China’s famous Hotpot brand which kicked off its IPO in Hong Kong this year to help fund the opening of more than 150 new outlets by 2010 has announced plans to sell its stakes in Japan where it launched in 2006. Previous concerns about fast franchising and brand reputation problems don’t seem to exist in this market. Little Sheep’s management encourages the brand’s expansion by providing franchise incentives….

The Chinese hot pot restaurant chain Little Sheep has announced plans to sell its 62.5% stake in its Japanese subsidiary to its Japanese partner Webcrew for about HKD2.55 million, which equals to the company’s total investments in Japan over the past two years.

The Chinese Hot Pot chain opened its first Japanese restaurant in 2006. Besides selling its stake, Little Sheep also transferred the franchise rights its Japanese partner. According to the franchise agreement the Japanese branch needs to pay USD30,000 on opening each franchise restaurant as well as paying 4% of the monthly revenue of these restaurants to Little Sheep.

However, to encourage the brand’s expansion in Japan, Little Sheep has said that for the next three years, if the Japanese branch opens more than four restaurants each year, the company will charge the franchise fees for only four restaurants.

Asked the reason for selling the Japanese branch, Li Lichan, brand director for Little Sheep, said that it was part of the company’s management strategy.

According to media reports, in addition to Japan, Little Sheep will also focus on the franchise model in other countries, including the United States, Canada, and the United Arab Emirates, so as to concentrate more on directly-managed restaurants in its domestic Chinese market.

Little Sheep plans to open at least 40 new directly-managed restaurants in 2008 and early reports said that the company would acquire the seven franchised restaurants in China for CNY17.7 million and change them to directly-managed restaurants before the end of 2008.

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