Payback is slowing. Why are franchisees still willing to open stores?

  • New-store investment is taking longer to recoup. A franchisee interviewed by Goldman Sachs estimates that stores opening in the second half of 2026 will take about 3 years to pay back, longer than the 2–3 years for stores opened in 2024–2025, but still below his acceptable ceiling of about 5 years for this retail format.
  • Continued investment is supported by the fact that mature stores remain profitable: the franchisee operates about 40 discount stores, roughly three-quarters of which opened before 2024. All these mature stores have been profitable year to date in 2026 and have generally recovered their initial investment, despite new stores diverting some customer traffic. All these operating figures come from his regional franchise portfolio.
  • Initial investment per store is more than approximately 1 million yuan, including payment for initial inventory. In the interviewee’s experience, a mature store needs monthly sales of about 210 thousand yuan to remain open, while the current level is about 300 thousand yuan. Expansion remains attractive, but sales pressure and longer payback periods have appeared at the same time.

Where does the main room for expansion remain?

  • The interviewee expects store openings to continue in 2027, but at a slower pace: selectively increasing density in mature markets and expanding faster in lower-penetration regions such as Beijing-Tianjin-Hebei and Northwest China. Most of the 17 stores he opened in 2026 were outside the leading brands’ traditional strongholds, concentrated in North China, Northwest China and parts of South China.
  • He believes the industry can accommodate more than 100 thousand stores over the long term, while the two leading brands currently have about 60 thousand stores combined. The former is an estimate of industry capacity; the latter is the two brands’ current scale. The expansion thesis depends on regional gaps gradually being converted into profitable stores.
  • Brands also actively increase store density in mature areas: when monthly sales at a store stabilize at 700 thousand–800 thousand yuan, about twice the average, leading brands encourage franchisees to open another store nearby to strengthen coverage of the same trading area. This also explains how network expansion can coexist with traffic diversion from mature stores.

How do discount stores continue to replace traditional channels?

  • Price differences are the direct lever for channel substitution. According to the interviewee’s observations, discount stores are 15%–20% cheaper than convenience stores, 20%–25% cheaper than supermarkets, and 30%–35% cheaper than mom-and-pop stores. This advantage helps them win consumers and traditional retail franchisees in lower-tier markets.
  • Their supplier partnership model also charges no fees for product listing, barcodes or shelf displays. The interviewee believes stronger repeat purchasing, faster inventory turnover, lower risk of inventory losses and simpler operations make food and beverage discount retail more durable than trendy franchise formats such as fresh food and snack stores.
  • Expansion is concentrating among leading players: the interviewee observed that most new stores in the industry in 2026 came from leading brands, while the other more than approximately 10 thousand existing stores spread across smaller brands saw little expansion this year. On that basis, he expects leading players to continue consolidating the market.

Can larger stores offset pressure on mature stores, and at what cost?

  • In the interviewee’s portfolio, larger stores with more product categories drove growth in average transaction value per store year to date in 2026 and partly offset pressure on mature stores’ same-store sales. The improvement in the portfolio average therefore also reflects a change in store mix, while mature stores themselves remain under pressure.
  • The wholesale-supermarket-style discount stores he has opened in recent years generate annual sales of about 6 million–7 million yuan, with gross and net margins 2–3 percentage points higher than those of smaller snack discount stores, but also require 1.5–2 times as much initial investment. Higher sales and margins come with greater capital outlay.
  • Small county towns and townships follow a different path: transaction value per store is lower, but lower rents, labor costs and first-mover advantages can still support returns. Brand subsidies are mainly used to renovate mature stores and support eligible new stores; they are less generous than in 2024, making continued expansion more dependent on stores’ own operations.