Xicha’s “Deterrence” and Guming’s “Support”: The “Great Leap Forward” in Tea Franchiseing Has Ended; Now It’s About Surviving
Hello everyone, I’m your financial journalist. Today, we’re going to discuss a topic that excites yet puzzles many people thinking about opening a business: Is opening a tea shop still a viable option?
If you’ve been following the food and beverage industry recently, you might have noticed a very unusual phenomenon: brands that used to have franchisees lining up to get a spot are now trying to discourage them. When Xicha reopened its franchise program, its first message wasn’t “Come and make money quickly,” but “Don’t come unless you’re willing to work hard.” Leading brands like Guming, Lucky Coffee, and Grandpa Doesn’t Make Tea have also adjusted their policies, all with one core message: Don’t expect to make quick profits; we want to build sustainable businesses together.
Behind this is a significant shift in the tea industry from rapid, unregulated growth to more focused, sustainable development. Let’s break down the logic behind this with simple language and see how the game has changed.
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Xicha’s “Reverse Strategy”: Why Deter Franchisees Before Offering Them a Chance?
Xicha’s re-entry into the franchise market after 19 months was expected to be big news, but its approach was quite counterintuitive. They clearly listed four types of people they don’t welcome:
1. Those looking for quick profits: Those who expect to recoup their investment in a few months and then leave.
2. Those who don’t want to work: Those who only invest money without managing and think they can make money by hiring a manager.
3. Those who underestimate the challenges: Those who think selling fresh fruits is easy and don’t realize the complexities of the supply chain and losses.
4. Those who are unwilling to provide high-quality service: Those who are satisfied with mediocre service and don’t want to meet higher standards.
Interpretation:
This is actually a form of screening mechanism. In the past few years, the tea industry has been too hot, and many brands welcomed anyone willing to join. The result? Many franchisees came in with the intention of making quick profits and left as soon as business slowed down, damaging the brand’s reputation and reducing the survival rate of its stores.
By doing this, Xicha is removing the excess from the market. It’s sending a signal to the market that it’s looking for real operators, not just investors. Only those who are willing to put in the effort, manage the business themselves, and accept long-term, slow returns fit Xicha’s brand values. This is a defensive strategy to protect the brand’s foundation and prevent it from being undermined by poor-quality franchisees.
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Guming’s “Kind Cut”: From Helping You Start to Helping You Exit Respectfully
If Xicha is being selective, Guming is more like a “nanny” taking care of its franchisees. Guming’s recent franchise policy changes are quite interesting:
1. Significant reduction in initial investment: The annual franchise fee has been lowered from 98,800 yuan to 15,000 yuan, saving franchisees over 80,000 yuan.
2. Closure subsidies: If a store closes within a year, Guming will provide up to 50,000 yuan in compensation.
3. Equipment options for installment or second-hand purchase: This reduces financial pressure on franchisees.
Interpretation:
Guming’s approach has changed. Previously, the brand focused on getting people to sign contracts quickly; now, it’s about ensuring franchisees don’t fail. By lowering the threshold and offering compensation for closures, Guming aims to help franchisees stay in the business. This shows that it sees franchisees as more than just sources of revenue but as essential parts of its network. If the franchisees can’t succeed, Guming wants to help them minimize their losses and exit gracefully.
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The Reality of the Industry: More Stores, but Fewer Profits?
Many entrepreneurs mistakenly think the tea industry is highly profitable. However, the data tells a different story:
- Severe competition: There are now 452,000 tea shops nationwide, with some areas having three stores within a hundred meters. More stores mean less business for each one.
- Lengthened payback periods: The once-imagined 5.5-month payback period has now extended to 18-24 months, or even longer in key markets.
- Rising costs: Rent, labor, and materials are all increasing, while tea prices are struggling to rise, squeezing profit margins.
Interpretation:
This is a typical example of shareholder conflict. The market has reached saturation, and there’s less profit to distribute among more competitors. In the past, new stores meant easy profits because there were empty niches. Now, opening a store is less profitable, and maintaining it is even harder.
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The Change in Roles: From “Boss” to “Senior Worker”
One of the most profound changes is the shift in the roles of franchisees. In the past, many were financial investors who provided capital and managed the business. But brands like Ba Wang Cha Ji, Guming, and 1 Dian Dian now require franchisees to be full-time managers and manage the store themselves.
Interpretation:
The reason for this strict requirement is that profits are too low to cover the costs of both the franchisee and a manager. If the franchisee only invests money and hires a manager, both will eat into the profits. By having the franchisee manage everything themselves, brands can reduce costs and make the stores more profitable.
This indicates that tea franchiseing is shifting from an investment model to one that requires active management. Franchisees are no longer just investors but are now considered part of the workforce, with their success depending on their own effort and commitment.
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How to Choose a Reliable Brand?
If you’re considering joining the tea franchise industry, here are some key considerations:
1. Don’t just look at the franchise fee: A low fee might mean the brand is trying to offload responsibilities or will later charge more for supplies or management. Focus on the net profit per store after expenses.
2. Examine the closure and renewal rates: High closure rates indicate potential problems with the business model. High renewal rates suggest that franchisees are making money or see potential for growth.
3. Be wary of pure financial investments: If you can’t manage the business yourself, be cautious. There’s no room for hands-off investors in this market.
4. Negotiate wisely: Brands are eager to find good franchisees, so you can negotiate better terms.
In Summary:
The “Great Leap Forward” in the tea industry has come to an end. The focus is no longer on who can open the most stores but on who can survive and manage their finances effectively. For brands, it’s about returning to the basics; for franchisees, it’s about transforming from opportunists to skilled, responsible business owners. This new era rewards those who can carefully manage costs and commit to long-term success. If you can calculate every aspect of your business and are willing to put in the hard work, you still have a chance. Otherwise, proceed with caution.