By LU Yibei

Bubble tea chain Naixue announced a “partnership project” on Thursday. It's basically an everyday franchising operation, but one with the entry bar set pretty high.

If you want to open your own teahouse under the sign of the homegrown brand, the initial investment starts at 980,000 yuan (US$140,000). Your store should cover at least 90 square meters, and you'll need a staff of at least five. Regarding royalties, Naixue wants 1 percent off the top of revenue over 60,000 yuan.

To join the Naixue family, you must have at least 1.5 million yuan in the bank, and two years experience managing a catering business. The named franchisee must be ready to spend at least 130 hours in the store every month.

Such potential partners are a dream come true for any business. Why would they choose Naixue?

Because, according to CEO ZHAO Lin, it is a sure bet!

Zhao said that in 2017, a store needed to take 900,000 yuan a month just to break even, but now it's only 100,000 yuan. The saving has come mainly through downsizing. In 2019, the average store area was 280 square meters. It's now less than half that.

Daily take of some stores in core cities exceeds 15,000 yuan. Shenzhen's stores take an average of 18,700 yuan. Beijing's average is around 14,000 yuan. In Q1, the net profit margin exceeded 20 percent, compared with 12 percent last year.

It is indeed a dream come true, in prime areas of heaving megacities. Naixue has more than 1,200 directly owned and managed stores in 100 cities. Only about 100 are in smaller cities or towns and many of them are in well-known tourist spots.

As big cities become saturated, Naixue will welcome deals from those ambitious about taking over lower-tier cities. But will the income there be able to sustain a 200-square meter store and a million-yuan investment?

Naixue’s rival Heytea is already big in lower-tier cities, and its franchise scheme is much more down-to-earth with 400,000 yuan upfront for a 50-square-meter space.

Since franchising began in November last year, Heytea has opened more than 1,000 stores. Now, one-third of its over 1,800 stores are in lower-tier cities or small towns

The high investment will certainly narrow down the field of suitors for Naixue. There is a shortage of high-quality franchisees across markets but a limit to the consumer base that a single store can access.

Naixue’s goal of 600 new stores this year remains unchanged.