Has Liu Wenxiang's malatang run into trouble? It's unavoidable

Structural squeeze is the story, not a single bad boss

The trouble facing Liu Wenxiang’s malatang — malatang (麻辣烫) being the low-cost, fast-casual spicy-soup format popular across China — is less about one founder than about the economics of the whole sector. It has been reported that many restaurants, whether small independents or national chains, are squeezed by two “mountains”: rent and utility costs, and delivery commissions charged by platforms such as Meituan (美团) and Ele.me (饿了么). When the bulk of transaction margins is captured by landlords and platforms, brand marketing, SOPs and even hygiene-investment become luxuries few franchisees can afford.

Franchises and managers under pressure

Reportedly, the franchise model amplifies the problem. Franchisees pay upfront for a brand promise but must survive on thin margins; store managers operate under KPIs and have little capital buffer, so cost-cutting becomes inevitable. What follows is predictable: corners get cut on ingredients, staffing and sanitation, because each node in the chain refuses to be the sole cost bearer. The result is a market equilibrium that rewards the cheapest operator and punishes those who invest to do things “properly” — a classic case of bad money driving out good.

Enforcement, consumer memory and business choices

Regulators and brand head offices try SOPs, mystery shoppers and inspections, but it has been reported that enforcement is uneven and penalties often lead only to short-lived remediation. Consumers, meanwhile, exercise pragmatic forgiveness if options are limited: they notice price and taste first, hygiene less so unless a scandal goes viral. So what can brands do? Own more stores outright, tighten supply chains, or accept lower growth for higher quality? Each path has trade-offs — capital intensity, slower expansion, or continued friction with franchisees.

Why this matters beyond one chain

For Western readers wondering whether this is a one-off business mishap: it’s not. These dynamics reflect broader pressures on China’s consumption recovery, rising operating costs and the growing power of delivery platforms — domestic structural issues rather than geopolitics. Investors and consumers should watch whether chains reform franchise terms or vertically integrate; otherwise, more brands will face the same unavoidable dilemma: scale fast and cheap, or survive on quality and slim margins. Which road will China's low-cost dining sector choose?