Summary of Key Points
This is a very straightforward assessment by Huxiu regarding the current development stage of the domestic franchise industry: The era in which the franchise sector could rapidly expand and make quick profits by opening stores frantically over the past decade or so has come to an end. In the future, the core competitiveness of a brand will no longer lie in superficial metrics such as the speed of opening stores or the total number of outlets. Instead, two essential and tangible indicators will determine a brand's success: first, whether the existing stores that have been in operation for more than a year can be sustained and managed stably; second, whether the franchisees working with that brand can actually make money. Brands that fail to meet these criteria, even if they were once touted as "ten-thousand-store giants" through marketing, will not have the ability to survive in the long term.
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Detailed Explanation
1. The past expansion boom was essentially a game where brands exploited the "information gap" to make quick profits
Many people were puzzled by how brands in the tea, food, and retail sectors could open two to three thousand stores a year, as if there was a rush of entrepreneurs eager to join. However, not all of these stores were profitable. In the early days of the industry, consumers were intrigued by new brands, and as long as the stores were located in busy areas, people were willing to try the products, even if they were average. Franchisees, unfamiliar with the franchise model, were easily misled by promises of quick returns (such as breaking even in three months or earning hundreds of thousands in six months).
Brands didn't need to worry about whether the stores would be profitable; they just needed to increase the number of stores, collect franchise fees, force customers to buy expensive ingredients, and earn commissions from renovations. As a result, even though many brands opened tens of thousands of stores, more than half of them were losing money. The brands pocketed the profits and didn't care about the long-term survival of those stores, essentially taking advantage of the information gap to exploit franchisees.
2. The strategy of rapid expansion no longer works because three fundamental principles have changed
It's not that brands don't want to continue expanding for quick profits, but the underlying conditions for this approach no longer exist. First, consumers are no longer interested in following the trend; if a brand's products are unappealing or not cost-effective, they won't return. New stores quickly lose customers. Second, franchisees have been deceived before and no longer believe such promises. Before joining, they will secretly visit several existing stores to assess the traffic and revenue. Finally, rent and labor costs have more than doubled compared to five years ago, making the cost of opening a new store very high. Expanding too quickly leads to faster failure.
3. The indicator of "stable old stores" is 100 times more valuable than "ten-thousand-store scale"
In the past, brands were judged by the number of stores they opened, but no one asked how many of those stores had been in operation for a year. Many so-called "ten-thousand-store" brands had a high annual closure rate—meaning they were losing five thousand stores each year. Their success relied on the fees from new franchisees to cover the losses of the older ones, a form of self-destruction.
Now, the "survival rate of old stores" is a crucial metric. If a brand has stores that have been open for more than three years and 80% of them are still operating normally, it indicates that its products are appealing, its supply chain is reliable, and it provides proper support for daily operations. This is the foundation for long-term success.
4. Franchisees earning money is no longer a brand's "charitable act"; it's a necessity for survival
Previously, brands treated franchisees as sources of profit and could find new ones after exploiting the first batch. However, this is no longer feasible due to increased transparency. If a brand has franchisees complaining online about losses, potential franchisees can easily find out the truth by researching the existing stores. Brands that consistently earn decent profits for their franchisees don't need to spend on marketing; existing franchisees will bring in new members by recommending their friends and relatives, helping the brand to expand without much effort. The reputation of a brand's profitability is its best defense.
5. This industry turning point is actually good news for small business owners
In the past, ordinary people were easily misled by brands with large networks or internet fame, resulting in wasted investment. Now, the evaluation criteria have reversed. When looking for a franchise opportunity, one should not focus on how much a brand promotes itself or how fast it expands. Instead, one should check how many of its existing stores have been in operation for two to three years and see how many owners are actually making money or even opening additional stores. Such brands, despite their lower visibility, are less likely to be problematic. The industry is shifting from a focus on exaggerated claims to one on actual profitability, benefiting consumers, small business owners, and entrepreneurs aiming for long-term success.