Milk Tea Fraud: Chazhilan Scammed 700 Million RMB

On May 15, one of the TOP1 topics on Weibo’s hot topic ranking board was: Actress Ma Yili (马伊琍) apologizes. Ma was apologizing for her collaboration with a milk tea brand called Chazhilan (茶之兰) which is now caught up in a fraud scandal.

What did Chazhilan do? Well, Cha was just one of the milk tea brands included in a fake milk tea investment website that attracts people to pay franchisee fees to open new stores. This illegal business scammed around 700 million RMB.

Behind The Wild Spreading of Milk Tea Stores in China

I had an internship at a company in Shanghai. Every afternoon, my colleagues ordered milk tea. White collar workers love the drink as if the sweetness of it can kind of erase the tiredness brought by work, and students love it as well.

The growing popularity of milk tea also attracts many young people, especially post-90s to open milk tea stores. A drink that only costs 5-6 RMB to produce can be sold at around 20-30 RMB, which makes it a really lucrative business for people to join.

Many celebrities open their own milk tea stores as well, such as Jay Zhou (周杰伦), Guan Xiaotong (关晓彤) and Wang Junkai (王俊凯).

Being a milk tea store owner doesn’t require high threshold and your time will be flexible, and the operating costs are lower than other businesses. Because of these reasons and more, milk tea stores are booming in China.

Blind Love For Milk Tea Stores Covers The Fraud

Victim story: Mr. Wang

According to Shanghai Law Journal, Mr. Wang first found the franchisee advertisement of a well-known milk tea brand. He talked with the customer service a few times, and in the end, the person told him that there were no franchise opportunities left for that milk tea brand. The person then went on to suggest that Mr. Wang could invest in another milk tea brand, which was today’s main character: Chazhilan.

The customer service assistant promised Mr. Wang that after he paid the franchise fee of 100k RMB, the company will help him select a perfect spot for his store, equip the store with advanced machines, together with raw materials, professional training and promotion. 

So Mr. Wang paid. But soon enough, he found that the company didn’t do as it promised and the person who was supposed to monitor and help him with his business from the company disappeared. After three months, Mr. Wang had to close his store for poor performance.

Another victim, Ms. Gao, invested 250k RMB in total. After three months, she closed her store as well since the average daily turnover was only 200 RMB.

The setup of franchisee fraud

A common formula for those fraud all starts with setting up a dining company. After this, people create fake franchisee websites and they either purchase or register milk tea brands. For example, Chazhilan’s parent company has more than 50 brands under its umbrella.

Those companies always promise their clients that they will provide comprehensive service for them, such as selecting store locations, professional training, etc.

These companies also fake their milk tea brands’ popularity. We wrote an article about a viral phrase: Qifen Zu (气氛组) before. The phrase means a group of people who stay at a place to create an atmosphere. Well, Chazhilan leveraged this term very well. It once hired more than 30 people to pretend to be its customers and line up in front of the store on its first opening day in Shanghai. Every 15 minutes, there were two people called to line up to make sure that there were always people waiting in line.

Should celebrity Ma Yili take responsibility for her endorsement?

A big reason why the milk tea fraud has attracted so much attention is because of Ma Yili’s endorsement of Chazhilan. Ma said herself in the Weibo post that she and her team are working with the police for further investigation, and that they would be more cautious in the feature.    

Personally I think Ma should be blamed in this fraud. Let’s have a look at the timeline. Ma signed the contract with Chazhilan in November 2020. The following month, Chazhilan was reported for having faked customers lining up. Despite warnings like this, it wasn’t until May 2021 that Ma terminated her agreement with the brand.

If she did so earlier, fewer people might have been cheated. A Chazhilan franchisee store owner said in an interview that he did know about the fake customer incident, but since Ma spoke for the brand, he believed that Chazhilan was still trustworthy.

It is still worth noticing that the registered capital for the parent company of Chazhilan: Shanghai Weixiang Dinning Company (上海味湘餐饮管理有限公司) was not even 2 million RMB. That should have been enough for Ma’s team to have doubts about whether it was a legitimate dining company.

Takeaways

Chinese consumers’ love for milk tea or new beverages will still continue to grow. Even with fraud cases like these, plenty of people will still want to start milk tea stores. I predict there will be more and more milk tea stores as well as new brands emerging.

The good thing is that following scandals like these, the industry is being monitored closely by the government and it will step into a mature development stage instead of “everyone can open a milk tea store” without careful checking.

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