In a generally pressured supermarket environment, according to the “2023 China Supermarket TOP 100” announced by the China Chain Store & Franchise Association (CCFA), “Pang Donglai” (supermarket) garnered the highest attention in the first half of the year, achieving 4.6 billion yuan in sales with just 12 stores. Furthermore, the execution of “comprehensive transformation” actions by Pang Donglai has revitalized many supermarkets. Faced with the backdrop of consumer downscaling, what are Pang Donglai’s market strategies and keys to survival? At the 2024 CBME Maternity, Baby and Child Industry Summit, Mr. Cheng Xiangmin, Executive Director of the Lian Shang Donglai Business Research Institute, led us to observe and respond to market changes with a more comprehensive and profound perspective.
Background Introduction: The Lian Shang Donglai Business Research Institute was established in March 2022, with Mr. Yu Donglai, chairman of Pang Donglai, serving as the chief mentor, and Mr. Pang Xiaowei, chairman of Lian Shang Network, serving as the director. The institute launched its first “Seed Class” in 2022, which included 12 retail enterprises with sales ranging from 500 million to 2 billion yuan. In the generally pressured supermarket environment of 2023, all 12 companies saw positive growth in sales and profit, with six businesses maintaining double-digit growth.
*The following is shared by Mr. Cheng Xiangmin, organized by CBME Insight:
Product – The Foundation and Core of Retail Services
Recently, new media described our support for Step High, Yonghui, and others as “comprehensive transformation.” What is the core of our transformation? It’s changing their product mix. Step High delisted 70%; Yonghui superstore in Xinwan Plaza delisted 10,841 items, a delisting rate of 81.3%, replanned 12,581 items, and 80% of those were new items. Why? It all comes back to the basics: our core service is that our products must win consumer trust. Without products as a foundation, businesses would close one year if not this year.
From the product dimension, what are the core business logics?
First, eliminate third and fourth-tier brand products and return entirely to top-tier branded items. Previously, supermarket managers, due to poor sales and even worse profits, would turn to introducing more off-brand items because these items had higher profit margins. However, it’s often these off-brand items that affect the consumer’s judgment of the entire store, negating our marketplace.
Second, optimize the relationship with suppliers. In the past, 60% of supermarket net profits came from backend fees, so in our transformation of Step High and Yonghui, we eliminated all backend fees.
Third, no promotions. Whether it’s Step High or Yonghui, after transformation, you didn’t see any items on promotion; all were at reasonable profit margins.
Fourth, reasonable markup. For enterprises we transformed like Pang Donglai, supermarket profits are not high; front and back end combined, the best just reach 22 percentage points. Like Pang Donglai, the highest gross margin cannot exceed 30%; anything beyond that and the back office has no authority to add more. It is important to stand firm in not running promotions, operating within a reasonable profit margin, and encouraging consumers to form a habit of rational consumption, as well as respecting the value of products.
Fifth, improve after-sales service, making consumers feel secure in their purchases. We must address any concerns shoppers have about safety and assurance, ensure satisfaction or give a refund, and policy allows for returns without reason. If there are customer complaints, we compensate according to national policies, and we must thank complaining customers. They aren’t causing us trouble; they are helping us to improve our business operations. Don’t think of it as a bad thing; it’s a good thing.
Staff – The Enduring Power Behind Products
This table is compiled based on two years of lessons from Mr. Yu Donglai and the transformation process of assisted companies—it represents my personal understanding. Although our theme today is products, without addressing the internal motivations of the staff, product endurance will not last.
The three elements of retail are “human, goods, field.” Mr. Yu Donglai often says this, and all owners think the “field” is theirs, so they’ve invested a lot of money in this “field’s” hardware and software; owners also think the “goods” are theirs, buying and selling them. The only variable among these three factors is the human element; many owners speak beautifully and paint appealing visions but use their employees with an exploitative mindset.
When we go to any enterprise for “comprehensive transformation,” the core consists of three things and is continuously iterated: first, inventory finances, assets, liabilities, including all kinds of expenses; second inventory stores, to see which ones profitable and which ones are losing money, and then further analyze which one’s own property and which lease. For owned properties, what is to be done, and for leased, what is to be done.
The third point is about team assessment, activating the team’s internal driving force, thus improving the dimensions of products, services, and environment.
So, regarding employees, though Pang Donglai’s model may not be unique in China, those who want to learn from Pang Donglai’s core model must understand the life value of the boss, the value of running a business. That is, to first achieve for the team, to first achieve for the employees, giving them job security and an understanding of the true essence of life, or else their work results are zero.
Only through a review of their financial situation can we understand their current fund situation, which is precisely how many resources they have in hand, and then proceed to solve the problem of whether employees are willing, able, and competent to work.
In fact, there are three points to the question of whether employees are willing to work: one is income, which is the core. If an employee can’t even ensure their own survival, could you expect them to produce excellent work? The second is growth and the third is care.
Once the willingness to work is addressed, the next step is to address whether employees know how to work. That means setting standards like Pang Donglai, letting employees know this is a good benchmark, and then establishing standards appropriate for their current stage. Once achieved, these standards can be raised progressively, allowing employees to find confidence. This is combined with strengthening training and on-site guidance for employees.
To guide employees on how to do good work starts with establishing standard processes to assist them. Internally, various types of operational checks and staff evaluations are performed; externally, they leverage consumer feedback, using their suggestions to continuously refine their actions and enhance their work.
Addressing employee issues adequately allows us to engage in our work in a positive cycle, continually refining around the three elements of “product, behavior, environment.” The more consumers recognize us, the better our performance becomes. Improved performance means higher employee income, and thus the business enters a virtuous cycle of development. This stability and longevity in development will enable us to benefit our society and our country.
