Amidst recent public outcry over "fruit being too expensive," Pagoda's chairman, Yu Huiyong, has put the leading high-end fruit retailer at the center of controversy with his statement, "Educate consumers to mature." On August 15th, the company issued a profit warning, projecting a net loss of 330 million to 380 million yuan in the first half of 2025—a further decline in performance following its first loss in 2024.

(Image source: Pagoda official website)

On August 8th, Pagoda Chairman Yu Huiyong released a video addressing criticism of "excessive fruit prices," proposing a "business dualism": companies can choose to "exploit consumer ignorance" or "educate consumers," and declared that Pagoda adheres to the latter.

Yu Huiyong stated, "Pagoda has been on a path of educating consumers for many years. We will not cater to consumers."

He explained that the quality of visually similar fruits can vary by 4-5 times, and high-quality fruit is priced high due to "supply shortages." Therefore, "we will not cater to consumers' pursuit of low prices."

He also emphasized that Pagoda's value lies in its rigorous selection standards and stable supply chain. If consumers find its products expensive, it may be because they have a different understanding of quality and value.

This "consumer education" statement sparked heated debate. The video was later deleted, but the "consumer education" statement has been criticized as "daddy-like arrogance," sparking widespread backlash. Netizens believe the company is being condescending, shifting the blame for price conflicts onto "consumer immaturity." One netizen bluntly asked, "You're taking my money, and you still want to educate me?" Others quipped, "The market will educate you."

Public opinion frequently cited Zhong Xuegao's failed attempt to "educate consumers," warning Pagoda against repeating the same mistake.

On August 11th, ZhongXueGao founder Lin Sheng addressed the Pagoda incident during a livestream, expressing his belief that Pagoda harbored no ill intentions and his desire to never see another company become another Zhong Xuegao. "I think Pagoda's presentation did make the audience uncomfortable. But if you ask me to accuse Pagoda's boss of looking down on consumers and favoring the rich over the poor, I'd never agree. As the head of a company like that, his perspective wouldn't be that narrow."

Public opinion quickly escalated, and Pagoda's stock price plummeted 8% during intraday trading on August 11th. The company later responded that the video may have been "taken out of context" and was investigating the matter.

This isn't the first time Pagoda has mentioned "educating consumers."

On January 16, 2023, Pagoda officially listed on the Hong Kong Stock Exchange, being hailed as "China's first listed fruit retail chain." Its prospectus already mentioned "consumer education," stating, "We have developed the first flavor-driven fruit product quality grading system, enabling us to identify high-quality fruit using an objective and quantifiable method, creating a consistent and enjoyable consumer experience. This system also creates a barrier to entry by educating consumers to understand and appreciate the premium value of high-quality fruit products. We have launched a "three-no" return service to enhance consumer satisfaction."

From a financial perspective, Pagoda is facing considerable pressure.

Pagoda's revenue growth rate in 2023 is expected to plummet to 0.69% from 9.94% in 2022, and its net profit attributable to shareholders is projected to decline to 11.88% from 40.35% in 2022.

In 2024, Pagoda's revenue reached 10.273 billion yuan, a year-on-year decrease of 9.8%. Operating costs were 9.509 billion yuan, selling expenses were 605 million yuan, and administrative expenses were 330 million yuan. The loss attributable to owners of the company was 386 million yuan, marking its first loss in five years. The company's overall performance decline was primarily due to the combined impact of a weak consumer market and strategic store closures.

- By operating segment, fruit and other food sales, royalties and franchise income, membership fees, and other income were 10.014 billion yuan, 82 million yuan, 77 million yuan, and 100 million yuan, respectively, representing year-on-year decreases of -9.6%, -43.2%, -19.7%, and +29.4%.

- By distribution channel, revenue from franchise stores, self-operated stores, regional agents, direct sales, and online channels was RMB 7.396 billion, RMB 0.41 billion, RMB 1.215 billion, RMB 1.256 billion, and RMB 106 million, respectively, representing year-on-year decreases of -13.0%, -15.2%, -1.9%, +21.7%, and -58.4%.

Pagoda is strategically contracting and optimizing its nationwide retail store footprint. By the end of 2024, Pagoda will have 5,127 retail stores, a net decrease of 966 from the end of 2023. Of these, there will be 5,116 franchise stores and 11 self-operated stores, representing net decreases of 965 and 1.

Membership numbers are increasing, but willingness to pay is declining. By the end of 2024, the number of members and paying members will be 90.743 million and 854,000, respectively, representing year-on-year increases of +8.1% and -27.1%.

As of the end of 2024, franchise stores accounted for 99.8% of Pagoda's total revenue, and product sales revenue from franchise stores accounted for 72.0% of the total revenue in 2024.

However, Pagoda's franchisees are finding it increasingly difficult to make money.

According to Sina Finance, a netizen claiming to be a Pagoda franchisee stated, "I've opened four stores in four years and have always offered returns and exchanges without any refunds. However, starting last year, the company changed its responsibility to 60%, deducting the entire profit from the entire order amount, not just the profit from the returned fruit. Profits were already very low, but the company ignored the stockpiling of spoiled fruit."

In addition to consumer losses, factors such as headquarters' stockpiling, increased reimbursement thresholds for spoiled fruit, and the fact that franchisees bear the majority of the costs of returns without any refunds, further squeezed franchisees' profit margins.

The franchisee's predicament had a counter-effect on Pagoda. Some franchisees, driven by the squeezed profit margins, engaged in illicit activities, leading to frequent food safety issues.

As a result, Pagoda's performance declined, and its quality assurance was repeatedly questioned.

In 2023, Shanghai Pagoda Industrial Co., Ltd. was fined over 93,000 yuan by the Shanghai Qingpu District Market Supervision and Administration Bureau for excessive pesticide content in its fruit.

On March 15, 2024, the "3.15" (March 15th) campaign exposed issues such as using rotten fruit to make overpriced cut fruit, selling overnight fruit as fresh fruit, and arbitrarily defining cherry grades. Black Cat received over 3,000 complaints, including allegations of "no compensation for rotten fruit" and "false advertising."

High prices and low quality sparked controversy. One consumer found that the same Sunshine Rose grapes were 30% more expensive than the market price, yet tasted just like those sold at regular fruit stalls.

Pagoda has always marketed itself as high-end and expensive. It established a "Four Degrees, One Flavor, One Safety" fruit grading system and offered a "Three No Returns if Not Tasty" service (no receipt, no product, no reason required). This approach aims to help consumers understand and appreciate the value of high-quality fruit products and be willing to pay a premium.

In the domestic fruit retail market, high-end fruit franchises rely on differentiated quality to command premiums. However, this model is under significant pressure amidst a shift toward more rational consumption and the intensifying impact of low-price online channels.

Price-sensitive consumers are turning to Sam's Club, Hema Outlets, PuPu Supermarket, and Douyin's farmer-support livestreams (direct sourcing from the source). Some consumers have even said, "I haven't been to Pagoda in ages."

Amid the wave of price-performance-based consumption, consumers are increasingly prioritizing purchasing and experiencing high-quality products and services at reasonable prices.

Faced with market challenges, Pagoda is attempting a compromise strategy. In 2024, the company adjusted its strategic positioning to "expert and leader in high-quality and cost-effective fruit," and "cost-effectiveness" is frequently mentioned in its financial reports.

- Launched the "Good Fruits Repay Gratitude" campaign, selecting a highly popular, valuable, and cost-effective fruit each month as the "Gratitude Fruit" of the season.

- Continuously optimizing its tiered product portfolio, such as actively introducing smaller packaging options (such as cherry hand-held cups), to further address diverse customer needs. - Completed store renovations, marketing campaigns, and hired "Good Life Ambassadors" to enhance customer brand awareness of the company's products.

- Improved operational efficiency through continuous optimization of the nationwide retail store footprint. By encouraging franchisees to relocate stores from locations with high rent-to-income ratios to locations with lower rent-to-income ratios or to close stores with high rent-to-income ratios and underperforming retail stores, the company will focus more on advantageous stores with more sustainable rent-to-income ratios.

On August 15, Pagoda issued a 2025 interim profit warning, projecting a year-on-year revenue decline of no more than 25% in the first half of 2025, with a net loss attributable to the parent company of 330 million to 380 million yuan. The company attributed the decline in performance to the temporary impact of its proactive strategic transformation and operational efficiency upgrades.

The company stated that store network optimization was completed in the first half of 2025, with customer traffic increasing and sales stabilizing. The company plans to improve profitability by diversifying its product offerings, optimizing its product mix, and refining its store expansion plan.

The "Pagoda 2024 ESG Report" shows that the company is focusing on key areas such as governance, food safety, industrial chain upgrading, employee development, environmental protection, and social responsibility, actively addressing internal and external challenges and meeting stakeholder expectations. Key highlights include:

- Conducted education and publicity on integrity and self-discipline, with a total of 2,382 attendees and a 100% achievement rate of the publicity target.

- 100% signing rate of the Anti-Commercial Bribery Agreement by suppliers.

- Internal sampling inspection of pesticide residues reaching 3,654 batches, and external sampling inspection of pesticide residues reaching 3,851 cases .

- Completed 3 food safety audits, including 2 joint internal audits and 1 external audit.

- Issued the Notice of Pagoda on Updating Pesticide Residue Inspection Items to all suppliers, confirming that the pesticide residue inspection items for fresh fruits would be expanded from 200+ to 300.

- Established the Group Monitoring Center, to launch special sampling inspections targeting the service standards of stores, totaling 22,320 inspections, with the passing rate of sampling inspections increasing month by month.

- Accepted a total of 17,706 complaints, and resolved 17,120 complaints, with a complaint handling rate of 96.69% .

- Conducted comprehensive NPS surveys in 15 regions focusing on 32 indicators concerning quality, price, service, etc. , of which Shenzhen's NPS was 36% and Guangzhou's NPS was 41% .

- Launched the “transparent kitchen (明厨亮灶) ” activity, and published the “transparent kitchen”, a fresh-cut fruit live broadcast, on 43 self-operated store platforms in the cities such as Beijing and Shenzhen.

- Launched data security awareness training, covering 2,026 people with a 100% completion rate.

- Carried out 14 food safety training sessions for suppliers, franchisees and employees during the year, with a total of over 30,000 attendances.

- Energy consumption intensity decreased by approximately 12% compared with the previous year.

- Water consumption declined by 7% compared with the previous year.

- Fruit ecological cultivation technology-enabled area amounted to 1,512 hectares, an increase of 5.5% year-on- year.

- BLOF ecological harmony planting technology related planting area for vegetable business reached more than 1,333 hectares.

- Cadres and talents were recorded to identify outstanding cadres, assessed the soundness of the talent team in each department, and prepared improvement plans based on the record results, so as to strengthen the building of cadre and talent team.

- 368,001 safety inspections against stores and warehouses were organized, which covered the self-inspection of the stores on the safety day and the selective inspection by the safety specialist, and resolved 100% of potential hazards.

- Production and marketing cooperation with a total of 26 national key counties for rural revitalization in provinces such as Sichuan, Ningxia, Gansu and Yunnan, with a purchase amount totaling over RMB70 million.

Based on Pagoda's ESG data, the company demonstrates sustained investment in food safety, green supply chains, energy conservation and emission reduction, and public welfare responsibilities. However, these efforts have not effectively translated into public understanding and support for its price premium.

Why are ESG efforts so difficult to address price concerns？

One reason is that consumers often have a limited understanding of "sustainable costs" in their daily purchasing decisions. Most consumers are more concerned with the price tag and the substitutability of similar products in the market. Even if Pagoda's high-quality fruit does incur higher costs in supply chain management and production, if the brand fails to effectively communicate the logical relationship between these investments and the product premium, consumers are likely to perceive the premium as "excessive pricing," leading to price concerns.

The second reason is communication issues. Compared to directly explaining the price premium to consumers through data and specific stories, Yu Huiyong's phrase "educating consumers" is more likely to be interpreted as condescending by the public, triggering an emotional reaction. This communication approach not only failed to alleviate the price dispute, but actually exacerbated consumer resentment.

Thus, while ESG investment undoubtedly strengthens Pagoda's supply chain resilience and enhances its brand image, if the ESG strategy is not well aligned with its pricing strategy, the company could face a "lose-lose" situation: bearing the cost of sustainable operations while struggling to justify the price premium to consumers.

In the current era of consumer sovereignty, companies seeking to establish brand trust should earn recognition through transparent value delivery. For example, publicly disclosing pesticide residue testing reports and providing comprehensive return and exchange services are fundamental to building consumer trust. However, Yu Huiyong's "educating consumers" rhetoric has been seen as evading the issue of quality control, with some even accusing him of "confusing the right to educate with commercial responsibility." This has created a rift between Pagoda's rhetoric and its brand image.

Furthermore, the disconnect between words and actions further undermines consumer trust in the brand. The chairman declared that they "will not cater to consumers' pursuit of low prices," yet financial reports frequently mention "value for money" and launch cost-effective products. They emphasize "uncompromising quality," yet food safety issues have frequently come to light.

The core competitiveness of high-end fruit retail lies in a stable supply chain and perceptible quality differences. However, amid increasingly rational consumption and rising price sensitivity, companies that fail to effectively convey the value behind their prices will face challenges in their high-premium pricing model. To this end, some peer brands have begun introducing strategies such as tiered pricing and exclusive member discounts to balance profits and market share. If Pagoda hopes to stabilize its brand image and maintain its user base in the future, it may need to be more flexible and adaptable in its pricing strategy, in addition to maintaining high-quality products.

The Pagoda case offers profound insights for high-end retail brands: a company's ESG efforts and commercial value must resonate with consumers through effective communication.

With sustainability becoming a must-have for modern brands, convincing consumers that its prices are justified may be crucial to Pagoda's continued success in gaining market share and building a positive reputation.

Author：Qinger