Warning Analysis of the Sustainability of CHAGEE's Franchise Model Amid Food Safety Incident

Based on the collected information, I will provide you with a systematic analysis of CHAGEE’s food safety incident and the sustainability of its franchise model.

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On the evening of January 5, 2026, a video of a staff member making milk tea without wearing gloves at CHAGEE’s store at Longwen Baolong Plaza in Zhangzhou, Fujian went viral online. The video shows the staff member squeezing lemon slices by hand on the workbench, directly reaching into the cup to stir the milk tea, and wiping liquid spilled on the counter back into the cup[1][2]. The incident quickly topped Weibo’s hot search list and triggered strong reactions from consumers.

CHAGEE released a survey and disposal notice the next day, characterizing the incident as

, claiming that discarded materials reported as damaged in the store that day were used, and the items were discarded after filming and not sold to the public[1][2]. The disposal results are: the involved store is closed for rectification indefinitely, the involved staff member is dismissed, and the store manager and regional supervisor are demoted[1][3].

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CHAGEE adopts a business model of “flagship product + minimalist supply chain + franchise expansion”. As of Q3 2025, the number of global stores reached 7,338, of which 6,971 are franchise stores, accounting for approximately 95%[4][5]. However, financial data shows a continuous downward trend:

Indicator	Q3 2024	Q4 2024	Q1 2025	Q2 2025	Q3 2025
Same-store Monthly Average GMV (RMB 10,000)	52.80	45.60	43.20	40.44	37.85
YoY Change	-	-13.6%	-18.1%	-23.0%	-28.3%

: Total GMV fell 4.48% year-on-year to RMB 7.93 billion; GMV in Greater China fell 6.2% year-on-year; the number of active members dropped from 44.9 million in Q1 to 35.2 million in Q3, a decrease of 21.26%[4][5][6].

CHAGEE’s franchise system exhibits typical

: the brand party generates revenue by exporting the brand, standards, and supply chain, while the store operation pressure mainly falls on franchisees[6]. Under this model:

• Imbalanced Cost Structure
  : Franchisees bear high upfront investment (transfer fees in some cities once exceeded RMB 1 million), and the payback period has extended from the early “calculated in months” to “starting at one year”[4][5]
• Risk Transmission Mechanism
  : When the brand faces negative public opinion, frontline franchisees directly bear the pressure of customer flow loss and cash flow strain
• Interest Distribution Game
  : The shift from the “landlord-tenant” model to the “partner” model reflects the brand’s attempt to share risks[4]

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Although CHAGEE characterized the incident as an “isolated staged video”, from an industry perspective, this incident exposes the common management challenges under the franchise model:

Management Dimension	Problem Performance	Potential Risk
Personnel Training	Staff have weak food safety awareness and insufficient compliance with operating standards	It is difficult to unify the implementation of operational standardization across thousands of stores
Daily Supervision	Stores have “room for manipulation”, and employees have time to engage in non-standard behaviors	The monitoring system is ineffective, and the inspection mechanism fails
Incentive Mechanism	The motivation to “gain traffic” reflects that store employees focus on traffic rather than service quality	There may be deviations in the assessment system
Supply Chain End	Loopholes in the management of damaged discarded materials provide a “gray area” for irregular operations	There are breaks in the full-life-cycle management of materials

: If this incident had not been exposed, would such “staged videos” have become a normal practice in stores?[3] This is not only a problem of a single store, but also a concentrated reflection of the management capabilities of the entire franchise system.

CHAGEE expanded from about 5,000 stores to more than 7,300 stores within 18 months, with an annual growth rate of over 25%[4][5]. This “scale-first” growth strategy brings the following hidden dangers:

1. Diluted Management Resources
   : Rapid store expansion makes it difficult to keep up with the deployment of supervisors, trainers, and management personnel
2. Lowered Franchisee Screening Standards
   : In order to achieve expansion targets, the qualification review of franchisees may be relaxed
3. Distorted Implementation of Standards
   : Headquarters policies are distorted in the layered transmission process, and implementation intensity decreases
4. Diminishing Marginal Returns
   : New stores divert customer flow from existing stores, and the profitability of individual stores continues to be under pressure

As industry analysts pointed out:

[4]. Such over-dense layout intensifies competition among franchisees and increases management difficulty.

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Dimension	Current Status	Warning Significance
Product Strategy	Over-reliance on the flagship product “Boya Juexian”, slow product innovation	Homogeneous competition weakens the brand moat, and repeat purchase rates are under pressure
Supply Chain	The minimalist supply chain was once an advantage, but now it has become an innovation bottleneck	It is difficult to support the development of multiple categories, and competitors can quickly copy the positioning strategy
Channel Strategy	Continued expansion despite a saturated market	Excessive density leads to “involution” among franchisees, and individual store revenue continues to decline
Brand Aging	Consumers complain that “there have been no new products in half a year”[4]	User attrition accelerates, and the decline in active members verifies this trend

The food safety incident puts forward the following warnings for the sustainability of the franchise model:

• Operating Specifications
  : It is necessary to establish a full-process SOP, and reduce the risk of human error through technical means (such as automated tea-making equipment to achieve “separation of personnel and materials”)[1]
• Inspection Mechanism
  : Shift from “post-incident accountability” to “real-time monitoring”, and introduce technical means such as AI visual recognition for compliance detection
• Material Management
  : The destruction process of damaged discarded materials requires stricter supervision to prevent it from becoming a management loophole

• Training System
  : Establish a continuous food safety training mechanism to ensure that every employee understands the logic behind the specifications
• Incentive Mechanism
  : Directly link food safety assessment with performance and promotion to avoid the orientation of “prioritizing performance over safety”
• Culture Building
  : Shape a corporate culture where “food safety is an untouchable bottom line”, rather than just staying at the slogan level

• Response Speed
  : CHAGEE’s release of a statement within a few hours demonstrated basic crisis response capabilities
• Information Transparency
  : Although characterizing the incident as a “staged video” in the statement avoids legal risks, it is difficult to fully convince consumers emotionally[3]
• Trust Restoration
  : It is necessary to rebuild trust through mechanisms such as third-party audits and consumer open days, rather than relying solely on internal investigations

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Franchise models in the new tea drink industry generally face similar difficulties:

Brand	Problem Performance	Response Strategy
HEYTEA	High franchise costs (upfront investment can reach RMB 1 million), payback period extended to more than 18 months, store closure rates increased in some regions	Suspended franchising in 2026, emphasizing “no longer participating in the number competition”
CHABAIDAO	Facing fierce price competition, franchisees’ profit margins are compressed	Expanded overseas to seek incremental markets
GOODME	Expanded in sinking markets, relying on cold chain logistics system support	Deepened supply chain construction and built a franchisee empowerment system

: The franchise model that solely relies on “scale for growth” is no longer sustainable, and brands need to shift from “collecting franchise fees” to “co-creating value with franchisees”[7].

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CHAGEE’s food safety incident is not an accidental accident, but an

. This incident puts forward the following warnings for the sustainability of the franchise model:

1. Standardization Is the Cornerstone of the Franchise System
   : Food safety operating specifications must cover the entire chain from raw materials to finished products, and omissions in any link may be amplified into a brand crisis
2. Personnel Management Is the Biggest Variable
   : Store employees are the first interface between the brand and consumers, and their behaviors directly represent the brand image; training and supervision are indispensable
3. Scale Expansion Must Be Synchronized with Capacity Building
   : The growth in the number of stores must be accompanied by the simultaneous upgrading of management capabilities, training systems, and supervisor networks; otherwise, “scale” will become a “burden”
4. Crisis Prevention Is Better Than Crisis Response
   : Establishing a pre-positioned risk identification and early warning mechanism is more valuable than post-incident “tail-cutting survival” treatment

Level	Recommended Measures
Short-term	Conduct a special food safety inspection of all stores, introduce third-party audits, and establish a rapid response mechanism for consumer complaints
Mid-term	Upgrade the personnel training system, introduce digital monitoring technology, and optimize franchisee screening and assessment standards
Long-term	Shift from “scale-driven” to “efficiency-driven”, redefine the relationship with franchisees, and shift from “brand authorization” to “value co-creation”

: The essence of the franchise model is not a business where the brand sells “brand usage rights”, but a partnership to co-create a “single-store profit model” with franchisees[7]. Whether CHAGEE can learn from this incident and complete the transformation from “scale-first” to “quality-first” will determine the long-term sustainability of its franchise model.

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[1] Securities Times - “#1 on Hot Search! “Hand-made Milk Tea” Sparks Controversy, CHAGEE’s Latest Response” (https://www.stcn.com/article/detail/3573858.html)

[2] Lianhe Zaobao - “Video of CHAGEE Staff Stirring Milk Tea Bare-handed Goes Viral, Store Closed” (https://www.zaobao.com.sg/realtime/china/story20260106-8059287)

[3] East Money - Caifuhao - “Store Closed, Staff Dismissed! After Performance Decline, CHAGEE’s “Demotion” Was Triggered by a Staff Member” (https://caifuhao.eastmoney.com/news/20260106213323118060090)

[4] Jiemian News - “CHAGEE, Which Has “Flatlined”, Cannot Rely on “Boya Juexian” Alone” (https://www.jiemian.com/article/13791619.html)

[5] 36Kr - “CHAGEE’s Problem Is Not Caffeine” (https://m.36kr.com/p/3625061056545793)

[6] DoNews - “CHAGEE’s “Good News” Cannot Benefit Franchisees?” (https://www.donews.com/article/detail/5191/93742.html)

[7] 36Kr - “New Tea Drinks in 2026: Half Deep Sea, Half Open Ocean” (https://m.36kr.com/p/3626319079961091)