Quick Summary of the Key Points
Recently, two leading snack vending brands, Zhao Yiming and Haolai Lai, have been exposed for using electronic scales that underweigh products, charging consumers significantly more than they should. In response, both companies have urgently implemented measures such as offering tenfold compensation for any discrepancies and installing scale monitoring systems in all their stores. However, the root of this issue is not simply the malfunctioning of the scales. It reflects a broader problem: over the past few years, the industry has focused excessively on expanding store openings, reaching a total of 50,000 outlets, which has left the headquarters unable to manage effectively, and franchisees facing increasing difficulties in making profits. The capital market has already reacted, with the stock prices of both companies dropping by more than 25%. The old logic of "just opening more stores leads to growth" no longer holds true.
---
Easy-to-Understand Explanation of the Key Points
1. The "scale issue" was actually a fundamental oversight that was ignored for a long time
Don't believe the ridiculous explanations like "wires getting stuck in the tray" or "the scales not resetting after being turned on." If there were real equipment failures, such issues wouldn't have occurred across multiple locations simultaneously. The truth is that the entire industry was too focused on opening new stores, with no one considering the accuracy of the scales as a critical factor. The key performance indicators (KPIs) for stores were simply sales volume, and for the headquarters, it was just about how quickly new stores were opened. No one thought about investing in monitoring systems for each of the tens of thousands of stores.
2. Expanding by over 10,000 stores in half a year is faster than expected
Let's do the math: In the first half of this year, the two brands opened more than 10,000 new stores, averaging 60 new stores per day. That means that while you were sleeping, 6 more Zhao Yiming or Haolai Lai stores appeared across the country. Even more astonishingly, out of Zhao Yiming's more than 26,000 stores, only 9 are directly operated by the company; the rest are franchises. In other words, the headquarters is not really in the snack business itself but operates a national wholesale network. If you want to open a store, they provide you with uniform decoration, supplies, and training on how to set up the shelves. Their profit comes from the margin on the goods they supply—selling goods for 100 yuan, they make around 5 yuan in profit. The key to growth in this model is having more stores, as this gives them more bargaining power with suppliers, lower purchase prices, and lower logistics costs, resulting in higher overall profits. As a result, the two brands have rapidly expanded to nearly every county and town, completing a decade of expansion in just a few years.
3. While the headquarters are making huge profits, franchisees are struggling
The situation for franchisees is very different. The headquarters earned over 4 billion yuan in the first half of the year, but for the franchisees running the stores, the reality is harsh. Locations near schools can quickly pay off their investment, while those in residential areas with little customer traffic only generate a few hundred yuan a day, and the substantial initial investment may never be recovered. Moreover, the headquarters often open new stores just a few hundred meters away from existing ones, dividing the customer traffic and cutting sales in half. Data shows that average sales per store have not increased in the past two years, and in some cases, they have even decreased. Franchisees, unable to make enough money, resort to cheating on the scales or hiring unskilled workers during the summer months, leading to more errors in weighing. This is the real cause of the current controversy.
4. Why isn't the capital market impressed by the rapid expansion?
Many people wonder why the stock prices have dropped despite a 50% increase in revenue in half a year. Capital is not naive; they bought the stocks with the hope that the companies would monopolize the snack market and then profit passively. Now it's clear that most of the good locations have already been taken. Opening new stores no longer means grabbing business from small, local businesses but rather from existing franchisees. Since franchisees can't make enough money, they either close their stores or start mismanagement, which harms the brand's reputation. The old growth model is no longer effective. Opening another 10,000 stores may only result in less profit per store, and if the quality of the stores isn't managed properly, a major food safety scandal could severely impact the entire industry. Capital now focuses on whether the companies can manage their existing stores well and ensure that franchisees can make a profit without making basic mistakes.
5. The game has changed with 50,000 stores
The industry used to be about who could expand the fastest; now it's about who can maintain stability. Brands will no longer allow new franchises in all locations. They will start to select more carefully, rejecting those in poor locations or those that have violated company rules. For consumers, the chances of getting cheated on the scales will be lower, but snack prices may not continue to drop as much as in the past. The increased costs associated with management and monitoring will eventually be reflected in the prices of the products.