#1443 2007 · Mixue Bingcheng 蜜雪冰城 · Food & beverage franchising
Mixue makes almost nothing from franchise fees — it makes its money selling franchisees the ingredients
the problem
Franchising on royalties pits the brand against its franchisees, and high fees choke growth in a market where each store earns little
background
The standard franchise model charges an upfront fee plus a royalty on sales — which sets brand and franchisee against each other (every royalty point is the operator's margin) and caps how fast the network can grow, because high fees deter exactly the small operators who would open in third- and fourth-tier cities. For a chain selling drinks at around ¥6 (roughly $1), there is almost no per-store margin for a royalty to take without making the store unviable.
The Zhang brothers, running Mixue from Zhengzhou, saw early that the money in a food chain isn't the fee — it's the flow of ingredients. From 2007 they began building their own raw-material factories, and over a decade developed five production bases and their own logistics network.
what everyone would do
Charge the standard franchise fee plus a percentage of sales, and police compliance through audits. It extracts more per store on paper, but it makes you and your operator adversaries, prices out the small-city entrepreneurs who are the growth, and requires costly enforcement in exactly the low-margin stores least able to bear it.
what they saw
At ¥6 a drink there's no margin for a royalty to take. So Mixue stopped charging franchisees for the right to operate and started selling them what they operate with — profiting when stores sell more, not when operators earn less.
the move
Mixue keeps franchise fees minimal and earns almost all its revenue by selling franchisees their supplies — syrups, tea, powders, packaging, equipment — from factories and a logistics network it owns end to end. In the first nine months of 2024, franchise and service fees were about 2.4% of revenue while goods and equipment sales were roughly 97.6%. This flips the franchise relationship: Mixue profits when a store sells more drinks, not when it extracts more from the operator, so both sides want volume, and low fees let thousands of small operators open in low-income cities where a royalty model couldn't work. Owning the supply chain also delivers the cost base that makes ¥6 drinks profitable at all — the vertical integration and the franchise model are the same strategy, and it built the world's largest F&B chain by store count.
why it works
Selling supplies converts the franchise relationship from zero-sum (every royalty point is the operator's loss) to aligned (Mixue earns only when the store actually sells), which reduces the enforcement burden and makes operators want to grow volume. Minimal fees remove the capital barrier that keeps standard franchises out of low-income cities, so the network expands into markets competitors can't serve — and every new store adds to the volume that makes Mixue's owned factories cheaper still, feeding back into the low prices that drive store-level demand. Vertical integration is what makes the whole loop viable: without owning production, there'd be no margin in supplying at prices that keep ¥6 drinks profitable.
the payoff
Franchise fees are ~2.4% of revenue and supply sales ~97.6% — aligning brand and operator on volume, and scaling Mixue past 40,000 stores into the world's largest F&B chain by store count.
where it breaks
The model demands enormous upfront capital in factories and logistics before the network exists to justify it, and it only works where the product has high, predictable consumable throughput — supply a low-frequency business and there's no flow to monetize. It also concentrates risk: a supply-chain failure or quality scandal hits every store at once, and franchisees who discover cheaper local inputs have an incentive to defect, so the supplier's prices must stay genuinely competitive rather than relying on contractual lock-in.
what came after
A leading model of supply-chain-based franchising — profit from what franchisees buy rather than what they earn; widely copied across Chinese F&B chains scaling into low-income cities.
references
- [1]How Mixue Became the World's Largest Food and Beverage ChainCKGSB Knowledge (Cheung Kong Graduate School of Business), 2025english.ckgsb.edu.cn
- [2]How Two Chinese Brothers Became Billionaires From $1 Bubble TeasForbes, 2024forbes.com
Widely retold, only partly documented. Filed as hearsay.