Wufangzhai, a time-honored glutinous rice dumpling brand, is planning to raise 1.06 billion yuan ($166 million) from an initial public offering on the Shanghai Stock Exchange later this year, the company said in a regulatory filing.

Zhejiang province-based Wufangzhai will be the first Chinese glutinous rice dumpling, or zongzi, company, to raise funds from the A-share market, indicating the growing popularity of traditional food products in the country. Zongzi is a traditional food served during the Dragon Boat Festival.

The company, which also runs a chain of restaurants in Zhejiang and Shanghai, said it would use the IPO proceeds to increase research and development investment and build an intelligent food workshop. Wufangzhai, founded in 1921, said the proceeds would also be used to establish a smart and digitalized industrial park and for upgrade of its production base in Chengdu, Sichuan province.

Currently, the company has two production bases in Chengdu and in Jiaxing, Zhejiang. By the end of last year, Wufangzhai had 474 stores in China, with most of them located in East and Central China. It will continue to open new stores in the next few years and has joined hands with major e-commerce platforms such as Tmall and JD.

"Wufangzhai focuses on making seasonal food, and its sales often fluctuate with seasons. The product structure of Wufangzhai is relatively simple, which restricts its profitability in a way," said Zhu Danpeng, a food industry analyst.

"In zongzi sector, there are not many large-scale or renowned companies, and most are regional brands. Time-honored brands need to keep pace with changes in the highly competitive market," Zhu said.

Last year, Wufangzhai sold 366 million units of zongzi, accounting for nearly 70 percent of its revenue. It has also diversified its portfolio into mooncakes, glutinous rice balls and other items.

As one of the largest retailers of zongzi, from 2018 to 2020, Wufangzhai posted sales revenues of 2.42 billion yuan, 2.51 billion yuan, and 2.42 billion yuan, respectively. The company achieved net profit of 97 million yuan, 163 million yuan and 142 million yuan, respectively during the past three years. Due to the COVID-19 pandemic, its revenue declined last year.

Compared with other time-honored brands, Wufangzhai has made some attempts in advertising and marketing. Last year, the gross profit margin of the company came in at 44.57 percent, higher than other industry players.

Other major retailers of zongzi in China include time-honored brand Guangzhou Restaurant, and frozen food retailers Zhengzhou Sanquan Foods Co Ltd and Zhengzhou Sinian Food Co. By 2024, domestic zongzi sales are expected to reach 10.29 billion yuan, said a report published by China Food Magazine.

Among the top 10 zongzi brands in China, Wufangzhai is the market leader. It is followed by Daoxiangcun, a time-honored food brand from Beijing, according to a report by Guangzhou-based consultancy iiMedia Research.

In the next three years, Wufangzhai said it would continue to innovate and launch more high-end products. Featuring glutinous rice, it will mainly grab business opportunities emerging from traditional Chinese festivals such as the Spring Festival, Mid-Autumn Festival, the Lantern Festival and the Dragon Boat Festival.