XUCHANG — It’s a mid-sized mega-city with four million inhabitants, monotonous and gray, filled with rows of apartment buildings and wide three-lane roads, much like countless other metropoli in China. Let’s be clear from the outset: Xuchang, located in Henan province — a poor, historically agricultural part of central China about 800 kilometers from Shanghai — offers little that could interest a foreign traveler at first glance.
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Although it is home to an ancient city that is 1,800 years old, Xuchang is primarily known today for producing 60% of the world’s wigs, an industry that brings in about $2.5 billion annually, according to The People’s Daily. Even the local cuisine reflects the region’s rural origins. The local specialty here is a lamb broth noodle soup whose smell is unpleasant to more wealthy Chinese from the developed coastal regions, who are used to lighter and more refined cuisine.
Yet, since the end of the pandemic, millions of Chinese people have been traveling to Xuchang each year. Not to visit the city itself, but to shop at a very particular supermarket: Pangdonglai.
Founded 30 years ago, this regional supermarket chain, operating exclusively in Henan with 13 stores, has become a true social and economic phenomenon, thanks in part to Chinese social media, which has brought it fame across the country in more recent years. In a nation fully focused on online commerce — especially since the COVID-19 lockdowns — Pangdonglai has achieved the remarkable feat of drawing Chinese consumers back to physical supermarkets, redefining the standards of retail in the process.
Supermarket pilgrimage
Each of its stores now generates more revenue than Walmart stores in China, according to the economic news outlet Caixin, and four times more than its Chinese competitors Yonghui and Wumart.
Admittedly, Pangdonglai is still a small player compared to Yonghui, which is about five times larger. However, Yonghui saw its sales drop by 12% in the first nine months of the year, while Pangdonglai is expected to achieve a staggering 40% growth in 2024, with revenue reaching around 2 billion euros. And while Yonghui is losing money, Pangdonglai remains profitable — a true feat considering the economic slowdown gripping the country.
We receive up to 200,000 customers a day.
At the end of November, Ma, a young Chinese man in his thirties, drove three hours to visit this Pangdonglai store located in the basement of a shopping mall called “City of Angels.” His shopping cart was filled to the brim. Like many other customers, Ma bought a dozen mooncakes for his friends, stamped with the group’s logo, “DL.” These large yellow cakes are all the rage on social media due to their unique filling, combining taro puree, glutinous rice, salted egg yolk, and shredded pork.
“Here, there’s a very wide selection of products, and they’re of good quality,” the young man declares. Plus, I love the atmosphere!”
All around him, it’s absolute chaos. The store is packed to bursting. “On the best days, we receive up to 200,000 customers a day,” says an employee in a suit, giving a guided tour to tourists. Shoppers crowd around the sushi section, the deli counter offering an endless variety of duck — from neck to tongue — or the fish market, where massive fish squirm in the tanks. But the Pangdonglai empire doesn’t stop there. Elsewhere in the shopping mall, the group has opened a space dedicated to wedding items, alcohol, a bookstore, a café and even a restaurant.
Consumer trust
The company founder, Yu Donglai, could never have imagined such success. Born into a modest family, Yu was in his late twenties when he started a small alcohol and cigarette shop in 1995 in his hometown of Xuchang. At the time, counterfeit products were a serious problem in the country. However, Yu only sold authentic goods, which allowed him to stand out and build a solid reputation among the local population. He applied the same philosophy when he opened his first Pangdonglai supermarket in 1997, followed by his first hypermarket in 1999.
At that time, Carrefour, Auchan and Walmart had just entered the country, introducing China to the full-fledged consumer society 50 years after Europe. However, these foreign giants focused on major cities like Shanghai, Beijing and Shenzhen. Small inland cities like Xuchang were left out of this transformation. Yet, they too would experience significant economic growth, driven by rising purchasing power and the expansion of the middle class.
He understood the importance of restoring Chinese consumers’ trust.
Yu Donglai witnesses it every day in his supermarkets. The owner focuses on creating pleasant spaces with carefully designed decor and shelves offering a wide selection of products, including imported goods. This approach is a revolution for small cities like Xuchang.
Then, in 2013, another event changed the course of the group’s history: with the rise of Xiaohongshu, the Chinese equivalent of Instagram, the small Henan-based chain became known across the entire country. The owner took advantage of the platform to focus on restoring Chinese consumers’ trust, as food scandals frequently rocked the country.
Even in Shanghai, it’s not uncommon to see boxes of chicken left on the floor to thaw in neighborhood supermarkets. None of that happens at Pangdonglai. The group produces about 200 items under its own brand in its industrial complex, allowing for better quality control. At the end of each day, all prepared dishes are discounted, creating scenes of near-riots shortly before the 9 p.m. closing time. In the produce section, the origins of fruits and vegetables are very precisely labeled — something rarely seen in small neighborhood markets.
Customer service is king
Faced with competition from e-commerce platforms, Pangdonglai, which is not present online, has focused on customer service. At the entrance to the stores, you can find a locker, sinks for handwashing, drinking water fountains, bags of ice to carry frozen products, toilets designed for pregnant women and more. At the checkout, employees pack purchases in plastic bags, just like “baggers” in U.S. supermarkets.
“The sellers are very attentive to customers. They keep coming over to ask if we need help,” says Shi, 34, a first-time shopper in the store. Customers can also get a refund for products if they are not satisfied. “See this toothpaste? If you’ve used half the tube but still aren’t happy, you can still get a refund,” explains a salesperson specializing in Marvis Italian toothpaste.
If a company doesn’t treat its employees well…the company will die.
But Pangdonglai also takes good care of its employees, with a human resources and salary policy more generous than most of its competitors. A cashier earns an average of 720 euros per month, while a store manager can expect more than 6,500 euros per month. According to the Chinese press, 50% of profits are redistributed to employees. All employees are given one month of vacation per year, a luxury in China.
“If a company doesn’t treat its employees well, they will have no enthusiasm, the products and services won’t be up to par, and in the end, the company will die,” Yu Donglai recently explained in an interview with China Entrepreneur.
China’s retail revolutions
The success of Pangdonglai has not gone unnoticed in China’s retail sector, coming at at time the industry was undergoing a profound restructuring. Many foreign giants had already scaled back or even left the country due to Chinese competition, the explosion of e-commerce and supply-chain issues. This was the case for Carrefour (which sold 80% of its Chinese operations to Suning in 2019) and Auchan (which folded its operations by selling to Alibaba in 2020). These withdrawals reshuffled the deck in favor of Aldi, Walmart and Costco, but also Chinese distributors like Yonghui.
Then, the sector faced another shock with the pandemic, the strict zero-Covid policy that forced Chinese consumers to shop online, and the economic slowdown that followed. Since then, the Chinese, hit by the crisis, have been primarily looking for products that offer the best value for money. This has been a boon for Pangdonglai, which has skillfully positioned itself as the best quality-price option from the beginning.
“Pangdonglai has carved out a niche in the Chinese retail sector, which is known for its intense competition, price wars, overcapacity, and cost-cutting,” write the journalists of Caixin.
They trust the quality of the products.
Faced with this difficult economic context, many rival chains are now turning to Pangdonglai to learn its magic formula. In 2024, Pangdonglai renovated 10 stores belonging to Yonghui: on the first day after reopening, sales multiplied by six to 14, depending on the city, according to the Chinese press. This B2B activity allows Pangdonglai to spread its concept and brand without opening its own stores. The group has set a red line for itself: it has no intention of expanding beyond Henan and becoming a national empire.
This strategy makes it a unique case study. In China, emerging brands often burn through cash to open as many locations as possible and capture market share at any cost, which jeopardizes their finances and can sometimes lead to bankruptcy, as in the case of Luckin Coffee.
In the meantime, this geographical limit is a boon for the “daigou,” individuals well-known in the luxury world who buy products in-store to resell them via WeChat for a commission. Many customers outside Henan rely on these small traders to buy mooncakes and other products.
Wang, a 30-year-old daigou, said she started by selling to her friends, but it quickly expanded. “They trust the quality of the products,” said the Xuchang resident. This past year, she bought 26,000 euros worth of Pangdonglai products, which she resells with an 8% margin. It’s become a full-time job.
