Analysis of Food Safety Risks in Yuanji Yunjiao's Hong Kong IPO

Based on the latest information retrieved, I will conduct a systematic analysis of the food safety risks under Yuanji Yunjiao’s 95% franchise model and their impact on its Hong Kong IPO.

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Yuanji Food Group Co., Ltd.

, seeking to list on the Hong Kong Main Board, with Huatai International and GF Securities as joint sponsors [1][2]. The company owns two major brands, “Yuanji Yunjiao” and “Yuanji Weixiang”, with the core positioning of “hand-made fresh wrapping and cooking”.

Indicator	2023	2024	First Three Quarters of 2025
Operating Revenue	RMB 2.026 billion	RMB 2.561 billion	RMB 1.982 billion
Adjusted Net Profit	RMB 179 million	RMB 180 million	RMB 192 million
Total Number of Stores	1,990	—	4,266
Store GMV	RMB 4.772 billion	RMB 6.248 billion	RMB 4.789 billion

As of September 30, 2025, the company operates

, of which , run by 2,065 franchisees [1][2][3].

According to a report by CIC Consulting, based on the number of stores, Yuanji Yunjiao is the largest Chinese fast-food enterprise in China and globally; it is also the largest dumpling and wonton enterprise in China [1][2].

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Yuanji Yunjiao’s strategy of heavy reliance on franchise expansion has brought significant quality control risks:

According to the prospectus, Yuanji Yunjiao only indirectly manages franchisees through regular store inspections and data monitoring, while franchisees have considerable operational autonomy [4]. This loose management model leads to a serious lack of quality control capability at the headquarters over stores.

The 4,247 franchise stores are operated by 2,065 franchisees, and there are significant differences in each franchisee’s management level, food safety awareness, and execution capabilities, making it difficult to ensure that each store strictly complies with unified food safety standards [4].

A consumer found a black-purple earthworm about 3 cm long in a fresh meat wonton noodle dish, which sparked widespread public concern [4]. The incident exposed the following issues:

• Serious failure in store hygiene management
• Slow crisis response from headquarters (the franchise store was only ordered to suspend operations for rectification 30 days after the incident)
• Imperfect compensation mechanism (only the RMB 14 meal fee was refunded initially)
• Revenue of some stores fell by more than 30%
• A franchisee lost control of their emotions and went directly to the headquarters to demand an explanation

There are over 600 complaints related to Yuanji Yunjiao, of which , including hair, mold, foreign objects, spoilage, and gastrointestinal discomfort [4].

There is a significant discrepancy between the brand’s promoted “hand-made fresh wrapping and cooking” and its actual operating model:

• The so-called “hand-made fresh wrapping” in stores actually involves wrapping with pre-made meat fillings and dough skins delivered from central kitchens after thawing, plus fresh vegetables purchased by the stores themselves
• It is not fully hand-made with dough rolling and meat chopping on-site at the store
• This “central kitchen pre-production + store assembly” model is fundamentally different from consumers’ inherent perception of “fresh wrapping and cooking”

Zhu Danpeng, a food industry analyst, pointed out that brands positioned as “hand-made fresh wrapping and cooking” need to

to ensure consumers’ right to know the degree of fresh making or pre-production of products, which is crucial for future risk control management [3].

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In 2026, the regulation of catering IPOs in Hong Kong shows a

trend:

• Detailed disclosure of historical food safety incidents
• The soundness of the franchisee management system
• Effectiveness of compliance rectification measures
• Soundness of internal control mechanisms

Sponsor institutions will comprehensively sort out the company’s historical compliance status, conduct in-depth investigations into past violations, and assess the impact on the company’s future development [5].

Yuanji Yunjiao has clearly disclosed the following risks in its prospectus:

“If the company, franchisees or suppliers fail to maintain relevant standards, or if foodborne illnesses, contamination, improper labeling or other issues occur, it may lead to product recalls, store closures, consumer complaints and lawsuits, which in turn will damage the brand image and operating performance. During the track record period, relevant food safety negative incidents have occurred in franchise stores.” [1][3]

“Revenue is highly dependent on purchases by franchisees. If franchisees lack operating capabilities, fail to comply with the company’s operating standards, or close stores, delay payments, etc., it will affect the company’s revenue; meanwhile, improper conduct by individual franchisees may have a negative impact on the brand image.” [1][3]

Based on the requirements of HKEX’s Guidelines for New Listing Applicants and the current regulatory environment, Yuanji Yunjiao may face the following regulatory queries:

Query Area	Specific Questions
Historical Event Disclosure	Complete timeline, handling measures, and rectification effects of the Beijing earthworm incident and similar incidents
Internal Control Mechanism	Specific provisions on franchisee admission standards, training systems, inspection frequency, and penalty mechanisms
Rectification Measures	Systemic improvement measures and implementation effect assessment after December 2024
Compliance Certification	Confirmation letters and compliance certificates from regulatory authorities on rectification results
Sustained Risks	Institutional guarantees for preventing similar incidents from recurring in the future

Laoxiangji’s listing experience provides an important reference for Yuanji Yunjiao:

Comparison Dimension	Laoxiangji	Yuanji Yunjiao
Listing Location	Switched to Hong Kong after failed A-share IPO	Directly submitted application to Hong Kong Stock Exchange
Franchise Ratio	32% (455/1,404 stores)	99.6% (4,247/4,266 stores)
Food Safety Issues	“Free-range chicken” controversy, multiple administrative penalties	Earthworm incident, over 600 complaints on Black Cat Complaint Platform
Regulatory Feedback	Over 100 questions in first-round A-share feedback	Under review

Laoxiangji received the first-round feedback from the China Securities Regulatory Commission (CSRC) during its A-share IPO review, covering 45 aspects including food safety and social security issues, which eventually led to the voluntary withdrawal of the application [6][7]. This indicates that HKEX’s review intensity on food safety issues cannot be ignored.

• Extended Review Period:
  The expected document preparation cycle will be 30%-50% longer than before [5]
• Supplementary Document Requirements:
  May need to provide additional details on franchisee management, food safety rectification reports, etc.
• Valuation Pressure:
  Negative food safety incidents may affect investor confidence, leading to valuation discounts

• Stock Price Volatility Risk:
  Any new food safety incident may trigger sharp stock price fluctuations
• Institutional Investor Review:
  Institutional investors may impose stricter due diligence requirements on the company’s franchise control capabilities
• ESG Rating Pressure:
  Food safety and franchisee management issues may affect ESG ratings

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• Continue to improve the “source to store” supply chain system
• Ensure that over 86% of stores are located within 200 kilometers of warehouses
• Achieve a high-turnover model of “delivery every two days” for core raw materials

• Utilize the digital and intelligent construction funds mentioned in the prospectus
• Establish a real-time store monitoring system
• Improve the franchisee performance evaluation system

• Establish a faster response mechanism for food safety incidents
• Improve the consumer complaint handling process
• Strengthen proactive communication with regulatory authorities

When evaluating the investment value of Yuanji Yunjiao’s IPO, investors should focus on the following:

1. Actual Effect of Rectification Measures:
   Whether the frequency of food safety incidents has decreased after December 2024
2. Franchisee Churn Rate:
   A high franchisee churn rate may reflect management problems
3. Comparison of Store Revenue per Unit Area:
   Differences in operational efficiency between franchise stores and direct-operated stores
4. Management’s Response Capability:
   Level of awareness of historical issues and sincerity in rectification
5. Industry Benchmarking Analysis:
   Comparison with listed or pending listing catering enterprises such as Laoxiangji and Mixue Bingcheng

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The food safety risks under Yuanji Yunjiao’s 95% franchise model

, mainly reflected in the following aspects:

• Regulatory Level:
  HKEX’s review of food safety for catering enterprises is becoming stricter, and the document preparation cycle in 2026 is expected to be extended by 30%-50%
• Compliance Level:
  Historical food safety incidents and franchise management risks disclosed in the prospectus require sufficient explanation and rectification
• Market Level:
  Any new food safety incident may trigger stock price fluctuations and affect investor confidence

Scenario	Probability	Description
Smooth Approval	40%	Rectification measures are recognized by regulators, review cycle is normal
Supplementary Queries	35%	Additional document queries required, delay of 2-4 months
Major Obstacles	25%	Required to conduct further rectification due to food safety control issues

The case of Yuanji Yunjiao reflects the common challenge faced by Chinese catering enterprises in rapid expansion:

. For Yuanji Yunjiao, IPO is not the end, but a new starting point. The real challenge lies in how to rebuild the food safety management system and solve the quality control problems under the franchise model in accordance with the requirements of the capital market [4].

If Yuanji Yunjiao can successfully list and continuously improve food safety control, its “catering-retail integration” model, supply chain advantages, and international expansion strategy still have long-term investment value. The key lies in whether the company can find a sustainable balance between scale expansion and quality assurance.

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[1] Sina Finance - “Yuanji Food Files for Hong Kong IPO: RMB 1.982 Billion Revenue in First Nine Months of 2025, 4,266 Stores” (https://finance.sina.com.cn/roll/2026-01-12/doc-inhhaeyi8217097.shtml)

[2] Economic Information Daily - “Yuanji Food Rushes for Hong Kong IPO” (http://jjckb.xinhuanet.com/20260112/37a6fdf39f3e46e795adc38a3de17db5/c.html)

[3] Securities Times - “Originating from Foshan, Guangdong, Yuanji Yunjiao Rushes for Listing: Over 4,200 Stores Nationwide” (https://www.stcn.com/article/detail/3594113.html)

[4] NetEase - “Earthworm Found in Food, Franchise Crisis, Food Safety Failure: Why Does Yuanji Yunjiao Qualify for IPO?” (https://www.163.com/dy/article/KJ6L5RC2051980LO.html)

[5] Meat360.cn - “HKEX IPO Regulation Upgraded: Catering Industry’s Hong Kong Listing Wave Faces a Key Turning Point” (https://www.meat360.cn/news/detail/799565.html)

[6] Economic Information Daily - “Slowdown in Growth and High Operating Costs: Hidden Worries Behind Laoxiangji’s Switch to Hong Kong IPO” (http://jjckb.xinhuanet.com/20250410/60c2f027051148a79627158bc946e3b4/c.html)

[7] Securities Times - “Laoxiangji Adjusts Equity Structure, Revenue and Net Profit Continue to Grow for Hong Kong IPO” (https://www.stcn.com/article/detail/1478547.html)

[8] HKEX - Guidelines for New Listing Applicants (https://cn-rules.hkex.com.hk/sites/default/files/net_file_store/HKEXCN_TC_12754_VER1.pdf)