevant terms change.

Dispute-resolution provisions also require careful attention. The chosen arbitration forum, governing law, language, and enforcement mechanisms can have significant consequences if a dispute emerges years later.

Data ownership should likewise be established at the outset, particularly for customer information, loyalty programmes, delivery-platform data, and membership databases generated through the China business.

Building the operating model for China

Once the ownership and legal structure is established, the next challenge is translating the concept into an operating model that works commercially under Chinese market conditions.

Getting site selection and lease terms right

China’s chain restaurant market remains heavily mall-driven, Five Guys’ Beijing debut at Xidan and Chaoyang Joy City is typical, and prime space often depends on landlord relationships a local partner brings. Leases commonly combine base rent with turnover rent, making negotiation inseparable from revenue forecasting, and lease terms should align with franchise agreement durations. In lower-tier cities, rents fall, but so does per-capita spending, while delivery mix rises.

Designing the supply chain for cost, quality, and food safety

Every outlet requires its own food business licence, and the supply chain must satisfy China’s Food Safety Law plus import registration and labelling rules for foreign ingredients. Successful chains localise sourcing progressively to manage cost, tariffs, and cold-chain complexity, while retaining audit rights over suppliers and franchisees. Supply agreements, who sources what, at what margin, under what quality controls, are among the most disputed areas in franchise relationships.

Hiring and labour law compliance

Staffing is governed by the Labour Contract Law‘s rules on written contracts, social insurance, and housing fund contributions, with specific provisions for the part-time arrangements common in quick service. In franchised networks, the franchisee is the employer of record, but brand owners should define training and conduct standards contractually, while noting that excessive control over a franchisee’s workforce can create liability. For direct stores, the store-manager pipeline is typically the binding constraint on opening speed.

Managing agreements over the full lifecycle

Entry is a moment; agreement management is a decade-long discipline, royalty auditing, renewal and termination management, updating MOFCOM filings when terms change, and monitoring brand standards across a growing network.

Dispute resolution clauses deserve particular care: arbitration seat and language choices made at signing determine enforceability years later. Settle at the outset who owns customer and membership data generated by the China business.

Scaling a foreign F&B brand in China

The operational requirements of a small initial network are different from those of a nationwide franchise system. Brands should therefore design their China structure with future scaling requirements in mind:

• Expanding beyond first-tier cities: Lower-tier cities can offer lower occupancy costs and new consumer markets, but expansion should not simply replicate the operating assumptions used in Beijing, Shanghai, Guangzhou, or Shenzhen.
• Maintaining standards across a growing network: As the franchise network expands, brand owners need systems for monitoring store performance, food safety, customer experience, marketing activity, and compliance with operating standards.
• Managing franchisee performance over time: Expansion agreements should provide mechanisms for reviewing franchisee performance throughout the relationship. These can include development schedules, minimum store commitments, financial reporting, audit rights, corrective-action procedures, and termination provisions.

How we can help

Dezan Shira & Associates supports foreign F&B brands entering and expanding in China, from market entry and entity setup to partner due diligence, franchise compliance, tax, HR, IP, and ongoing advisory. Contact us to speak to our local advisors.