Summary of Key Points
Fan Wenhua and Zhongshu Yisheng are veterans in China's beauty industry, having been operating for over 30 years. Both have grown through a "physical experience + product retail" model, but their brand identities (founder IPs vs. ingredient focus) and franchise strategies differ. As the industry enters a period of competitive stability, both companies are facing challenges: Fan Wenhua aims to expand to 7,000 stores but struggles with issues such as poor franchise management, quality control, and over-reliance on the founder; Zhongshu Yisheng has seen growth stagnation and a decline in franchise numbers, and is seeking a breakthrough through an IPO. Despite using similar models, their early choices have led to vastly different risks and paths forward.
I. Brand Identity: One Focuses on the "Person," the Other on "Ingredients"
Fan Wenhua uses herself as the brand's face—her name is the same as the brand name, and her promotional focus is on her personal image as a "facial care expert." She operates small stores (15 square meters) in community areas, relying on low rent and daily customer traffic to drive repeat purchases. Zhongshu Yisheng, on the other hand, downplays the founder's role and emphasizes high-quality ingredients, such as dendrobium, as its core selling point. The company opens flagship stores in key shopping districts while also expanding into third- and fourth-tier cities.
In simple terms, Fan Wenhua bets on the trust generated by the founder's personal brand, while Zhongshu Yisheng relies on the credibility of its ingredients. These choices have directly influenced their expansion strategies: Fan Wenhua has quickly expanded through small stores in communities, while Zhongshu Yisheng has built its image with flagship stores before moving to smaller markets.
II. Franchise Model: Low Barriers to Entry, but Difficulty in Managing Stores
Both companies rely on franchises to expand rapidly, but their profit models differ:
- Fan Wenhua charges a franchise fee (20,000 RMB), a security deposit (10,000 RMB), and equipment costs (13,800 RMB for skin testing devices). The initial inventory is provided on credit, with the company receiving 35,000 RMB for every 100,000 RMB in sales. The total startup cost for a franchisee is approximately 100,000 RMB.
- Zhongshu Yisheng does not charge a franchise fee but requires a security deposit of 10,000 RMB. The initial inventory investment is 80,000 to 90,000 RMB, with profits generated from subsequent sales.
However, the real challenge with franchises is ensuring that the stores are successful:
- Fan Wenhua's expansion has slowed down, with annual growth of only 14% between 2020 and 2023. Complaints mainly revolve around excessive sales pressure and selling near-expired products.
- Zhongshu Yisheng has faced even more difficulties, closing 802 stores in 2024 (2 per day), with a closure rate of 19%. The number of complaints increased by 100% in three months due to product quality and member rights issues.
The low entry barriers for franchises shift the risks to the franchisees: the company earns from new store openings, while the franchisees bear the costs of failed stores, leading to poor service and quality control.
III. Current Challenges
- Fan Wenhua's Concerns: She fears that her personal brand image will be damaged if issues arise, such as unlisted ingredients in sunscreen products or unclaimed whitening agents in serums.
- Zhongshu Yisheng's Concerns: The company is struggling with growth stagnation, with annual revenue stuck at 2.1 billion RMB for three years. Fewer franchises are opening, and sales are slow, leading to inventory buildup and compliance issues.
IV. Future Directions: Moving Beyond Founder Dependency and Improving Store Efficiency
The two companies need to address different core issues:
- Fan Wenhua: She must decouple the brand from her personal identity by establishing its own value through product quality and service standards. Otherwise, the success of thousands of stores could be at risk if she retires or faces negative publicity.
- Zhongshu Yisheng: An IPO is aimed at raising funds, but more importantly, it needs to improve store profitability by optimizing product offerings, reducing inventory, and providing better training for franchisees. After all, successful stores are the foundation of a business.
In summary, the difference in their scale (7,000 vs. 3,000 stores) is not the key; what really matters is whether they can achieve brand independence and sustainable store profitability. This is the necessary transition for chain brands from aggressive expansion to focused, quality-driven operations.
V. Industry Insights: The Double-Edged Sword of Franchise Models
The cases of Fan Wenhua and Zhongshu Yisheng highlight the challenges of franchise models. While they allow rapid growth, the company's management capability, quality control, and franchisees' profitability become critical once the business expands. For consumers, it's important to consider the quality of services (for Fan Wenhua) and product reliability (for Zhongshu Yisheng). For franchisees, they should not be misled by low entry barriers but must carefully assess potential profits and risks.
Ultimately, the success of a beauty chain does not depend on the number of stores opened; it depends on whether each store attracts customers and generates profits for franchisees. This is the true path to long-term success.