There is a supermarket in Xuchang, a mid-sized city in China's central Henan province, that people drive six hours to visit. Hotels in the city have added Pang Donglai shopping guides to their in-room TV screens because so many guests arrive asking where it is. During the 2024 Spring Festival holiday, three of its stores drew over a million shoppers in just three days. On a recent Wednesday morning in March 2026, visitors were queuing before the 9:30am opening, and a line of cars stretched hundreds of metres to enter the car park.
This is not Disneyland. It is a supermarket chain with fourteen stores across two cities, and it may be the most interesting business story in China today.
How a Cigarette Vendor Built a Retail Legend
Pang Donglai (胖东来, literally "Chubby Donglai") was founded in 1995 by Yu Donglai, a middle-school dropout from a village outside Xuchang. His first business — a tobacco and alcohol shop — ended with an arrest for selling unlicensed cigarettes. His second attempt, opened the same year, was built on a contrarian premise: sell only authentic goods and stand behind them unconditionally.
In a China where counterfeit products were endemic in the 1990s and consumer trust was in short supply, this was more than a slogan. It was a competitive advantage. By 1997, Yu had opened his first proper supermarket. By 1999, he had a full hypermarket. By the time Carrefour, Auchan, and Walmart were arriving in China's major cities to introduce the country to mass consumer retail, Yu was quietly dominating a third-tier city they had never heard of.
The name that Yu chose for his chain hints at his philosophy. "Pang" (fat, chubby) in Chinese can carry connotations of generosity and abundance. The branding was never about sleek modernity. It was about warmth, trust, and substance — exactly the qualities Yu would spend the next three decades trying to embed into his organisation.
A Different Kind of Business Model
To understand why Pang Donglai has become an obsession for China's retail industry, you need to understand the model it refuses to follow.
The traditional Chinese supermarket runs on what insiders call "back-end fees" — charges levied on suppliers for shelf placement, promotional positioning, and kickbacks tied to sales volumes. In some chains, these fees account for 60% of net profit. Merchandise becomes secondary; the real business is renting access to shelf space. The result is predictable: products that pay the most win the best placement, not products that are actually good, and prices are inflated to cover the cost of the system itself.
Pang Donglai does none of this. It charges suppliers no back-end fees whatsoever. Its markup on fast-moving consumer goods is capped at 30%. Where most rivals operate on gross margins around 21%, Pang Donglai hits 30% — not through squeezing suppliers, but through self-developed private-label products, direct sourcing from factories and farms, and a customer base so loyal that footfall costs almost nothing to generate.
The chain produces roughly 200 products under its own "DL" (Donglai) brand, built in its own industrial complex. One of those products — a mooncake known as the "Dayue Mooncake" — generates over RMB 200 million in annual sales on its own. Nearly 30% of the company's total revenue comes from private-label goods.
The economics of this model are striking. In 2024, Pang Donglai's thirteen stores generated RMB 17 billion in revenue (approximately $2.3 billion) with over RMB 800 million in profit. That works out to roughly RMB 1.3 billion per store — surpassing Walmart China on a per-location basis, and generating four times more revenue per store than domestic competitors like Yonghui and Wumart. In 2025, revenue grew a further 38% to RMB 23.5 billion. This from a chain that has never opened a store outside two Henan cities.
The Employee as the Product
The other half of Pang Donglai's model is even harder to copy than its supply chain.
Yu Donglai has spent decades building what might charitably be called a utopian workplace and what cynics might call an impractical one. Pang Donglai employees work eight-hour days, no exceptions. They receive 30 to 40 days of paid annual leave. The stores are closed every Tuesday — publicly announced, and a source of pride for staff. There is no overtime culture; demanding it from an employee is treated as a violation by management. Average monthly salaries are roughly double what a typical grocery worker earns elsewhere in China.
Most unusual of all is the "unhappy leave" policy: employees are entitled to take time off if they feel emotionally unwell. Management cannot refuse the request. If they try, it is classified as a company-level breach of conduct.
These are not PR gestures. Yu began distributing company shares to employees in the early 2000s, eventually retaining only 10% for himself. In March 2026, he announced that approximately RMB 4 billion in company assets would become part of a shared capital base, with profits distributed on a long-term 50/50 structure between employees and the business.
The company's stated philosophy — "Freedom and Love" — has evolved over three decades from simple taglines to something that functions as an operating manual. Yu believes, and his numbers validate, that employees who feel secure, respected, and financially tied to the business's success will treat customers differently. Not because they are trained to smile. Because they actually want to be there.
The result is visible the moment you enter a store. Staff members are described consistently by visitors as genuinely cheerful. The stores are extraordinarily clean. Product hygiene is policed aggressively: when a customer reported unsanitary conditions at a noodle supplier in 2024, Pang Donglai rewarded the whistleblower RMB 100,000 and refunded RMB 1,000 to every affected customer — a total payout of RMB 8.8 million. The message was not lost on either employees or consumers: quality is not negotiable, and honesty is rewarded.
The Trust Economy
This brings us to what Pang Donglai actually represents in the context of the Chinese consumer.
China's retail market since the mid-2010s has been shaped by two forces pulling in opposite directions. On one side, e-commerce and livestream shopping platforms have trained consumers to expect convenience, speed, and relentless price competition. On the other, a drumbeat of food safety scandals, counterfeit goods crises, and corporate bad faith has eroded trust in the physical retail experience.
Most supermarket chains have responded by competing on price and promotions — a race to the bottom that has destroyed margins and created a vicious cycle of cutting corners, reducing quality, and accelerating consumer flight online. Yonghui, China's second-largest hypermarket chain, reported a net loss of RMB 1.47 billion in 2024 on revenues of RMB 67.6 billion. Carrefour has exited China entirely. Walmart and RT-Mart have been shuttering locations.
Pang Donglai has gone the opposite direction, and won.
Its success says something important about the Chinese consumer that is easy to miss if you focus only on the price-sensitivity narrative. Chinese consumers — particularly post-pandemic — are not primarily looking for the cheapest option. They are looking for reliability. They have been burned enough times to place a significant premium on businesses they can trust. Pang Donglai's social media virality is not accidental.
Consumers share videos of its stores not because the prices are low, but because the experience is startling in its consistency and care. In a market defined by disappointment, being reliably excellent is a differentiator of enormous value.
That Xuchang — a fourth-tier city better known historically as the capital of Cao Cao's Wei kingdom during the Three Kingdoms era — has become a retail destination drawing visitors from Shanghai and Beijing is a remarkable inversion of the usual retail hierarchy. The story that went viral on Xiaohongshu and Douyin was not "this supermarket has great prices." It was "this supermarket actually treats you like a human being."
What Everyone Is Trying to Copy — and Why They're Struggling
The influence of the Pang Donglai model on the wider industry is now enormous, though the results of replication are mixed.
Yonghui launched a full Pang Donglai-inspired transformation in 2024 after Miniso founder Ye Guofu acquired a 29.4% stake and reportedly declared that "the Pang Donglai model is the only way out for Chinese supermarkets." By mid-2025, 100 Yonghui stores had been revamped. Sales have in many cases doubled at transformed locations. During the Dragon Boat Festival holiday, sales at over 80 reformed stores grew 87% year-on-year. RT-Mart, now under new ownership following Alibaba's sale of Sun Art Retail Group, has begun piloting Pang Donglai-style changes in stores across Shanghai, Guangdong, and Jiangsu. Walmart is studying the model. So, reportedly, is almost everyone else.
But the transformation is proving harder than it looks. The back-end fee model is deeply embedded; eliminating it requires rebuilding supplier relationships from scratch. Private-label development takes years and significant investment. Raising wages while simultaneously removing revenue streams is painful. And most critically, the culture — the genuine commitment to employee well being that makes the customer experience possible — cannot be manufactured through a memo.
Yu Donglai's response to the scramble to copy him has been characteristically direct: "Do not rush." The model works because of decades of accumulated trust, internally and externally. Imitating the surface features without the underlying values, he has suggested, will not produce the same results.
He may be right. The transformed Yonghui stores that have been open for three months are reportedly returning to profitability. But the chain still has over 600 stores to convert, and the cultural shift involved is generational in scope.
What Pang Donglai Cannot (Yet) Do
For all its success, Pang Donglai faces genuine questions about its limits.
The model's economics are deeply rooted in operating in a fourth-tier city. Costs are lower, competition is less intense, and the founder's personal relationships and reputation are embedded in the local fabric in a way that cannot simply be transplanted. Analysts have noted that opening in Shanghai or Shenzhen would mean competing directly against Sam's Club, Costco, and a dozen well-funded domestic chains — an entirely different proposition.
Yu has deliberately chosen not to expand. His fourteen stores remain in Xuchang and Xinxiang. He has spoken about the risks of growth diluting what makes Pang Donglai work, and has chosen depth over scale in a market that conventionally rewards the opposite.
Whether that choice reflects wisdom or a ceiling is a question the industry has not yet been forced to answer. For now, Pang Donglai's per-store economics are so extraordinary that the question of scale feels almost academic. The chain that could not expand is teaching every major retailer in China how to survive.
Lessons for Anyone Doing Business in China
Pang Donglai is a story about Chinese retail, but the lessons it contains extend well beyond groceries.
Trust is the scarcest resource in the Chinese market. Years of scandals, counterfeits, and corporate opacity have created a consumer base that is simultaneously sophisticated and deeply wary. Businesses that invest genuinely in reliability and transparency — not as marketing, but as operating principle — find that the premium consumers will pay is substantial.
Employee culture is a competitive moat. In a country where labour is often treated as a cost to be minimised, Pang Donglai's treatment of its workforce as genuine stakeholders has created something that competitors cannot easily replicate: staff who are invested in the business's success and whose engagement with customers reflects that investment.
Low-tier cities are not afterthoughts. Much of Western thinking about the Chinese consumer focuses on the coastal megacities. Pang Donglai's story is a reminder that hundreds of millions of Chinese consumers in smaller cities have purchasing power, aspirations, and a hunger for quality experiences that the market has historically underserved. The businesses that take those consumers seriously often discover that the competition is thinner and the loyalty is stronger.
Consumer premiumisation is real, even amid economic slowdown. The conventional wisdom during China's economic deceleration has been that consumers are trading down. Pang Donglai suggests a more nuanced picture: consumers are trading towards value, which is not the same as trading down on price. They are willing to pay more for products and experiences they can trust. The brands that understand this distinction are navigating the slowdown very differently from those chasing the bottom of the market.
Founder-driven culture has limits and advantages. Yu Donglai is an unusual figure in Chinese business — a billionaire who has given most of his equity to employees, who publishes a philosophy book, and who turns down opportunities to scale because he is more interested in getting it right than getting it large. This kind of founder-led culture is very difficult to institutionalise, which is both the reason it has succeeded at Pang Donglai and the reason it is so hard to replicate. Businesses trying to import the model need to understand that what they are actually trying to import is a set of values, not a set of processes.
A Pilgrimage Worth Making
In a December 2024 visit to Pang Donglai's Xuchang stores, one writer described arriving on a Saturday morning to find dozens of shoppers already queuing for the 9:30 opening, with vehicles stretching hundreds of metres into the car park. The experience inside, they wrote, was nothing like a supermarket. It was something closer to a place that had decided, in an era of automated indifference, that retail could still be human.
Whether or not Pang Donglai ever expands beyond Henan, whether or not its imitators succeed, the chain has already done something remarkable: it has forced the Chinese retail industry to confront what it has been getting wrong, and demonstrated — with considerable financial evidence — that there is another way.
For anyone trying to understand what Chinese consumers actually want in 2026, a trip to Xuchang might be more instructive than a dozen market research reports.
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