Behind Babi Food's Transformation from Breakfast Stores to Full-Service Dining: An Analysis of Franchisee Contract and Food Safety Compliance Risks
Babi Food, a breakfast giant that has been selling steamed buns for over 20 years, recently drew attention with its semi-annual report: the company is transforming its traditional fresh-bun takeout stores into comprehensive dining establishments centered on handmade soup dumplings, supporting both dine-in and delivery. As of the end of June, 380 new-format stores had been opened, with average order values approximately twice those of traditional stores. The shift from "taking a few buns to go" to "sitting down for a meal" is not merely a corporate strategic adjustment—it also raises a chain of legal issues: How should franchise contracts be amended? How should food safety liability be allocated? How can labor and employment practices remain compliant? As a Shenzhen lawyer, I will analyze the risks and responses in this transformation for both enterprises and franchisees from a legal practice perspective.
Franchise Model Adjustment: Contract Amendments and Protection of Franchisee Rights and Interests
The core of Babi Food's transformation lies in the upgrade of its store model, which directly touches upon franchise legal relationships. Under Article 12 of the Regulations on the Administration of Commercial Franchises, a franchisor shall provide franchisees with true and accurate business information, including store format standards and investment budgets. When Babi Food promotes the upgrade of existing stores, it constitutes in essence a substantive modification of the original franchise contracts.
In practice, franchisees may face a dilemma: failing to upgrade could result in losing the franchisor's supply chain support or customer referrals, while upgrading requires bearing additional investments such as renovation and equipment. Lawyers advise that before signing an upgrade agreement, franchisees should pay close attention to the following clauses: first, fee-related clauses, including whether the franchise fee and deposit are adjusted and the conditions for disbursement of renovation subsidies; second, performance indicator clauses, such as whether the new store format sets minimum order quantities and whether failure to meet them constitutes breach of contract; third, the exit mechanism, namely whether the franchisee can smoothly terminate the contract and have the deposit returned if the business performs poorly after the upgrade.
For leading enterprises like Babi Foods, their contract templates are typically meticulously designed by legal teams, but franchisees are not without room for negotiation. For example, franchisees may request the headquarters to provide profit forecast data for new store formats and stipulate that if actual revenue falls below 80% of the forecast, the franchisee has the right to revert to the original store format or have certain fees reduced. When handling similar disputes, courts in the Shenzhen area tend to protect franchisees in a weaker bargaining position, with particular attention to whether the franchisor has fulfilled its disclosure obligations. Therefore, franchisees should retain all communication records to provide evidence in the event of a dispute.
Food Safety and Product Liability: Compliance Upgrades from Breakfast Stalls to Restaurants
The new store format adds dine-in and takeout services, which means Babi Food's compliance obligations have expanded from "prepackaged food sales" to "catering services." According to Article 33 of the Food Safety Law, catering service providers must obtain a food business license and meet higher hygiene standards. Handmade xiaolongbao are freshly prepared and sold on site, involving raw material procurement, processing and storage, and utensil disinfection—any oversight in these processes could lead to a food safety incident.
The Food Safety Law, revised in 2025, strengthens the primary responsibility of enterprises and explicitly requires the establishment of a food safety traceability system. For Babi Food, its central kitchen model helps standardize operations, but on-site operations at franchised stores remain a risk point. Lawyers suggest that enterprises should specify food safety liability clauses in franchise agreements, such as stipulating that administrative penalties or civil compensation arising from improper operations by franchisees shall be ultimately borne by the franchisees. Meanwhile, the headquarters should conduct regular food safety training and retain training records as evidence of fulfilling management obligations.
For consumers, if they encounter foreign objects in food or food poisoning during dine-in, they may claim compensation under Article 148 of the Food Safety Law, with a refund plus ten times the compensation being the minimum standard. Among the catering complaints accepted by the Shenzhen Consumer Rights Protection Committee in recent years, about 30% involve food safety, which reminds enterprises to establish rapid response mechanisms to avoid escalation of public opinion.
Labor Employment and Working Hours Compliance Behind 24/7 Operations
The new store format extends operating hours, from breakfast to lunch and dinner, which directly leads to changes in labor demand. According to Article 36 of the Labor Contract Law, the state implements a working hour system in which workers work no more than eight hours per day and an average of no more than forty-four hours per week. If a restaurant arranges employees to work in shifts, it must ensure that overtime hours comply with the provisions of Article 41 of the Labor Law, namely no more than three hours per day and no more than thirty-six hours per month.
In practice, the catering industry is a high-incidence area for overtime disputes. A catering company in Shenzhen was once collectively arbitrated by its employees for failure to pay overtime wages, ultimately resulting in compensation amounting to over one million yuan. Lawyers advise that Babi Food and its franchisees should establish a standardized attendance system and avoid paying wages in cash to evade social insurance contributions. In addition, new store formats may hire part-time or labor dispatch workers, and attention should be paid to Article 63 of the Labor Contract Law regarding equal pay for equal work, to avoid discrimination lawsuits arising from different employment forms.
For corporate headquarters, labor compliance violations at directly-operated stores may impact the compliance image of the listed company; for franchisees, labor disputes could lead to suspension of store operations for rectification. It is recommended that enterprises incorporate labor compliance guidelines into their franchise manuals and regularly audit franchisees' social insurance contribution status to mitigate the risk of joint and several liability.
Intellectual Property and Brand Protection: The Invisible Battlefield in Expansion
During Babi Food's transformation, maintaining brand value is equally critical. The new store format has added products such as "handmade soup dumplings," which raises the question of whether the trademark use scope exceeds the existing registered categories. Under Article 57 of the Trademark Law, using an identical trademark on similar goods without authorization may constitute infringement. If Babi Food has not registered defensive trademarks under the "catering services" category, the mark may be subject to squatting by others, leading to brand confusion.
Additionally, store decoration and menu design may involve copyright or patent rights. For example, if the distinctive decor of a new store format possesses distinctiveness, rights can be asserted under Article 6 of the Anti-Unfair Competition Law. In recent years, courts in Shenzhen have heard multiple cases involving infringement of restaurant brand decor, with awarded damages ranging from tens of thousands to hundreds of thousands of RMB. Lawyers advise that before launching a new store format, enterprises should carry out intellectual property planning, including applying for design patents and registering artistic works.
For franchisees, the use of the franchisor's trademark and store design falls within the scope of contractual authorization; however, if a franchisee modifies the menu or brand identity without authorization, this may constitute a breach of contract. The franchisor should ensure brand image consistency through regular inspections and mystery shopper mechanisms, while retaining the contractual basis for pursuing liability for breach of contract.
Conclusion: The Path of Transformation Under the Protection of Law
The transformation of Babi Food is a microcosm of the upgrading of the catering industry, but commercial innovation must be built on a foundation of compliance. Whether it is the fairness of franchise contracts, full-chain control of food safety, or standardized practices in labor employment, professional legal support is required. Guangdong Zhiming Law Firm has been deeply rooted in the Shenzhen market for many years and has accumulated extensive experience in areas such as franchise disputes, food safety compliance, and labor arbitration. If you are facing similar transformation challenges, or need to review franchise contracts or develop compliance systems, please feel free to contact us. We will reduce your risks and safeguard your interests from a professional perspective. After all, legal certainty is the greatest source of confidence for the long-term development of an enterprise.
