Analysis of the Sustainability of the 58.8% High Gross Margin in the Infant Complementary Food Industry

Taking

, a representative enterprise in the industry, as an example, its financial data clearly demonstrates the current gross margin level of the industry [1][2]:

Financial Indicator	2023	2024	Jan-Sep 2025
Operating Revenue	RMB 622 million	RMB 875 million	RMB 780 million
Gross Margin	55.5%	58.8%	57.3%
Net Profit	RMB 75 million	RMB 103 million	RMB 87 million

The gross margin of the infant complementary snack and food segment is even higher, reaching

in the first three quarters of 2025, which is already close to the level of traditional high-margin consumer brands like Nongfu Spring (59.5%) [1].

China’s infant complementary snack and food market presents

characteristics:

• The total merchandise transaction value of the top five market participants only accounted for
  14.2%
  of the market in 2024
• Grandpa’s Farm ranks second with a 3.3% market share
• Yingshi Holdings, the top player, has a 5.7% market share, about three times that of Grandpa’s Farm [3]

1. Yingshi Holdings: 5.7%
2. Grandpa’s Farm: 3.3%
3. Qiutian Manman
4. Xiaolu Lanlan
5. Little Freddie

The primary source of high gross margin in the infant complementary food industry is

:

• “Imported Brand Halo”
  : Grandpa’s Farm has emphasized its Dutch brand background since its establishment, with the mission of “bringing the world’s best food to China” [1]
• High-end Organic Positioning
  : The market size of organic infant complementary snack and food reached RMB 2.2 billion in 2024, and is expected to reach RMB 3.9 billion in 2029, with a compound annual growth rate of 12.7% [3]
• Customer Unit Price Comparison
  : Grandpa’s Farm’s 10×85g baby puree is priced at RMB 131, while a similar product from Yingshi is only RMB 98.5, representing a premium of 33% [1]

Despite declining birth rates,

is driving industry expansion:

Indicator	2020	2024	2029 (Forecast)
Per Capita Expenditure on Complementary Snacks and Food	RMB 1,159	RMB 1,725	RMB 2,466
Penetration Rate for 6 Months - 6 Years Old	36.8%	43.3%	52.2%

Parents are

to high-value-added products, creating a favorable environment for product upgrading [3].

Maintain high gross margin through

:

• Infant complementary snack and food covers edible oils (walnut oil, avocado oil), condiments, grain products, purees, and high-nutrition snacks
• As of September 2025, Grandpa’s Farm has
  269 SKUs

Cost Type	Impact Analysis
Raw Material Costs	Organic product raw material costs and certification costs are relatively high [3]
Supply Chain Costs	Limited bargaining power with suppliers under the OEM model
Marketing Costs	Sales and distribution expenses account for 32-36% of revenue [1][2]

From 2023 to the first 9 months of 2025, the

[2], indicating that price competition pressure is emerging.

• Grandpa’s Farm uses the OEM model to produce
  almost all its products
• Multiple food safety issues have occurred:
  • 2019: Infant rice cereal and puree were notified by the State Administration for Market Regulation for failing to meet standards for sodium and iodine content [1]
  • 2020: Infant multi-grain rice cereal was unqualified, resulting in a fine and confiscation of RMB 290,000 by the Guangdong Provincial Market Supervision and Administration Bureau
  • 2021: Imported infant rice flour was refused entry by customs due to calcium content not meeting national standards

• Sales and distribution expenses as a percentage of revenue:
  • 2023: 32.3%
  • 2024: 35.0%
  • First three quarters of 2025: 36.3%

Risk Factor	Specific Impact
Declining Birth Rate	The number of infants and children aged 0 to 6 is continuously decreasing, leading to a shrinking pool of potential consumers [3]
Intensified Competition	Industry fragmentation leads to price competition, with the top five players accounting for only 14.2% of the market
Channel Diversion	Mutual encroachment between different distribution channels affects the price system [2]
Stricter Regulation	Food safety standards are becoming increasingly stringent, leading to higher compliance costs

• The trend of consumption upgrade continues, and the high-end positioning can still maintain brand premium
• Significant room for penetration rate improvement (current 43.3%, expected to reach 52.2% in 2029)
• Growth in per capita expenditure supports industry scale expansion

1. Difficult Cost Pass-through
   : Raw material price increases cannot be fully passed on to consumers
2. Fierce Competition
   : Brands such as Yingshi Holdings, Xiaolu Lanlan, and Woxiaoya continue to expand their presence
3. Compressed Channel Profits
   : Distribution channels account for nearly 58% of sales, and the risk of channel diversion cannot be completely avoided

1. High concentration in the organic product segment (the top five players account for 79.1% of the market share, with Grandpa’s Farm ranking first with 23.2%) [3]
2. Self-built production capacity is gradually being released: Grandpa’s Farm’s Zengcheng factory started small-scale production in October 2025

The industry may face pressure of

:

• After market concentration improves, brand premium space narrows
• After consumer education matures, excess profits from information asymmetry disappear
• After self-built supply chains become mainstream, the high gross margin advantage of the OEM model is weakened

The 58.8% high gross margin in the infant complementary food industry

:

Time Horizon	Sustainability Judgment	Main Basis
Short-term (1-2 Years)	Yes	Consumption upgrade, brand premium, penetration rate improvement
Medium-term (3-5 Years)	Under Pressure	Rising costs, intensified competition, price decline
Long-term (Over 5 Years)	Uncertain	Industry structure reshaping, profit margin regression

• Raw Material Price Index
  : Especially fluctuations in organic agricultural product prices
• Market Share Changes
  : Whether the concentration of the top five enterprises increases
• Proportion of Self-built Production Capacity
  : Degree of vertical integration of the enterprise’s supply chain
• Marketing Expense Ratio
  : Whether it continues to erode net profit space

1. Sustained decline in birth rates may lead to market contraction
2. Quality risks of the OEM model may trigger brand crises
3. Price wars may rapidly erode industry profit margins
4. Changes in regulatory policies may increase compliance costs

---

[1] 21st Century Business Herald - “Gross Margin Reaches 57% but ‘Heavy on Marketing, Light on Quality Control’? Grandpa’s Farm Races for Hong Kong IPO” (https://www.21jingji.com/article/20260108/herald/bd1054c60bf650d8a2238aa7d4e6c777.html)

[2] Gelonghui - “Grandpa’s Farm Applies for Hong Kong IPO, Engaged in Infant Complementary Snack and Food Products, with Large Dividends Before Listing” (https://www.sohu.com/a/973193886_313170)

[3] Investment Journal - “An IPO Company Emerges from Guangzhou, Guangdong” (https://news.pedaily.cn/202601/559570.shtml)