Davao Milk Tea Franchisees Signed 5-Year Contracts. The Trend Won't Last That Long.
Royalty clauses keep collecting even after the queues disappear. Davao's young franchisees are learning what they actually signed.
Walk down Mabini or pass through any Davao mall annex and count the milk tea shutters: half-open, fully closed, or running on one barista who also handles delivery pickups. The signage is still bright. The foot traffic is not.
What is still running, on paper, are the contracts. Five-year franchise agreements with monthly royalty fees, marketing fund contributions, and exclusive supplier clauses that keep collecting whether anyone walks in or not.
The Math Nobody Showed Them
A lot of the franchisees who signed in 2023 and 2024 were in their late twenties, first-time business owners using separation pay, OFW remittances, or a co-signed loan from a parent. The pitch was clean: pay the franchise fee, get the brand, get the training, ride the wave.
The wave was already cresting. By the time the store opened, the block had three competitors, two of them cheaper, one of them inside a Mercury Drug.
The royalty structure is where the trap closes. Most agreements in this category charge a percentage of gross sales, not net profit, plus a fixed monthly marketing fee. Bad month, no customers, typhoon week, brownout, does not matter. The percentage is on whatever rang up, and the marketing fee is flat.
The Exit That Isn't an Exit
Pulling out early triggers pre-termination penalties that are often written as the remaining royalty fees for the contract term, computed at a minimum monthly sales projection set by the franchisor. Translation: closing early can cost more than staying open and bleeding slowly.
Franchisees in Davao have been comparing contracts in Viber groups and discovering the same clauses across different brands. Exclusive supplier requirements that force them to buy syrup, cups, and tapioca from the franchisor at marked-up rates. Non-compete clauses that bar them from opening any beverage business within a radius for years after termination. Renovation requirements every 24 months at the owner's expense.
Some have tried to negotiate. The standard reply, according to multiple franchisees who have shared screenshots in local small business groups, is that the contract is non-negotiable and was already signed.
Where the Regulators Aren't
The Philippine Franchise Association has a code of ethics. It is voluntary. DTI registers franchise disclosure documents but does not screen the fairness of the clauses inside them. There is no franchise-specific law in the Philippines that caps royalty terms, requires cooling-off periods, or mandates standardized disclosure of failure rates by location.
Compare that to jurisdictions where franchisors must disclose unit closure data, average earnings claims, and lawsuit history before a contract gets signed. Here, the document a 26-year-old signs across a conference table in BGC or Lanang is the document.
What the Next Round Looks Like
The shops that close will not erase the debt. The supplier invoices keep arriving. The mall lease still has 18 months on it. The co-signing parent gets the collection text.
The franchisors, meanwhile, are already rebranding. New concept, new logo, fresh franchise package, same lawyers drafting the same five-year terms. The pitch deck for the next wave is being printed while the current wave is still trying to figure out how to break a lease without losing the family lot.
