Blue Shark Introduction: 80% of franchisees lose money Author | Edited by Chen Shifeng | Lu Xucheng Franchise is the hottest business method in recent years. The most intuitive manifestation is that from first-tier cities to eighteenth-tier small counties, and even towns, there a

Blue Shark Introduction: 80% of franchisees are losing money

author | Chen Shifeng

editor | Lu Xucheng

Franchising is the hottest business method in recent years. The most intuitive manifestation is that from first-tier cities to eighteenth-tier small counties and even towns, There are various chain brands "crazy involution".

Today, many chain brands have exceeded 10,000 stores, such as Mixue Bingcheng, Luckin Coffee, Wallace, Zhengxin Chicken Steak, Guoquan, etc., and more chain brands are rapidly reaching 10,000 stores. Stores have moved forward, such as Gu Ming, Hushang Auntie, Tea Baidao, Snacks and so on.

For some people who want to start a business, they want to seize the opportunities within reach and realize their entrepreneurial dreams by joining certain brands. For example, some female entrepreneurs around the age of 30 choose to join in and open a small but exquisitely decorated beauty shop. The business includes manicures, eyelashes, and basic medical beauty projects to meet the beauty needs of girls; another example is in a supermarket. In a quiet environment, some middle-aged couples with some savings bought a small convenience store and joined a certain brand to cover the consumer groups around the community. They transformed from workers into small business owners, hoping to obtain stable returns... ...

joining seems to lower the threshold for people to start a business, but it is not a matter of "you will win as soon as you join". Not long ago (April 12), the China Chain Store and Franchise Association and Meituan officially released the "Top 100 Chinese Catering Franchise Brands in 2023". Many brands have certain problems.

Source: China Quality News Network, Black Cat Complaints, Blue Shark Consumption Compilation

In the severe competitive environment, there is cruel data showing that about 80% of franchisees are at a loss . For franchisees, "avoiding pitfalls" is a key issue.

The pitfalls are all different

"How happy you are when you drive, how embarrassed you will be afterward...".

A Xiaohongshu blogger who is suspected to be a Kudi Coffee franchisee, in just two sentences, explained the bitter, spicy, sweet and sour aspects of joining the coffee track.

In October 2022, Lu Zhengyao founded Cudi Coffee. In only about a year, he brought Cudi to the door of Luckin and Starbucks, making the number of Cudi stores second only to Luckin and Starbucks. According to data from Zhaimen Catering, as of now, the number of Kudi Coffee stores is 6,820, which took 16 months. Comparing to Luckin Coffee, when it was founded 16 months ago, its number of stores was only over 2,000. In terms of store opening speed, Cudi far surpassed Luckin Coffee back then.

But while it is rapidly opening stores, Kudi Coffee has also closed a lot of stores. According to the "Blue Book on Chain Catering Brand Store Development Trends in the First Half of 2023", in the first half of 2023, Kudi ranked first in the number of opened stores, but also ranked first in the number of closed stores.

In November last year, a franchisee posted a "Letter to the Management of Cudi Coffee Company" on the social platform, which mentioned "low gross profit margin", "poor quality of operation managers", "the company only has managers, no professional staff". People will do the training" and other content. Since this year, Cudi’s expansion speed has also slowed down significantly. The number of new stores in Kudi hit a new low in March, with only 98 new stores, a sharp decline from the peak of 1,625 in July last year.

Picture source: Kudi Coffee official website

What attracts more attention is that under the crazy expansion strategy, the founder Lu Zhengyao has fallen into the quagmire of "old laity". Although Kudi said in an interview with a reporter from the "Daily Economic News" that "there is no impact, we are currently normal." However, Bao Yuezhong, an expert on new retail of fast moving consumer goods, pointed out that as the main shareholder, Lu Zhengyao's "height limit" will have an impact on The Kudi coffee brand has had an impact. "Including investors, raw material suppliers, related related traders, etc., they will inevitably be worried."

entrepreneurial stars are not necessarily reliable, and franchise brands with the blessing of star halo may be more "trapped". Xianhezhuang, which once had more than 800 stores nationwide, has now seen its stores shrink significantly across the country. Narrow-door dining data shows that there are currently only 98 stores.

Since the beginning of May 2022, Xianhe Village has been sued for rights protection by multiple franchisees. Chen He and Xianhe Village have also been at the forefront. On May 12, Chen He quietly withdrew from the list of shareholders of Xianhe Village and once again "Stimulating" franchisees who suffered losses caused public opinion to further ferment. But Chen He is basically a mascot, and franchisees rush to join him. In fact, Sichuan Zhishan is behind the brand.

It is worth mentioning that Sichuan Zhishan has attracted more than 50 celebrities to join, including Huang Xiaoming, Chen He, Guan Xiaotong, Sun Yizhou, etc., and operates countless celebrity catering projects, involving more than 4,000 stores of various brands. In addition to Xianhezhuang, there is also Zirandai related to Guan Xiaotong, who was also sued to the court by the franchisee. Franchisees want to make money from consumers through star catering, and Sichuan Zhishan wants to make money from franchisees through star aura , but it lacks capabilities in catering operations.

During this year’s “March 15” period, some media exposed that Baiguoyuan stores were using rotten fruits to make high-priced fruit cuts and selling overnight fruits as fresh fruits. Later, Baiguoyuan said that it had verified and verified the incident as soon as possible, and that the franchise store involved was suspended for rectification and a comprehensive investigation. It emphasized that although it was an individual store problem, it also highlighted the loopholes and flaws in the company's management.

Picture source: Pagoda official website

While food safety issues have been exposed, it has become increasingly difficult for Pagoda franchisees to make money. In 2023, the revenue of Pagoda's main franchise stores, which contributed to its performance, dropped from 8.851 billion yuan in the previous year to 8.5 billion yuan, a year-on-year decrease of approximately 4%. This means that the average annual revenue of franchise stores supervised by Baiguoyuan is in decline. This indicator will drop from 2 million yuan in 2022 to 1.8 million yuan in 2023, a decrease of 9.8%.

The "money scene" of one store does not mean that the entire brand has a competitive advantage. Long Zhen, an franchise evaluation expert and founder of Jiameng Data, told Blue Shark Consumer that he once saw a tea brand called "Heqi Taotao" in the third-tier city Luoyang, which had more customers than Mixue Bingcheng. The queue is extremely fierce. But in fact, Heqi Taotao's performance nationwide is not outstanding, and it can even be described as "poor". As competition in the tea beverage industry becomes increasingly fierce, franchisees need to keep their eyes open. How to avoid pitfalls in

?

To judge whether a famous brand is worth joining, many factors need to be considered. The first is whether the brand has franchise qualifications. According to the "Commercial Franchise Filing and Management Measures" implemented by the Ministry of Commerce on February 1, 2012, it is required to carry out franchising operations. Enterprises involved in the event must carry out registration and information disclosure - truthfully disclose important information such as brand management status, chain layout, operating resources (trademarks and patents, etc.), investment estimates, etc. Multiple channels such as Tianyancha and Qichacha can query the detailed information of relevant brands, which can avoid franchise risks to a certain extent. From the current point of view, many franchisees have been "rogue", often because they have joined non-compliant brands of big "Pengci" brands (such as Mixue Bingcheng, Heytea, Master Bao, etc.).

Secondly, category selection is also very important. Long Zhen, franchise evaluation expert and founder of Jiameng Data, told Blue Shark Consumer, “In the past few years, Japanese matcha was very popular. At that time, Wuxie, one of the largest Japanese matcha brands in China, and its Beijing Blue Harbor The store's turnover can reach 700,000 yuan a month, but then the turnover gradually begins to shrink. The category cycle is a pain point that cannot be avoided. "Similar examples include crispy pork belly, cheesecake, Swiss roll, etc. The life cycle is very short. Under this circumstance, some franchise brands are promoting like crazy during their most glorious period, seeking to cut off their brands and run away. Franchisees must have the mental expectation of being "cut off their leeks".

Picture source: pexels

Furthermore, look at the brand potential. "For example, the prices of Ice and Snow Time and Mixue Bingcheng are similar. Some items of Ice and Snow Time are better tasting than Mixue Bingcheng, but the brand potential is not as good as Mixue Bingcheng," Long Zhen said, "The main thing is It is the lack of store expansion and marketing capabilities.”

The same brand will also have different store types to adapt to various consumption scenarios. For example, in communities and shopping malls, if the store types are the same, the franchisees' income may be very different.Therefore, for franchisees, they must find the store type that suits them and settle accounts according to this store type. "Franchising is not copying, nor is it moving the tree to other places. Franchising is actually moving the tree and the surrounding soil to other places. You can't just consider the tree, but also consider the soil and environmental factors. Just moving If the trees don’t move the soil, the franchisees won’t be able to grow,” Long Zhen said. How many people are there in the

brand headquarters and how they are distributed is also a particularly important thing. For example, if 80% of the people in the headquarters are engaged in investment promotion, the problem of this brand will be bigger. It may be insufficient in R&D, supply chain, and marketing, and the development model will be unhealthy. In addition, the greater the number of brands in the headquarters, the more dispersed its energy is. It may be a typical quick-recruitment company, which is very prone to big problems.

Supply chain integration capability is also a factor that franchisees need to examine in depth. "Actually, if a brand only has 200-300 stores, there is no need to build a factory. If you want to make money from the supply chain, it may increase the cost of ingredients, etc., resulting in thinner profits and losing in the price war." Long Zhen He told Blue Shark Consumer, "The more the headquarters wants to make money from franchisees, the faster the franchisees will die." There is another example. If a brand wants to make money from the supply chain, it may shrink to a certain region. For example, Jiuduo Rouduo only opens stores in a few cities such as Luoyang in Henan. Gu Ming, which has more than 7,000 stores, initially expanded from Fujian. On the other hand, franchisees also need to conduct on-site inspections of the brand to see if the supply chain supports opening a local store.

Consumers’ evaluation of the brand also has important reference value. Consumer complaints and feedback on platforms such as Black Cat and Meituan can also be observed through offline stores to see their traffic flow, consumption, and consumer satisfaction.

In fact, consumers are always fond of the new and dislike the old. "Brands that are more than 5 years old basically have some problems, because the current consumption environment has changed, and the entire consumption is downgrading, causing the mainstream price band to shift downward, which means that the original product structure needs to be reshaped and the product mix has to be torn down. "Start again." Long Zhen said, "For example, Zhang Liang and Yang Guofu have very serious problems, and they have been affected by the cross-border impact of new products such as self-service hot pot, Thai Malatang, and maocai."

For catering and other practitioners. In other words, you may never know what kind of store of the same category will open next to you. In the current competitive environment, if you consider the certainty of joining, choosing a deterministic and powerful brand has a higher probability of success. If you choose a new brand, you need to do detailed calculations, with the expectation of fast in and fast out, betting that the brand can make back the money in a very short time. "It's like taking something out of the fire, it's very stressful, and only veterans can understand it," Long Zhen said.