Analysis of Labor Costs and Social Insurance Contribution Status of Yuanji Food

Based on the information I collected, the following is a detailed analysis of the issues regarding employee social insurance contributions and labor cost pressure of Yuanji Food (the parent company of Yuanji Wonton):

Yuanji Food Group officially submitted its prospectus to the Hong Kong Stock Exchange (HKEX) on January 12, 2026, seeking listing on the Hong Kong Main Board [1][2]. The company owns two brands, “Yuanji Wonton” and “Yuanji Weixiang”, with Yuanji Wonton contributing approximately 97% of total revenue [3].

• As of September 30, 2025, the company operates
  4,266 stores
  , covering 32 provinces in China and Southeast Asian markets [2]
• Over 95% are franchise stores
  , with an extremely low proportion of direct-operated stores [3]
• Store Distribution: 2,150 stores in first-tier cities (51%), 942 stores in second-tier cities (22.4%), 1,121 stores in tier 3 and lower-tier cities (26.6%) [4]

According to employee data disclosed in the prospectus, Yuanji Food faces the issue of

1. Significant differences across city tiers
   : Contribution rates are relatively high in first-tier cities, while they are significantly lower in tier 3 and lower-tier cities
2. Impact of franchise employment model
   : Since over 95% of stores are operated by franchisees, there are differences in the standardization of social insurance contributions for employees hired by franchisees
3. Industry common challenge reference
   : Laoxiangji, which also applied for IPO, once fell into public opinion controversy due to
   social insurance gap issues
   [5], reflecting the common employment compliance challenges faced by the catering chain industry

• Yuanji Food’s gross margin has remained around
  25%
  in recent years [5]
• It dropped by 2.97 percentage points from 2023 to approximately 23% in 2024
• Industry comparison: Gross margins of Chinese full-service restaurants such as Green Tea Group and Xiaocaiyuan can exceed 60% [5]

• 2024: 3,953 stores generated RMB 2.56 billion in revenue, with annual per-store revenue of approximately RMB 647,700
• First Three Quarters of 2025: The number of stores increased to 4,266, but per-store revenue declined by approximately 4.3% year-on-year [5]

According to public recruitment information, there is a significant difference in salaries for the same position of Yuanji Wonton in different regions:

This comparison reflects the huge difference in labor costs of Yuanji Food across different markets [7].

1. Dual Pressure of Food Safety and Employment Compliance
   • The “earthworm incident” at the end of 2024 triggered a major public opinion crisis, causing revenue of some stores to plummet by 30% [5]
   • The standardization of employment by franchisees is uneven, and differences in social insurance contribution rates may bring compliance risks

2. Slowing Growth Engine
   • The speed of store expansion has continued to decline, making it more difficult to recruit franchisees
   • Growth in first-tier cities is nearly stagnant (only 25 net new stores in the first three quarters of 2025) [5]

3. Pressured Profitability
   • Net profit margin dropped from 8.25% in 2023 to 7.16% in the first three quarters of 2025 [5]
   • Dual squeeze of rising labor costs and low gross margin

Yuanji Food does face certain labor cost pressures, mainly reflected in the following aspects:

1. Urban differences in social insurance contribution rates
   : Contributions are relatively standardized in first-tier cities, while rates are low in tier 3 and lower-tier cities, which is directly related to the difficulty of employment management under the franchise model
2. Continuous pressure on the cost side
   : Rising labor costs coupled with raw material cost pressure, and the low gross margin of around 25% narrows profit margins
3. Long-term cost increase due to compliance trend
   : With the stricter enforcement of labor laws, standardizing social insurance contributions will increase labor costs

For investors, it is necessary to pay attention to how the company balances expansion speed and employment compliance after the IPO, as well as how it improves profitability against the backdrop of rising labor costs.

[1] Sina Hong Kong Stocks - “Breaking Down Yuanji Food’s Prospectus: Over 4,000 Stores, Launches IPO Bid” (https://finance.sina.com.cn/roll/2026-01-12/doc-inhhaeyi8218016.shtml)

[2] Jiemian News - “Parent Company of Yuanji Wonton Submits Prospectus to HKEX, Operates Over 4,200 Stores Globally” (https://m.jiemian.com/lists/72_46.html)

[3] CBNData - “The ‘Mixue Bingcheng’ of Dumplings is Going Public” (https://cbndata.com/information/294892)

[4] iiMedia Research - “Parent Company of Yuanji Wonton Submits Prospectus to HKEX, Operates Over 4,200 Stores Globally” (https://www.iimedia.cn/c1040/108765.html)

[5] Huxiu - “IPO Response After Food Safety Storm: Yuanji Wonton’s Growth ‘Stalls’” (https://www.huxiu.com/article/4826205.html)

[6] 21st Century Business Herald - “Fresh Wrapper Dilemma, Expansion Roadblocks: How Long Will Yuanji Wonton Stay Popular?” (https://www.21jingji.com/article/20251125/herald/caa801d31d07a91e7db75bb51f5041a0.html)

[7] HK01 - “Yuanji Wonton Recruits Wonton Wrappers: Huge Gap in Salary and Benefits Between Shenzhen and Hong Kong” (https://www.hk01.com/開罐/943342/)