Wed, May 15, 2019 - Page 10 News List

Feud threatens to tear FamilyMart chain apart in PRC

LAWSUIT:FamilyMart is the latest foreign brand seeking for a way to alter a Chinese partnership as Beijing eases restrictions on non-critical industries

Bloomberg

FamilyMart UNY Holdings Co, the most successful Japanese convenience-store chain in China, is embroiled in a royalty payments fight between its Japanese and Chinese joint-venture partners that could change how much money each side makes or scuttle the partnership entirely.

FamilyMart is suing to end its Chinese partnership with Ting Hsin International Group (頂新集團), saying the Taipei-based conglomerate has not fairly shared the gains from the chain’s rapid expansion, according to people familiar with the matter and legal documents seen by Bloomberg.

Under the terms of the partnership, Ting Hsin effectively operates more than 2,500 FamilyMart stores in China, sharing profits and paying royalties to the Japanese company.

Although Ting Hsin’s founders are Taiwanese, the company has had a presence in China since the late 1980s before the nation’s economy opened up and is considered a local entity.

It also controls other food and beverage brands, including China’s leading instant noodle maker.

FamilyMart has filed a petition to a court in the Cayman Islands — where Ting Hsin and the joint venture are registered — to force its partner to relinquish its 60 percent stake, said the people, who asked not to be identified discussing internal company affairs.

FamilyMart shares yesterday dropped 2.2 percent in Tokyo trading to reach its lowest level in five weeks.

FamilyMart is the latest foreign brand seeking for a way to alter a local partnership as the Chinese government eases restrictions on non-critical industries, such as consumer goods and retail.

Ting Hsin argues that the royalty fees are three times higher than the average charged by rivals such as 7-Eleven, the people said.

“We cannot comment on matters of litigation,” said Shinsuke Otsuki, a spokesman for Tokyo-based FamilyMart, which is 50.1 percent owned by trading house Itochu Corp.

Ting Hsin is not commenting on the lawsuit due to contractual confidentiality agreements, the company said in an e-mailed statement.

FamilyMart is alleging that Ting Hsin sought to reduce the royalty fee it pays for use of the brand to 0.3 percent or less from 1 percent, and withheld royalty payments for seven months, according to the documents.

The payments were subsequently paid, one person said.

The Japanese company also alleged that Ting Hsin did not provide adequate disclosure of transactions related to the joint venture that would give FamilyMart a full picture of the venture’s profitability, according to the documents.

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