Chongqing - On October 8, a Yonghui Superstore in Chongqing's Nanping began renovations inspired by the Pangdonglai model. It is set to reopen with a fresh look on November 15.

A representative from Yonghui in Nanping said, "As consumer demands become more diverse, traditional retail models can no longer satisfy market needs, making a transformation in the retail industry essential."

They plan to eliminate 10,685 items and reintroduce 12,545, highlighting Pangdonglai's private label for differentiation. The store layout will be restructured for better customer flow, and operating hours will be shortened to ensure employees work no more than eight hours a day. Salaries will be raised from 3,000 to over 5,000 yuan.

On October 22, customers shopped for products at Pangdonglai in Xuchang, Henan. (Photo/Xinhua)

Yonghui Superstores has encountered operational challenges, with losses totaling 8.036 billion yuan from 2021 to 2023. In H1 2024, the company reported revenues of 37.779 billion yuan, a 10.11% decrease year-on-year, alongside a 26.47% drop in net profit.

The challenges arise from a general decline in consumer spending and a pricing model that affects product quality. An industry insider commented, "After paying channel fees, procurement must adhere to brand directives, limiting product selection." 

Traditional supermarkets charge fees that force manufacturers to bid for shelf space, and procurement staff often rely on kickbacks, diminishing their knowledge of quality products over time.

In contrast, Pangdonglai's procurement model prioritizes commodity quality and eliminates channel fees. Yu Donglai, chairman of Pangdonglai, noted on social media that poor product quality erodes consumer trust and emphasized that the industry is at a turning point, with successful models limited to Sam's Club, Costco, and Aldi.

Similar to membership-based stores, Pangdonglai relies exclusively on product quality. Media reports indicate that Pangdonglai's buyers are highly cost-sensitive, driving prices down. "Shelf space at Pangdonglai is limited, so only superior products can be prioritized," the reports noted. Additionally, Pangdonglai emphasizes customer service, offering guarantees like 50% refunds on unsatisfactory movie tickets and self-service scales for precious metal purchases.

However, Yonghui's efforts to emulate Pangdonglai face significant challenges. An analyst suggested that while Yonghui can leverage Pangdonglai's success for quick competitive gains, its existing supply chain may be disrupted, raising concerns about dependency. He also noted that the changes involve substantial adjustments to human resource policies, including higher salaries, reduced working hours, and more rest days.

Pangdonglai, a distinct retailer in China's fourth-tier city of Xuchang, Henan, reported impressive sales of 4.6 billion yuan (USD 645 million) in 2023 from just 12 stores, averaging 3.8 million yuan in annual sales per store, according to the China Chain Store & Franchise Association (CCFA).

As one of China's most promising supermarket chains, Yonghui now operates over 120 stores in Chongqing across 32 districts, leading the country in store count.