Why high price coffee material costs strain franchisees

A franchisee of the tea brand Auntea Jenny hung a banner reading "Be cautious about franchising, I've been bankrupted" outside a Ningbo store, according to Southern Metropolis Daily. She said the company charged stores nearly twice the market price for fruit, so she bought from outside channels, was fined 15,000 yuan across three stores, and then had those stores closed on October 11.

Auntea Jenny responded that the closures stemmed from poor management and were unrelated to the brand. An internal document dated September 9 states franchisees are barred from buying third-party raw materials, with fines attached. The dispute over high price coffee material pricing, penalties, and store subsidies reflects deeper tension in the franchise model.

Recently, Southern Metropolis Daily reported that a banner reading "Be cautious about franchising, I've been bankrupted" appeared in front of an Auntea Jenny franchise store in Ningbo, Zhejiang, quickly sparking public attention. The franchisee claimed that she was heavily fined by the company for purchasing materials from external sources, and subsequently three stores were unilaterally closed; the brand, meanwhile, responded that the closures were mainly due to poor management and had no direct connection to the brand. With both sides sticking to their own accounts, the incident reflects deep-seated contradictions under the franchise model, including material pricing, penalty mechanisms, and store subsidies. This article sorts out the sequence of events, presenting both sides' statements and industry observations for reference by coffee and tea beverage practitioners.

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Recently, Southern Metropolis Daily reported that a netizen posted on social media that a banner reading "Be cautious about franchising, I've been bankrupted" was hung in front of an Auntea Jenny store in Ningbo, Zhejiang, and the news quickly attracted widespread attention.

According to reporters from Southern Metropolis Daily's Wand Caijing, the franchisee of the store told reporters that she signed a franchise contract with Auntea Jenny in August 2022. "At the time, I felt Auntea Jenny had few stores and the brand was still developing, so I thought (franchising) with them should be profitable." With that judgment, she opened four stores in Ningbo within two years, one of which was transferred in October this year, while the remaining three were unilaterally ordered by the company to close on October 11.

Regarding the reason for the closures, the franchisee said it was because she refused to pay a fine. She mentioned that the company's materials were priced on the high side; for example, the fruit supplied to stores was almost twice the market price. To cut costs, she purchased from external channels. After the company found out, the three stores were fined a total of 15,000 yuan.

An internal document from Auntea Jenny dated September 9 circulating on social media shows that, in order to regulate store operations, the brand explicitly prohibits franchisees from purchasing third-party raw materials, with a fine of 5,000 yuan per store for violators. But according to the franchisee, the brand raised the fine to 20,000 yuan last month.

The franchisee also admitted that although the brand repeatedly emphasized that consumer rights, food safety laws, and the brand's compliance red lines must not be crossed, and set corresponding fines, some stores still violated the rules out of consideration for their own interests. She said that because the company's internal material procurement prices were too high, some operators would privately purchase from outside the company to save operating costs.

However, in an October 22 report by ifeng Technology, an Auntea Jenny franchise manager responded that the main reason for the franchisee's store closures was poor management and had no direct relationship with the brand.

The manager said that the franchisee was profitable when she opened her first store, and later expanded by opening a second store, but the second store failed to make a profit. To balance returns, she overdrew her credit card to open a third store. The brand strictly prohibits using loans to open stores, and combined with the franchisee's lack of management ability, the three stores ultimately suffered losses.

The franchisee denied this account. She explained that she took out loans to pay rent and other expenses because the stores were not profitable, not to open new stores with loans as the manager claimed.

She also revealed that during peak season, a single store's monthly revenue could reach as high as 120,000 yuan, but ordering from the company alone cost 60,000 yuan. After deducting rent, utilities, and labor, little gross profit remained. The brand also launched a large number of buy-one-get-one-free promotions without the franchisee's consent and did not provide store subsidies, causing many operators' losses to worsen and forcing them to close stores.

On October 23, Auntea Jenny's official customer service told Southern Metropolis Daily's Wand Caijing reporters that the matter had been recorded and reported. On the same day, reporters sought verification from the relevant person in charge at Auntea Jenny, but had received no response as of press time.

Image source: Internet

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The above content is compiled by CoffeeHunters, a coffee news website.