Click to read the original article for details. After a 15-year 'honeymoon,' FamilyMart under Ting Hsin's control has become a benchmark worthy of study in China's convenience store industry. Now, Japan's FamilyMart has filed a lawsuit against Ting Hsin Group (hereinafter 'Ting Hsin'), marking another instance of 'only sharing hardships, not wealth' after brand disputes such as Wang Laoji vs. JDB and Red Bull vs. Ange. Recently, New Distribution learned that FamilyMart, one of the three major foreign convenience store brands, has broken off relations with its Chinese agent partner Ting Hsin Group and formally taken the dispute to court. The reason is that Ting Hsin failed to disclose the joint venture's financial data to FamilyMart in a timely manner, prompting the latter to plan to terminate the brand authorization to Ting Hsin and take back the operating rights of 2,500 FamilyMart convenience stores in the Chinese market. As the brand with the most stores in mainland China among the three major foreign convenience stores and the only one currently profitable, FamilyMart's development in China has been studied and emulated by many domestic convenience store brands. What impact will this brand dispute between FamilyMart and Ting Hsin have on both parties? What lessons and insights does it offer to the FMCG industry, which has seen frequent trademark and brand disputes? FamilyMart and Ting Hsin 'Fall Out' Some readers may not be familiar with Ting Hsin, but when it comes to Master Kong, Dicos, Wei Chuan, FamilyMart, etc., everyone knows them. All these brands come from this food and beverage giant rooted in Taiwan—Ting Hsin Group. In addition, Ting Hsin Group's business also involves grain and oil, real estate, social welfare, and other industries, with a complex industrial chain. 'Under a big tree, you can enjoy the shade,' which made Ting Hsin the preferred partner for many foreign companies such as Asahi Group, Calbee, and Itochu Corporation to enter China. FamilyMart was no exception. Image source: Northeast Securities In 2004, FamilyMart officially entered the domestic market, with the actual controlling company being China Convenience Store Holdings, in which Ting Hsin Group held 59.65% of shares, Taiwan FamilyMart held about 18.35%, and the remaining shares were held by Japan FamilyMart, Itochu Corporation, and FMCH (FamilyMart China Holding). Image source: Northeast Securities Ting Hsin, which secured the mainland operating rights of FamilyMart, naturally did not disappoint Japan FamilyMart. Nearly a decade after entering the mainland, FamilyMart finally became profitable in 2013, a feat that took Thailand FamilyMart 17 years to achieve. Image source: CCFA According to the latest '2018 China Convenience Store TOP 100' list released by CCFA, FamilyMart ranked 7th with 2,571 stores, while fellow Japanese convenience store brands Lawson and 7-Eleven ranked 9th and 10th, respectively. Just as FamilyMart's performance in the mainland was rising, the contradictions between FamilyMart and Ting Hsin gradually erupted. In October 2018, FamilyMart sued Ting Hsin in the Cayman Islands, where the joint venture's headquarters is registered, on the grounds that 'since 2012, Ting Hsin has not only failed to disclose the joint venture's business content to us but also has long been in arrears in paying the brand usage fees owed to FamilyMart.' However, industry sources say that the two parties agreed to defer the payment of related commissions for two years, i.e., to start in 2020. Another theory is that the brand authorization cooperation agreement between the two parties is about to expire, and Japan FamilyMart may raise the brand usage fee to negotiate renewal. In response, both Japan FamilyMart and Ting Hsin Group have remained tight-lipped. Even though the 'honeymoon period' was sweet, it is undeniable that FamilyMart and Ting Hsin have now reached the point of 'falling out.' 'At the end of the day, it's about interests,' commented Shen Jun, a senior retail industry analyst. 'The physical retail industry has not been easy in recent years. 'Small and beautiful' convenience stores have become increasingly popular due to relatively low costs, flexible locations, and growing consumer demand, achieving counter-trend growth. But the initial operation and refined management of convenience stores are not easy, requiring a period of operation to become profitable. So in the early years of cooperation, both parties were in the cultivation stage, and results were not yet obvious. Now that the convenience store industry has risen, compared with other brands like Lawson and Kuai Ke, FamilyMart has obvious advantages in scale and strength in the Chinese market, so everyone wants to gain more benefits, and disputes naturally arise.' Ting Hsin's Confidence and 'Backup Plans' So, will Ting Hsin hand over the market it has cultivated for over a decade? The answer is clearly no. As early as the beginning of the cooperation, Ting Hsin had reserved sufficient 'backup plans' for potential disputes. 1. 'FamilyMart' vs. 'Quanjia'! Multiple media reports have stated that when Ting Hsin Group registered FamilyMart China in its early years, it also registered another brand—Quanjia. The difference is just one character, but the true intention is fully exposed. Like 'C-store' and 'Xi Shi Duo,' although the names differ, the store decoration, operation, and product selection are similar, making it difficult for most consumers to notice the difference, even though the two are indeed from the same company. It is worth noting that Ting Hsin has formed a set of operating concepts distinct from Japan FamilyMart during the localization process, especially in product development, production, and market expansion systems. Most of FamilyMart's products are provided by Ting Hsin and its affiliated companies. From this perspective, Ting Hsin has formed its own complete standard process in convenience store supply chain and store operations, which is an important reason why Ting Hsin dares to challenge FamilyMart. 2. Strong Membership System When it comes to FamilyMart, another thing that must be mentioned is its strong membership system. Especially against the backdrop of the entire domestic retail industry imitating Costco, the Ji Xiang Alliance membership system established by Ting Hsin Group is particularly commendable. Relevant data shows that the Ji Xiang Alliance, to which FamilyMart belongs, currently has 40 million members nationwide, of which 3 million are paid members. At the same time, relying on Ting Hsin Group's rich industrial chain, in addition to FamilyMart, the Ji Xiang Alliance merchants also include Dicos, Master Kong's Private Beef Noodles, Master Kong's Pork Chop Rice, Napoli's Pizza, Bred Bread, Zhen Hui Xuan Online Mall, and Zhen Hui Xiang Member Canteen, seven brands in total. Points within the alliance system can be used to offset cash across brands, which is undoubtedly an important reason why many consumers prefer FamilyMart. In addition, the Parc Coffee that grew up with FamilyMart is also a trump card in Ting Hsin's hand. Since the birth of the Parc brand in 2014, by the end of 2018, FamilyMart had sold 40 million cups of coffee, which is undoubtedly the most outstanding performance among the three major foreign convenience store brands. 3. Opening the Supply Chain to Serve Millions of Traditional Retail Stores On the other hand, as early as last year, Ting Hsin fully opened its supply chain capabilities through its affiliated company Shanghai Dingshi Warehousing Co., Ltd., officially starting to provide goods and logistics distribution services to traditional retail stores, i.e., beginning to provide B2B services to stores. As FamilyMart's only supply chain service provider, Dingshi's importance in FamilyMart's store expansion is self-evident. And for a long time in the past, FamilyMart has been Dingshi's only customer. In addition, since both FamilyMart and Dingshi are currently operated under the leadership of Ting Hsin Group, the opening of Dingshi may also signify the opening of Ting Hsin Group's overall channel strategy. With FamilyMart's business as a foundation, opening supply chain capabilities will undoubtedly significantly reduce Ting Hsin's warehousing and distribution costs. Moreover, like the development path of most B2B platforms, supplying goods to traditional grocery stores through B2B business in the early stage can establish initial sales relationships with the latter. As the supply time increases and cooperation deepens, the relationship and stickiness between Dingshi and stores will inevitably become stronger, which is of great significance for providing additional value-added services to stores and attracting store franchises in the future. Whether it is the brand or the capability building in the supply chain, we can see Ting Hsin's confidence in 'challenging' Japan FamilyMart. At the same time, it also shows us the unique aspects of Taiwanese enterprises in business and their accumulation in retail. 4. The Confidence of Taiwanese Retailers Ting Hsin's daring to challenge FamilyMart is not only due to its own backup plans and full preparation but also closely related to the development of Taiwan's retail industry in the mainland. A well-known convenience store retail industry expert told New Distribution: 'The development of Taiwan's retail industry has always been at a relatively high level. In terms of refined management, Taiwan's retail has many things worth learning and borrowing from compared with the mainland market. High-density centralized store opening makes the service level and service capability of Taiwan's convenience stores much stronger than those in the mainland. Moreover, the product displays and themed activities of Taiwan's convenience stores are also more complete and rich.' Take RT-Mart, the 'King of Land Warfare,' as an example. Since entering the mainland market in 1997, RT-Mart has firmly held the throne of China's No. 1 supermarket for over 20 years, not only because it has been the sales champion in the domestic supermarket industry for many consecutive years but also because, despite the downturn in the retail industry, RT-Mart has maintained a record of never closing a store, which is nothing short of a miracle. In addition, Dennis, which dominates Central China, and Unimart in Shandong also originate from Taiwanese enterprises. These enterprises have successively completed their rooting in the mainland and brought the retail service genes flowing in their bones to the mainland market. Years of localized development have finally made them a force to be reckoned with in the regional retail market. On the other hand, without Ting Hsin, can FamilyMart find a better 'spokesperson' in the mainland? Currently, looking at the domestic retail market, 7-Eleven is divided into three regions by Hong Kong's Jardine Matheson Group, President Chain Store, and Beijing Wangfujing Department Store, while Lawson has cooperated with Wuhan Zhongbai, Beijing Chaoshifa, Nanjing Central Mall, etc., in different regions. Although the domestic market does not lack capable and visionary capital parties to enter FamilyMart, and FamilyMart's brand power remains a huge asset, there are not many high-quality targets left for FamilyMart to choose from. When Will the Brand Disputes End? Returning to this incident, regardless of who wins or loses the brand dispute between FamilyMart and Ting Hsin, New Distribution believes that it is more harmful than beneficial for both parties, and it is very likely to end in a 'lose-lose' situation. For Ting Hsin Group, it is undeniable that among FamilyMart's 85% franchise stores, many came because of the brand appeal of 'FamilyMart.' Even if sufficient preparations were made at the beginning of the cooperation, once the FamilyMart brand authorization becomes unsustainable, franchise stores are very likely to 'defect' and withdraw from the franchise. For Japan FamilyMart, going to court is already the worst outcome. As the brand authorization gradually expires, the possibility of re-authorizing Ting Hsin is already slim, unless the latter makes significant concessions. If Ting Hsin refuses the new cooperation terms, FamilyMart will have to find a new brand agent in the mainland. Moreover, since the retail industry itself is an industry that requires precipitation and accumulation, the relatively long running-in period between the two parties will definitely be a significant loss for FamilyMart. In fact, both FamilyMart and Ting Hsin have experienced unpleasant partings with partners during their development. To enter the Chinese market, Asahi Group Holdings, Calbee, and Itochu Corporation all chose Ting Hsin as a partner earlier. However, these companies successively terminated their cooperation with Ting Hsin between 2016 and 2018. Up to now, these companies are still developing lukewarmly in the mainland. And because FamilyMart had a conflict with its Korean agent, it had to withdraw from the Korean market in 2014, suddenly losing about 8,000 stores, its largest overseas network, which is undoubtedly a lesson for FamilyMart. In summary, leveraging mature brands is still the best means for brand owners to open the domestic market. However, how to handle the interest distribution between the licensor and the licensee has become a problem that many domestic enterprises have to think about. Thinking of the long-pending Red Bull Ange trademark dispute, the Jiang Xiaobai Jiangjin Distillery brand dispute, and the JDB Wang Laoji red can dispute, is it really true that behind the frequent trademark and brand cases, they can only 'share hardships' but not 'share wealth'? New Distribution believes that besides the greed for interests on both sides, these frequent incidents are more due to the lack of clear long-term planning at the beginning of cooperation, and there are certain loopholes in the top-level design and institutional clause design, which lays the groundwork for future court disputes. This hidden danger may not erupt when the enterprise is in its early stages and the market scale has not yet formed, but once one party completes market cultivation and obtains sufficient scale profits, the contradictions between the two parties will inevitably erupt. To avoid such incidents, it is necessary to start from the institutional rules and interest distribution, and nip future hidden dangers in the bud at the beginning of cooperation.