The Franchisee Profit Test: Can Brands Accept Operators Making More Than They Do?

This is an English adaptation of a FoodBud historical article originally published on July 2, 2022.

A video of Huang Geng, founder of Huang Ji Huang, discussing foodservice franchising captures a core operating principle: making franchisees profitable cannot be a slogan. It has to show up in the economics.

Huang said he had spent 44 years in the industry, and that Huang Ji Huang’s franchisees are all individual operators. His view is that the franchisor should think like the platform at the center of a household: let the operators make money first. When franchisees earn more than expected, they will eventually feed value back into the system.

Profit Above Expectations Changes Behavior

Huang’s example was simple: if a franchisee expects to make RMB 500,000 and makes RMB 490,000, that does not matter. But if the expectation is RMB 500,000 and the result is RMB 800,000 to RMB 1 million, the operator will listen. If that operator opens another store the following year and continues to make money, then after three years they are likely to become part of the brand’s core base.

The barrier, Huang argued, is psychological. Many brand owners cannot tolerate the idea that franchisees may make more money than the franchisor.

He said that during his hardest period, he borrowed money from franchisees twice. Some franchisees told him that they had made money in the previous two years and could provide RMB 1 million at any time if he needed it. For Huang, that kind of relationship requires a founder to treat franchisees almost like their own children: if they make money today, they will repay the system later.

His conclusion: a franchisor has to accept that people beneath the brand may become wealthier than the brand owner.

The Brand as a Platform

Huang said he does not see himself simply as a restaurant operator, but as a platform-company builder. The platform is the stage; different brands and operators can perform on it. Today it may be Huang Ji Huang, tomorrow it may be New Spicy Way. The franchisor’s job is to build the platform well and connect social resources effectively.

He also compared Huang Ji Huang with a Korean budae-jjigae brand that had operated for 29 years. When asked how many first-generation franchisees remained, the Korean brand said it still had more than 10. Huang said Huang Ji Huang had been operating for nearly 19 years, and first-generation franchisees still accounted for 40% of its franchisee base.

His point was that franchising is not just about recruiting operators. Brands must bring franchisees in, help them get started, support them through the early stage, and continue helping over time.

Governance Matters

In 2014, Huang Ji Huang franchisees pooled money to buy Huang Geng a Rolls-Royce. Huang placed the car at the company.

He also does not allow his relatives to franchise Huang Ji Huang stores, because they would be impossible to manage. Relatives can receive financial help, but they cannot open stores under the brand. For example, if a nephew gets married, Huang may buy him a car; if a relative borrows money to buy a car, Huang may waive repayment. But operating a franchise is off limits.