Consumer education is not effective! Pagoda had a terrible first half of the year...

Recently, Pagoda (02411.HK), which claimed to "educate consumers," has struggled to hide its loneliness despite launching extremely cost-effective fruit categories. More and more consumers are tightening their pockets.

Less than two weeks after Chairman Yu Huiyong's controversial remarks, Pagoda disclosed its 2025 interim results report, which was nothing short of dismal.

Over 300 million yuan in losses and more than 700 stores closed

The financial report disclosed on the evening of August 21 showed that Pagoda's multiple operating performance metrics suffered a Waterloo in the first half of this year.

Total revenue was 4.376 billion yuan (in RMB, same below), down 21.8% year-on-year. The gross profit decline was even more severe, plummeting from 619 million yuan in the same period last year to 216 million yuan, a drop of 65.1%, reducing the company's overall gross margin from 11.1% to 4.9%.

Affected by poor revenue and gross profit performance, Pagoda recorded its first interim loss since disclosing financial data, with a net loss attributable to owners of 342 million yuan, compared to a profit of 88.506 million yuan in the same period last year.

As of the end of June this year, Pagoda's membership numbers increased by 8.3 million to 93.041 million compared to June 2024. However, the number of paid members fell by 32.9% year-on-year to 719,000. Meanwhile, total retail sales in the first half of the year decreased by 6.748 billion yuan to 5.71 billion yuan, a drop of 15.4%.

This phenomenon stems from consumers' increasingly cautious spending habits impacting Pagoda's store performance, forcing the company to "optimize store layouts to improve operational efficiency." In this "self-rescue by cutting losses," Pagoda acted decisively. As of the end of June this year, the total number of stores was 4,386, compared to 5,127 at the end of 2024—a reduction of 741 stores in just six months.

From another perspective, the so-called "store layout optimization" highlights how Pagoda's "premium" fruits have lost much of their appeal to increasingly rational consumers. The days when they were beloved by consumers are over.

Pagoda stated in its interim report, "Despite the revenue decline and net loss in the first half of 2025, this is a necessary step in our proactive strategic transformation and operational quality improvement." Pagoda believes its strategic transformation was completed in the first half of 2025.

In addition to closing some stores, Pagoda's transformation strategy includes adjusting product strategies, launching "high-quality and cost-effective" fruit products, and boosting foot traffic and purchase frequency through promotions like "Good Fruit Repays Kindness" and "Daily Surprises."

Furthermore, Pagoda has taken measures in franchisee policies, operational efficiency improvements, and supply chain to support its strategic transformation.

These measures are inevitable choices for Pagoda amid intensifying competition and a trend toward rational consumption, but they also come with drawbacks. For example, the "high quality-to-price" strategy, which benefits consumers, has led to a sharp decline in gross margins. Large-scale store optimization has eroded economies of scale and may trigger a chain reaction, including weakened franchisee confidence.

Why can't consumers be 'educated'?

Yu Huiyong's recent remarks deeply discomforted consumers. He said, "There are only two types of business: the first exploits consumers' ignorance, and the second educates consumers to maturity. Pagoda has been on the path of educating consumers to maturity for years. We won't pander to consumers."

Yu's remarks were simplified or even distorted as "consumers are ignorant" in dissemination, greatly touching a sensitive spot for consumers, who now have heightened awareness of their rights and prefer to be "pampered" by brands rather than "educated." The backlash may lead to a significant loss of Pagoda's paid members, with many already boycotting the company on social media.

Pagoda has long positioned "deliciousness" as its brand moat—premium pricing is a fact, but "deliciousness" is subjective. Over the years, Pagoda has been 'educating consumers to maturity,' i.e., getting them to pay high prices for high-quality fruit.

To achieve its premium brand goal, Pagoda established a fruit grading system with four levels: Signature, A, B, and C. It also supports "no-questions-asked returns" and continuously expands its private labels to enhance product premium pricing power.

During China's rapid economic growth and consumption upgrade phase, Pagoda's "premium" label and higher positioning aligned with consumer trends. But times have changed, and the current trend favors "cost-effectiveness" and rational consumption, even in fruit purchases.

When consumers compare Pagoda's prices with other channels, the gap directly labels it a "fruit price gouger." Yet, Yu Huiyong insists on "educating consumers" in this context, which may ultimately lead to the brand being "educated" by consumers instead.

"Educating the market" typically requires massive investment and a long cycle. Pagoda has indeed invested in and built up its supply chain, quality control, and private labels. But under the pressure of fierce competition and rational consumption, high operating costs translate into high retail prices, and consumers are increasingly unwilling to pay for this "education."

More critically, high prices don't necessarily guarantee an equally high-quality consumer experience.

In recent years, Pagoda's fruit quality issues have been repeatedly exposed, gradually eroding consumer trust in its "reliability." During the 2024 3·15 period, Pagoda's Wuhan stores were exposed for using rotten fruit to make fruit cuts and selling overnight fruit as fresh, sparking widespread outrage online.

In this transformation, Pagoda's shift from "premium" to "cost-effective" may blur its original positioning. Amid a brand trust crisis, whether this move can truly reshape consumer perception remains uncertain.

Author: Yao Yuan