In-depth Analysis of the Franchise Model Dilemma at Pagoda Fruit Chain

Based on search data and financial analysis, I will provide you with a comprehensive interpretation of the franchise model dilemma at Pagoda Fruit Chain.

According to Pagoda’s 2024 financial report data, the company has a total of 5,127 stores, including:

• Group-managed franchise stores
  : 4,039 (78.8%)
• Other franchise stores
  : 1,077 (21.0%)
• Self-operated stores
  : Only 11 (0.2%)

, which far exceeds the industry average [1][2]. This asset-light model highly dependent on franchising allows rapid expansion in favorable market conditions, but amplifies the risk of management loss of control in adverse situations.

• During the 2024 ‘315’ (Consumer Rights Day) period, Hubei Economic TV exposed malpractices such as using rotten fruits to make high-priced fruit cuts and arbitrarily defining cherry grades in a Pagoda store in Wuhan [1]
• Some store employees handle ready-to-eat fruits without a Food Health Permit
• The 12315 platform has accumulated 1,769 complaints, and the Heimaotousu platform has as many as 3,091 complaints, involving issues such as rotten fruits, overnight fruits, foreign objects, and mold [1]

• The cost of the ‘three-no return’ policy (no receipt, no physical item, no reason for return) is fully borne by franchisees [1]
• Leading some franchisees to make up for losses by selling old or substandard fruits, forming a vicious cycle
• Zhu Danpeng, a Chinese food industry analyst, pointed out: ‘Single-store operations are relatively chaotic, and the headquarters has insufficient control over franchise stores’ [1]

• The high-end strategy is misaligned with market demand, but franchisees cut prices on their own to survive
• Although low-price activities such as ‘Hao Guo Bao En (Good Fruit Repayment)’ brought customer traffic (customer visits increased by 534.1%), they further compressed profit margins [2]

Indicator	2023	2024	Change
Operating Revenue	11.39 billion yuan	10.27 billion yuan	-9.8%
Net Profit	360 million yuan	-390 million yuan	Turned from profit to loss
Gross Margin	11.5%	7.4%	-4.1 percentage points
Number of Stores	6,093	5,127	-966
Market Value	8 billion HKD	1.45 billion HKD	-81.9%

• Chairman’s ‘Educate Consumers’ Remarks
  : Yu Huiyong said ‘we will not cater to consumers’, triggering a strong public backlash, and related topics topped Weibo hot searches [1]
• ‘Fruit Assassin’ Label
  : ‘A monthly salary of 20,000 yuan can’t afford Pagoda’ became a hot topic on social media
• Consumers Vote with Their Feet
  : 966 stores closed within a year, an average of 2.64 stores per day [1][2]

Pagoda’s dilemma is essentially the combined effect of ‘strategic myopia’ and ‘management loss of control’:

1. High-end Positioning Failure
   : In an environment where consumption grading and value-for-money are prevalent, its ‘high quality, high price’ strategy is disconnected from mainstream demand
2. Franchise Model Backlash
   : A 99.8% franchise proportion means the headquarters has extremely weak control over terminal service quality, making it difficult to ensure brand consistency
3. Supply Chain Pressure
   : The fruit category has naturally high losses, and franchisees’ profit difficulties lead them to take risks

Pagoda has launched strategic adjustments:

• Adjusted from ‘high-end fruit expert’ to ‘high-quality and cost-effective fruit expert’
• Increased investment in B-end business (To B revenue increased by 21.7% year-on-year)
• Laid out overseas markets and sinking markets
• Optimized single-store model, targeting to restore net profit margin to 3%-5%

However,

. Under the double squeeze from mid-to-high-end channels such as Sam’s Club and Hema Fresh, and low-price community group buying channels, Pagoda’s path to breakthrough is full of challenges.

---

[1] Economic Observer Online - ‘Pagoda Chairman’s “Shocking Remarks” Stir Public Opinion, Mired in Store Closures, Food Safety, etc.’ (https://news.qq.com/rain/a/20250811A03CM400)

[2] Sina Finance - ‘In-depth Interpretation of Pagoda’s 2024 Financial Report: Growing Pains of Strategic Contraction and Long-term Value Game’ (https://finance.sina.com.cn/stock/aigcy/2025-04-02/doc-inertrwx3765593.shtml)

[3] Sina Finance - ‘Pagoda’s “Educate Consumers” Backfires, High-end Customers Poached?’ (https://finance.sina.com.cn/roll/2025-08-14/doc-infkxuai3847305.shtml)

[4] HKEX Announcement - ‘2024 Interim Report’ (https://www1.hkexnews.hk/listedco/listconews/sehk/2024/0923/2024092300628.pdf)

[5] Eastmoney.com - ‘Pagoda Group (2411) Research Report’ (https://pdf.dfcfw.com/pdf/H3_AP202504141656311608_1.pdf)