Summary of the Key Points
This investigation reveals the entire chain of traps used by franchise companies to exploit franchisees, as told by two individuals who worked on the front lines of the franchise industry: a franchise representative and a supply chain manager. The process begins with attracting customers through advertising and relentless phone calls, continues with pressure tactics in negotiation rooms, and extends to post-signature exploitation methods such as location selection kickbacks, high-priced equipment and ingredients, and forced purchases. In some cases, these companies even deliberately abandon successful brands to continue profiting. Franchisees often invest all their savings only to end up losing everything, with little chance of seeking redress, while the franchise owners emerge unscathed and clean from any legal issues.
Detailed Analysis
1. Early Recruitment: Phone Bombing and the “Gentle Trap” in Negotiation Rooms
The first step for franchise companies is to find potential customers. They use various methods, such as advertising (e.g., snack training ads on lesser-known TV channels or online promotions), to collect contact information. Then they start calling relentlessly—even if you provided your number years ago, they may still contact you again, sometimes selling your data to other companies.
When you visit the company for a meeting, the negotiation room is designed to put you at a disadvantage: you’re seated in a position where it’s difficult to leave, while the franchise manager sits at the door blocking your exit. The air conditioning is set slightly high to prevent you from calming down, and hidden cameras monitor your reactions. If you show any hesitation, a “franchise director” is brought in to pressure you into making a decision. Even if you don’t want to pay in full, they may insist on a deposit, fearing that you’ll change your mind once you’re outside. The samples shown to you are made with the best materials, but when you actually start operating the business, the company’s ingredients fail to replicate the same quality. In the past, these companies would use celebrities to attract customers, only to distance themselves from any subsequent problems after the celebrity’s involvement in scandals.
2. Exploitation After Signing
Franchise companies have ways to bypass the legal “cooling-off period” set for franchisees: they ignore you immediately after signing the contract and then get in touch once it’s over. The exploitation continues:
- Location Selection Kickbacks: Location managers, with low salaries, make their money through kickbacks. They may recommend a less desirable location and convince you to pay six months’ or a year’s rent in exchange for a kickback from the landlord, while lying to you about the excellent location.
- High-Price Equipment: The company claims to require uniform quality control and forces you to buy their equipment (point of sale systems, kitchen appliances), which are 30%-40% more expensive than market prices. New franchisees, lacking experience, often have no choice but to accept these conditions.
- Marketing Tactics: They promise to help with marketing (e.g., using influencers or group buying) but actually take a cut from the deals. They also encourage you to offer low-price opening promotions (like 9.9 yuan packages) to create an illusion of success, then force you to buy more expensive ingredients, linking your sales performance to the amount you purchase.
3. Exorbitant Profits in the Supply Chain
Half of a franchise company’s profits come from its supply chain, and the exploitation is hidden in the details:
- Water and Additives in Ingredients: The company asks factories to add 30%-40% water and preservatives to 100 grams of chicken breast meat, increasing the weight to 140 grams. Although you might think the company’s price is competitive, you’re actually getting less quality for more money.
- The “Secret Sauce” Scam: The so-called “core recipe” is just a mixture of monosodium glutamate, salt, and common additives, sold for 300 yuan when the actual cost is only 50 yuan.
- Forced Purchases: Contracts require you to purchase at least 30,000-100,000 yuan worth of ingredients at once, supposedly to ensure a steady supply, but this is just a way to extract more money from you. Some of these practices even violate food safety standards.
4. The Franchise Company’s Profit-Making Strategy: Short-Term Projects and Sabotaging Successful Brands
Franchise companies don’t focus on building long-lasting brands. They launch a project, operate it for three months, and then abandon it. Nine out of ten franchisees can’t survive more than six months. Even if a brand becomes successful (with hundreds of stores), the company will deliberately undermine it to move on to another opportunity. Once the owners have made enough money, they “wash their hands” by using fake identities or having family members immigrate, earning millions in the process.
5. Franchisees’ Lack of Legal Options
The franchise contracts are carefully crafted to make legal battles impossible to win. They involve multiple agreements related to training, equipment, and ingredients, leaving franchisees with little chance of recovering their losses. At best, they might get a partial refund; most have to resort to lengthy legal processes that are too time-consuming and costly. Many people lose all their savings and even end up in debt, resigned to their fate due to embarrassment and lack of resources to fight back.
Final Warning
For anyone thinking of starting a business through franchising, the moment you step into a franchise company’s office, you could fall into a well-laid trap. Be cautious of promises of low investment and high returns. Check the company’s qualifications and ask current franchisees for their experiences. Don’t let the illusion of success fool you.
(The entire analysis is written in plain language, without using technical jargon, to help you understand the realities of the franchise industry.)