The Retail Myth

Despite the economic downturn， Pangdonglai， a once-obscure regional supermarket，is thrivingyet its success may be difficult to replicate

胖東來：難以復制的零售業神話

astDecember，Liu Yidrove over 700 kilometers from Beijing to Xuchang， a city in central China's Henan province 1thatuntil recentlywasmostlyknown for making wigs.Herdestinationwasa supermarket calledPangdonglai，where shehad a simple mission： to buy bean sprouts.

“At just 1.8 yuan per package， you get bean sproutswithout any additives，” says the 3l-yearold，who asked to use a pseudonym for this piece.But she found plenty more to excite her at Pangdonglai，besides a reputation for quality and food safety：magnifying glasses for senior shoppers to read labels，rest areas for pets， patient employees，and free parking—all making the hours-long drive，plus the additional hour shespentin the check-outline，worthit.‘The employees...help pack your groceries and answer all your questions.You can clearly see how much everything costs，unlike online platforms which show different prices for different people.\"

Millions of visitors like Liu are flocking to Xuchang，a city of over 4 million people， to see thislegendary supermarket firsthand， giving it thenickname“National 6ATouristDestination\" （China's official tourist site ratings only go up to 5A）.Ata timewhen the retail landscape in China is undergoing a crisis-with multinational giantslike Carrefourclosing storesand customer spending continuing to tighten due to economic pressures—this local retailerinan obscure regional city has defied the odds with its reputation for considerate service，strict quality control， fair prices，and employee benefits.

Pangdonglai's founder， Yu Donglai， wasa middle-school dropout from a village in Xuchang who opened a tobacco shop in 1990，but got arrested for selling unlicensed cigarettes.In his second foray into retail in1995，he made nearly a millionyuaninhisfirst yearwith promises of \"satisfaction or refund”and“trade quality with good faith.\"This shop eventually became today's

E -commerce and livestream platforms have won over customers vith cheaper，faster， and more convenient shopping experiences， despite constant whistleblorwing scandals for price discrimination.

Pangdonglai， at one time one of Xuchang's biggest commercial complexes，offering an all-inone stop for shopping，entertainment， and dining. It has also expanded beyond groceries into clothing，medicine，and home appliances.

In the meantime，China's retail scene has been facinga major shake-up. The economic downturn，combinedwithasluggishconsumer spending environment，haspushed customers toward cost-effective products inlow-tier markets. Traditional supermarkets are struggling to retain customers，suffering from overly similar products andpoorservice.E-commerceandlivestream platforms have won over customerswith cheaper， faster， and more convenient shopping experiences， despite constant whistleblowing scandals for price discrimination.In2024，asWalmartandRT-Mart were shutting down locations across the Chinese mainland，Pangdonglai madenearly17billion yuanin sales，according to Yu'saccount onDouyin （China’sversion of TikTok）.

Amid growing distrustin corporate practices and frequentscandals，Pangdonglaihasbecome a rare symbol of reliabilityand transparency forloyal customers likeLiu.In June of last year，whena customer reported unsanitary conditionsatanoodle supplier for Pangdonglai， thecompany rewarded thewhistleblower 100，000 yuan and refunded1，Ooo yuan to each affected customer， totaling over 8 million yuan in compensation.“Other companies might just deflect responsibilities and drag their feet，but Pangdonglai stepped up，”Liu enthuses.“You can also see detailed inspection reports for every product.It’s quitea relief to know where your productscome fromandwhetherthey'vebeen properly examined.\"

Hu Jing，a stay-at-home motherin her 30s， recently drove over an hour from nearby Luoyang to shop at Pangdonglai for the second time. She came for essentials like Pangdonglai'sself-branded laundry detergent，butleft impressed by the customer care.On one visit，when her daughter accidentally pressed the emergency call button in therestroom，astaffmemberimmediately came to offerasanitarypad.“The staffdidn'taskawkward questions—they justhelped.Itfeltnaturaland respectful，\"she shares.

Much of Pangdonglai's success comes from itsself-built supply chain.In lieu of wholesalers ormiddlemen， the company works directly with factoriesand farms to develop its private-label DL （Donglai） products，which it claims can help cut costsand maintain quality control.Italso forgoes thetypical “backstage fees\"commonin China's retail industry—like shelf-placementcharges or promotional kickbacks—and caps profit margins on fast-moving consumer goods at 30 percent.

Forexample，a shirt sold atPangdonglai listsa purchase price of 84.6 yuan，excluding overhead costs，while the retail price is setat 118 yuan，with a gross profit margin of 28.3 percent.

Sincetheearly2ooOs，Pangdonglaihasworked with three otherHenan-based retailers to develop its own supply chain，contributing to higher gross margins—30 percentin 2020，according toSouthernWeekly， farabove itscompetitor Yonghui's21 percent.Nearly 30 percent of its800 million yuan in annual revenue came from its selfbranded products，claimed founder Yuduring a training course for CEOs in 2024.Although other supermarkets are keen on developing their own brands，few have earned genuine customerloyalty. “They just lack distinctiveness，” says Hu， referring to the Yonghui store in her city.

When TWOC visited Pangdonglai in Xuchang on a Saturday morning in December， dozens of eager shoppers already lined up for the 9：30 opening.Alineof vehicles stretchedhundreds of Much of Pangdonglai's success comes from its self-built supply chain. In lieu of wholesalers or middlemen， the company works directly with factories and farms to develop its private label DL （Donglai） products.

meters，waiting to enter the parkinglot. Only on Tuesdays，when the storeisclosed，does the chaos diedown， alocal driver told us.

Inside， employees were busy replenishing the shelves.On the Chinese lifestyle app Xiaohongshu \"It's like a pilgrimage for them. Some people can't believe that a supermarket can uplift an entire city， While others are keen to learn the strategies.\"

（RedNote）， there are more than 1，4OO posts calling the retailera“dream employer，”citing thebenefits enjoyedbyits8，3oOemployees，suchas30days ofannual leave （compared to five daysoffered by typical Chinese enterprises）.But notall of the company's“family-like\"corporateculture hasbeen well received.In November， founder Yumandated thatall employeesshould refrain fromrequesting or paying bride prices during marriagenegotiations，keep the wedding modest， and limit banquets to a maximum of five tables to “leada civilized life.”“This feels likea blurring of boundaries between company policyand personal life，” complained a user on microblogging platformWeibo.

As the retailer's reputation grows， many are profiting from a newbusinessmodel： reselling Pangdonglai products.While Pangdonglai has yet to open any outlets outside of Henan， supermarketsacross the nation have begun stocking its goods， though whether through official partnerships or unofficial channels remains unclear.“Icould buy [DL] beers in Zhangye，but not in Pangdongai itself，” says Chen Tiankun， recallinga 2024 trip to Gansu province，where he saw an entire store section dedicated to DL products.

On Taobao，hundreds of shops sell DLbranded beer and jewelryat double the original price，and aDouyinuserclaimed to have earned up to 150，oo0 yuan per month through selling marked-up DL products.For locals who used to frequent Pangdonglai， this has made the products they relied on scarce and less affordable.“Some people just rush to fill the carts with everything on the shelves，” says Chen，a millennial tour guide from Xuchang who used to stop by Pangdonglai every day after work before the tourist surge around 2021.“It’s nearly impossible to find what youwant.Thereare just too manyresellers，and they've got a monopoly. They're always hovering near the tea section，asking if you want any tea. It's quite sickening.\"

Inresponse，theretailerintroduced purchase limits on high-demand items，such as capping viral mooncakes at two sets per customer card per day， butrampantreselling throughunofficialchannels remains an ongoing issue.

YetPangdonglai’smodel isn't easilyreplicated， especiallyinthelong run.Manyanalysts attribute the business's success to its corporate culture，founderYu'spersonal charisma，and its commitment to staying regional over aggressive expansion—ithasshutdownprofitablelocations simply due to the lack of capacity，and provides

Millions of visitors from outside Xuchang come to Pangdonglai to stock up on goods [VCG]

products and services tailored to local purchasing power and consumption，explained retail expert Zhuang Shuai to the media outlet DingjiaoOne last October.“The money[other retailers] save from expansioncanbeusedtoimprove service，increase salaries，and investinproductresearch，\"headded.

Withmajor players like Wumartand Yonghui eager to learn fromits success，thishasprovided Pangdonglai with newbusiness opportunities. Since 2023，Yu has been offering a training program， with 100 entrepreneurs nationwide signing up and paying loo，OoO yuan per person.The results have been tangiblebutshort-lived.AWumartnear Liu's home in Beijing， after adopting reforms like wage increases， raked in over1 million yuan on re-opening day. The buzz quickly waned， though， as few real changes were made beyond simply changing its stock to resemble Pangdonglai’sand raising salariesup to 5O percent.

Chenhas similarly benefited on a smaller scale， organizing“educational trips” for entrepreneurs in Xuchang to explore the inner workings of the company.“It's likea pilgrimage for them，\" he explains.“Some people can't believe that a supermarketcanuplift an entire city， while others are keen to learn the strategies.” On peak days， Chen has guided over 3oo business tourists， each paying nearly1，OoO yuan，on visits to the shop to learnabout Pandonglai'saccomplishments and business strategies.

Not everyone is convinced by the imitators.Hu， the stay-at-home mom who regularly makes the hour-long drive to shop at Pangdonglai in Xuchang， still dreams of a store opening closer to home.Liu had been excited to see her local Wumart renovated in the Pangdonglaistyle，butafterseveral visits，she's left wanting more.“Real change is nota decoration campaign.I'm hoping forbetter services and fair prices in the supermarket-not just new signs and slogans，\"she says.