Summary of Key Points
Yuanji Food (the parent company of Yuanji Cloud Dumplings) intends to list on the Hong Kong Stock Exchange and has just received the approval from the Securities and Futures Commission for its overseas listing application. However, its initial IPO application was automatically rejected due to the failure to complete the hearing within six months, so it has submitted a new prospectus. Nevertheless, there are several challenges it faces before it can go public: while the number of stores has increased, the profitability per store has declined; franchisees are under significant pressure, and food safety issues have become frequent. These concerns are of concern to investors in the capital market, as they now place more emphasis on the “quality of growth” rather than mere expansion. Without addressing these problems, Yuanji’s path to listing will be difficult.
Detailed Analysis
1. Rapid Store Expansion, but Declining Profitability per Store
Yuanji primarily generates revenue through its franchise model, where franchisees purchase ingredients and equipment from the company to operate their stores. Over the past three years (2023-2025), the number of stores increased by 43% from 3,141 to 4,502, and revenue also rose from 2 billion yuan to 2.8 billion yuan. However, there are negative trends:
- Daily sales per store (GMV) have dropped by 13% to 4,687 yuan.
- Average order value has decreased by 13% to 22.5 yuan.
- The number of orders per day has barely increased, from 207 to 208.
This indicates that growth is mainly driven by the expansion of stores, rather than improved performance at each individual store. There is a limit to the demand for dumplings and wontons, so continued expansion without improving efficiency will lead to a lack of sustained growth.
2. Franchisees Facing Difficulties, with Food Safety Concerns
The success of the franchise model depends on franchisees making a profit; otherwise, no one would be interested in joining. However, Yuanji’s franchisees are facing significant challenges:
- Direct-operated stores have had negative gross margins (from -7.5% to -4.2%) during 2023-2025. Since the costs for direct-operated and franchise stores differ, it is unlikely that franchisees will be more successful.
- The closure rate of franchise stores has increased significantly, from 4.1% to 8.13% in 2023-2025, with an annualized closure rate of nearly 6% in the first half of 2026, and most closures were voluntary.
Food safety issues have also emerged: in 2024, earthworms were found in wontons at a Beijing store, and customers reported other quality problems. Despite this, Yuanji’s prospectus states that it has not received any major penalties. This suggests weak control over franchise stores by the headquarters, which could damage the brand if franchisees compromise safety to cut costs.
3. Family Control and Potential Profit Leakage in the Supply Chain
Yuanji is a family-owned company, with founder Yuan Lianghong directly or indirectly controlling 82.5% of the voting rights. His spouse, Yang Yu, owns companies that supply ingredients such as soup bases and dumpling wrappers to Yuanji. The amount of business with these related companies increased from 41.34 million yuan to 58.06 million yuan during 2023-2025 and is expected to continue growing.
Related-party transactions can be prone to fraud, such as inflated prices when purchasing from family-owned companies. This raises concerns about whether profits are being diverted out of the listed company (Yuanji) to related entities. In contrast, companies like Mixue Ice City have integrated their supply chain businesses into the main listing entity, making profits more transparent. Investors may suspect that profits are being misappropriated if Yuanji does not do the same, which could result in a lower valuation for its shares.
4. Listing is Not Guaranteed with Just an Approval; Strict Regulations and Quality of Growth Are Key
The Hong Kong Stock Exchange and Securities and Futures Commission have tightened their review processes for food and beverage IPO applications, with applications from companies like Banu and Laoxiangji being rejected due to delays exceeding six months. Investors now focus on the “quality of growth,” including:
- Whether each store can generate profit consistently.
- Whether franchisees can survive financially.
- The transparency of supply chain profits.
Yuanji’s issues directly address these concerns: declining store efficiency, difficulties for franchisees, and lack of transparency in related-party transactions. Even if it obtains the regulatory approval, these issues will likely be raised during the Hong Kong Stock Exchange’s hearing process, and without resolving them, the company will not be able to list.
Conclusion
While having 5,000 stores is a significant advantage for Yuanji, it also poses challenges in terms of management complexity, food safety risks, and conflicts over profit distribution. To go public, it must improve store efficiency, ensure franchisees make a profit, and provide clear information about supply chain profits. Have you tried Yuanji Cloud Dumplings? Do you think its taste and service justify maintaining such a large network of stores?