The Future of Chinese Supermarkets: Lessons from Pang Dong Lai

The word "love" embodies Yu Donglai's genuine character and serves as the brightest foundation of his principles.

During this year's May Day holiday, the Pang Dong Lai Group in Xuchang, Henan, saw nearly 3 million visitors. According to Xinhua News Agency, all science and technology museums across China combined received only about 3 million visitors during the same period. Some travel agencies have even launched "Pang Dong Lai shopping tours," focusing on a "zero-attraction + pure shopping" model, providing tourists with a convenient shopping experience.

What is the charm of this supermarket that draws so many people to visit? Why is it so successful compared to others? Can its path represent the future of Chinese supermarkets? Based on multiple reports, this article explores these questions.

01 Who is Pang Dong Lai?

In 1995, a small supermarket called "Wangyuelou Fatty's Store" opened in the fourth-tier city of Xuchang, Henan. The owner, Yu Donglai, was a bit chubby, so everyone called him "Pang Dong Lai" (Fatty Donglai).

The owner only had a junior high school education, having attended school for just seven years. He sold popsicles, fruit, and movie tickets, worked as a laborer, and was laid off. He was a restless spirit who experienced several ups and downs in business. In 1992, after being defrauded, he fell into debt of over 300,000 yuan and even spent time in jail twice.

His family had always run supermarkets, so he opened a small one himself. At that time, counterfeit goods were rampant, so he decided to create a store that people could trust. He hung a banner outside the shop with the slogan: "Ten times compensation for any fake item."

He not only shouted the slogan but lived by it. To ensure all products were genuine, he personally oversaw every procurement, and after goods arrived, he would stamp them with the store's seal at the seal.

In 1997, the supermarket was renamed "Pang Dong Lai Tobacco and Liquor Co., Ltd.," and the Xuchang company was officially established that same year. In 1999, Pang Dong Lai established a distribution center to optimize cargo flow. In May of that year, the Pang Dong Lai comprehensive hypermarket opened, introducing the "hypermarket" format to Xuchang for the first time. Later, he opened similar or different types of supermarkets in other parts of Henan.

On New Year's Day 2002, the 23,000-square-meter Pang Dong Lai Life Plaza opened. This was the first large-scale comprehensive supermarket under the brand and a landmark exploration of its transition from a hypermarket to a comprehensive retail center.

In 2024, the Pang Dong Lai Group achieved total sales of 16.96 billion yuan, a year-on-year increase of 58.5%, with over 600 million yuan in taxes and over 800 million yuan in profits (a net profit margin of about 5%). According to Chinese retail industry data, Pang Dong Lai ranks first among private enterprises in China in terms of both personnel and floor space efficiency.

Over 30 years, how did Pang Dong Lai step-by-step become an industry benchmark?

02 The Core Advantages of Pang Dong Lai

Pang Dong Lai differs from other supermarket chains in many ways.

While other supermarkets are open almost year-round, Pang Dong Lai closes every Tuesday and remains closed from New Year's Eve to the fourth day of the Lunar New Year, totaling 57 days of closure per year, while also granting employees four weeks of annual leave.

Other supermarkets keep their cost prices secret, but Pang Dong Lai not only posts "Photography Welcome" signs but also publishes all its insights, experiences, and systems without reservation. For its private-label products, Pang Dong Lai transparently informs consumers about the purchase price, shipping costs, other expenses, income tax, and profit, allowing customers to buy with peace of mind.

Compared to foreign membership-based supermarkets, Pang Dong Lai offers a wider variety of products and better service. Costco and Sam's Club carry only about 4,000 items, while Pang Dong Lai carries more than three times that number. Furthermore, 80% of its products are self-procured, and it owns its own logistics industrial park and central kitchen. The stores offer 30 types of caring services, including no-questions-asked refunds, price adjustments for items bought within 7 days, and a 500-yuan reward for any customer complaint.

It treats customers and employees with equal love. The most direct example is salary: Pang Dong Lai's pay is more than double the industry average, with store managers earning nearly a million yuan annually. It also features an open, fair promotion mechanism and benefits that far exceed those of its peers.

This is rooted in the corporate culture of "Freedom and Love" that the company has always upheld. The owner stated in an interview, "Many of Pang Dong Lai's practices are intended to make employees genuinely love what they do and love themselves, and to make customers genuinely love Pang Dong Lai."

Pang Dong Lai is not only excellent itself but also helps other companies in the industry improve, such as Yonghui Supermarket, Zhongbai Group, and Better Life (Bubugao).

Taking Yonghui's first self-adjusted store in Zhongmao Plaza, Xi'an, Shaanxi, as an example: before the adjustment, daily sales were about 200,000 yuan with about 3,000 daily customers; after the adjustment, the average daily sales over two days reached 1.6 million yuan, with daily traffic exceeding 14,000 people.

In terms of product structure, over 10,000 categories were eliminated, while some new ones were added, with an overall replacement rate of about 80%. Additionally, new employees were added, accounting for over 70%. Regarding hardware, new shelves, washbasins, tobacco and liquor cabinets, and checkout counters were installed, allowing consumers to feel the improvement in service, with an overall hardware update rate of 45%.

Since Pang Dong Lai is so successful, why doesn't it continue to expand on its own instead of helping competitors?

03 The Future of Chinese Supermarkets

Pang Dong Lai's store-opening strategy is primarily based on urban development and resident needs. It positions itself as a model, exporting culture and management patterns rather than pursuing the number of stores or scale. Opening stores is meant to serve urban residents, such as coordinating with government planning to open supermarkets in new districts to ensure livelihood and business district development.

In recent years, Pang Dong Lai has mainly opened community-based convenience stores or small complexes, providing a combination of supermarket, small catering, and pharmacy services. Except for the Tianjin project, which resumed after being paused due to the pandemic, Pang Dong Lai has had no large-scale expansion plans in recent years.

Logically, Yonghui Supermarket also has its own national standards. What are the reasons for the differences between it and Xuchang's Pang Dong Lai?

Combining the previous content, there are three main differences:

• First, service. Pang Dong Lai focuses on employees' service to customers and suppliers, forming a unique corporate culture.
• Second, products. Pang Dong Lai eliminated poor-quality goods, established food safety inspection laboratories, invested in private-label R&D, and benchmarked against international brands to ensure product quality and cost-effectiveness.
• Third, environment. Pang Dong Lai learns from Japanese companies, focusing on store layout and hardware investment, with employee salaries and benefits leading the industry.

Through high-standard products and services, Pang Dong Lai has won the trust and support of suppliers, forming a good cooperative relationship and creating a virtuous cycle for the entire ecosystem.

Yesterday (May 7), Pang Dong Lai and JD.com announced the joint establishment of the JD Logistics (Xuchang) Supply Chain Industrial Base. Covering 135 mu with an investment of 1.25 billion yuan, it is expected to begin operations in June. This will allow JD's powerful logistics network to transport Pang Dong Lai's quality goods across the country, connecting online and offline channels to realize the freedom of "shopping everywhere at Pang Dong Lai."

From a business perspective, this move is a win-win for both sides. Pang Dong Lai breaks through geographical limitations to move toward the national market, while JD learns from Pang Dong Lai's mature offline operational experience to fill its own gaps. For us consumers, it means more convenient access to high-quality goods and efficient, thoughtful service.

According to McKinsey's latest China consumer report, our country's consumption level remains very robust globally. The slowdown in the supermarket industry and intensified competition are external factors, while poor internal efficiency is the primary cause.

The evolution of the Chinese retail industry is a process of continuously improving retail efficiency, which can be achieved through two paths:

• Scaling up: Relying on economies of scale to continuously lower gross margins, with companies passing profits to consumers and earning money through turnover.
• Differentiation: Starting from the emotional perspective of demand, improving product quality and service differentiation, and earning money through the supply chain, which means stabilizing or increasing net profit margins.

The terms we hear today—private traffic pools, community marketing, new retail, etc.—all point to the same business logic: companies must use maximized service to connect with users and maximize user value.

Under the general trend of retail service-orientation, only by truly walking the path of "people-oriented, customer-first" can we secure the future of Chinese supermarkets.