In-Depth Analysis of Laoxiangji's Franchise Expansion and Food Safety Control Risks

Based on the collected data, I will provide you with a systematic and comprehensive analysis report.

---

Since Laoxiangji began exploring the franchise model in 2020, the number of franchise outlets has grown rapidly [0][1][2]:

Time Node	Number of Franchise Outlets	Number of Directly Operated Outlets	Total Number of Outlets	Franchise Ratio
End of 2022	118	1,007	1,125	10.5%
April 2025	653	911	1,564	41.8%
August 2025	733	925	1,658	44.2%

As can be seen from the data, Laoxiangji’s franchise expansion shows an

: within just two and a half years, the number of franchise outlets has increased by , and the franchise ratio has risen sharply from 10.5% to 44.2%. The store expansion model is shifting from “direct operation-led” to “dual-drive of direct operation + franchise” [1][2].

Laoxiangji adopts a differentiated franchisee screening strategy - giving priority to internal employees to become franchisees. As of April 2025, among 495 franchisees, 272 are former Laoxiangji employees, accounting for

, and operating 364 franchise outlets, accounting for 56% [0]. The advantages of this strategy are:

• Franchisees are already familiar with the company’s operating procedures and corporate culture
• Have basic knowledge of product standards and operating specifications
• Reduce training costs and management frictions

However, the data also reveals a noteworthy phenomenon:

. In the first four months of 2025, the 364 franchise outlets operated by former employees generated 200 million yuan in revenue, while 289 independent franchise outlets contributed 209 million yuan in revenue [0].

---

Laoxiangji has shown certain food safety control pressures during its expansion. According to the prospectus disclosures [0][1][3]:

• A total of
  13 directly operated outlets
  had individual food safety incidents resulting in administrative penalties
• Main violation types include:
  • Using ingredients beyond their expiration date
  • Using tableware that does not meet hygiene standards
  • Failure to fully implement the procurement inspection system
  • Foreign objects found in dishes
  • Improper storage of ingredients and incomplete food safety documents

• In June 2022, the Kaixuan Road store of Laoxiangji (Shanghai) Catering Co., Ltd. was fined
  80,000 yuan
  and had its illegal gains of 6,273 yuan confiscated by the Changning District Market Supervision and Administration Bureau for using expired refined chicken fat [0]

• Complaints related to Laoxiangji on the Black Cat Complaint platform have reached
  1,080 cases
• Complaint contents include: stale food, finding insect eggs/hair in food, false advertising, poor service attitude, etc. [0][1]

Based on industry research and case analysis, food safety risks in the catering franchise model mainly come from the following aspects [4][5][6]:

Risk Type	Specific Performance	Degree of Impact
Expanded Management Radius	The surge in the number of outlets has doubled the headquarters’ supervision pressure	High
High Staff Turnover	The average annual turnover rate in the catering industry is as high as over 80%	High
Deviation from Standard Implementation	Franchisees may simplify operating procedures to reduce costs	High
Supply Chain Control	Increased ingredient distribution links raise the risk of spoilage	Medium
Conflict of Interest Demands	There is tension between franchisees’ profit pursuit and the brand’s emphasis on quality	Medium

From Laoxiangji’s operating data,

:

• Table turnover rate of directly operated outlets: 4.8 times/day (first four months of 2025)
• Table turnover rate of franchise outlets: 3.3 times/day (first four months of 2025) [0]

This efficiency gap may intensify franchisees’ cost pressures, leading to short-sighted behaviors such as reducing ingredient quality and cutting staff configuration.

---

Laoxiangji has a relatively complete supply chain system in the industry [2][7]:

• 3 standardized chicken farms
  (located in Anhui): Achieve stable supply and consistent quality of the core ingredient “Feixi Chicken”
• 2 central kitchens
  (Hefei and Shanghai): Undertake ingredient processing, production, storage and distribution functions
• 8 self-operated distribution centers
  : Cover ingredient distribution for national outlets
• Full industry chain closed-loop
  : Integrated control from breeding to table

The advantages of this model are:

1. Reduce intermediate links and lower external supply chain risks
2. Unify ingredient standards and quality control
3. Achieve full-process traceability (Laoxiangji is the first and only Chinese fast food company in China to implement a comprehensive traceability system) [7]

Laoxiangji has made significant investments in digital control [7][8]:

• Covers key restaurant areas, kitchen areas, and cash register areas
• Supports real-time viewing and playback on PC and mobile App
• Achieves “full-link real-time monitoring”

• Intelligent site selection system: Big data analysis of regional foot traffic, consumption habits and competitive environment
• Inventory management system: Real-time monitoring of inventory and sales data of each outlet
• Dynamically adjust central kitchen production plans to reduce ingredient waste

• Monthly inspections: No less than 2 times per month per outlet (comprehensive inspections are about 3-5 times per outlet per month)
• Mystery customer sampling inspection system
• Monthly food safety self-inspection and self-correction report
• Franchisee hierarchical management system

---

Based on the above analysis, a comprehensive assessment of food safety risks in Laoxiangji’s franchise expansion is conducted as follows:

Assessment Dimension	Risk Level	Explanation
Frequency of Historical Issues	Medium	Although there are records of issues, the overall situation is manageable
Expansion Speed	High	Franchise ratio is rising rapidly, and management radius is expanding sharply
Supply Chain Resilience	Low	Full industry chain layout provides strong support
Digital Control Capability	Medium	A relatively complete monitoring system has been established
Franchisee Quality	Medium	The former employee franchise model has both advantages and disadvantages

1. Risk of Mismatch Between Scale Expansion and Management Capability
   • The number of outlets has increased from 1,125 (end of 2022) to 1,658 (August 2025), a 47% increase
   • Management complexity has increased exponentially
   • It is questionable whether the scale of the audit team can expand synchronously

2. Conflict Between Franchisee Interests and Quality Control
   • The single-outlet sales of franchise outlets are only
     71.7%
     of that of directly operated outlets
   • Franchisees face greater profit pressure and may adopt cost-cutting measures that affect food safety

3. Control Challenges of Cross-Regional Expansion
   • 86.5% of outlets are concentrated in East China [2]
   • Cross-regional expansion will face new challenges such as longer supply chain radius and differences in local supervision

---

Main Basis:

1. Selective expansion strategy
   : Laoxiangji adopts a cautious path of “deeply cultivating regions first, then expanding nationwide”, prioritizing the development of the East China market
2. Full industry chain support
   : The self-built supply chain system provides the ability to control quality from the source
3. Digital control tools
   : The real-time monitoring system reduces the pressure of manual audits
4. Former employee franchise model
   : Although not optimal, it has higher recognition and execution consistency compared to purely external franchisees

Recommendation Direction	Specific Measures
Strengthen Supply Chain Control	Increase the layout of central kitchens to shorten distribution radius; establish ingredient batch traceability system
Improve Audit System	Expand the scale of the professional audit team; introduce AI intelligent inspection (refer to the Tasiting case)
Optimize Franchisee Screening	Establish stricter financial review mechanisms; raise access thresholds
Interest Binding Mechanism	Explore equity incentives for franchisees; link food safety performance with renewal and fee rates
Establish Emergency Response	Improve food safety accident emergency plans; establish rapid response and active disclosure mechanisms

For investors paying attention to Laoxiangji’s IPO, it is recommended to focus on the following:

1. Disclosure of food safety-related lawsuits and administrative penalties in the prospectus
2. Franchisee turnover rate and replacement frequency
3. Sustainability of single-outlet return on investment
4. Matching degree of audit team staffing and outlet expansion
5. Same-store sales performance after cross-regional expansion

---

[0] International Financial News - “With 92% Family Equity, Laoxiangji Makes Third Attempt at Hong Kong IPO” (July 10, 2025) https://www.ifnews.com/news.html?aid=742691

[1] Southern Metropolis Daily - “Growth Rate Plummets, Repeated Penalties, ‘Family Business’ Laoxiangji Makes Five IPO Attempts in Four Years” (July 9, 2025) https://m.mp.oeeee.com/a/BAAFRD0000202507091101733.html

[2] 36Kr - “Laoxiangji Continues to Pursue ‘First Chinese Fast Food Stock’, Number of Outlets Reaches 1,658” (January 8, 2026) https://m.36kr.com/p/3631493377311749

[3] Southern Metropolis Daily - “Chinese Fast Food Leader Laoxiangji’s Third Hong Kong IPO Attempt: Valuation Halved, Social Security Gap Exceeds 100 Million Yuan” (January 13, 2026) http://finance.ce.cn/stock/gsgdbd/202601/t20260113_2698666.shtml

[4] 104 Job Bank - “Chain Franchise Operation Risk Management: Catering Industry Chapter” https://nabi.104.com.tw/posts/nabi_post_fc751b83-f10e-4d3c-972b-b05d7e48c2e2

[5] China.org.cn - “Mixue Bingcheng Exposed to Food Safety Issues Again, Franchise System Has a Long Way to Go” (May 6, 2023) http://food.china.com.cn/2023-05/06/content_85268965.htm

[6] Xinhua News - “Make Every Bite of Chinese Burger More Secure, Tasiting’s Digital Food Safety Protects ‘Chinese Stomachs’” (October 27, 2025) http://www.news.cn/food/20251027/9eeb1bdd19144de8962b997d5d1a57dd/c.html

[7] Caifuhao - “Laoxiangji: A Little Chicken’s ‘Fast Food Empire’ Dream, a Catering Legend with Annual Sales of 4 Billion Yuan” (September 23, 2025) https://caifuhao.eastmoney.com/news/20250923100028858483380

[8] CSDN - “Laoxiangji Franchise: Breaking the Chinese Fast Food Franchise Model with ‘Full Industry Chain + Digital Intelligence’” (January 8, 2026) https://blog.csdn.net/2501_94337375/article/details/155749258

---

This analysis is for reference only and does not constitute investment advice. Food safety issues are sudden and uncertain, and investors should pay close attention to relevant regulatory announcements and the latest information disclosed by the company.