---
title: "Chinese Supermarkets Learn from Pangdonglai: What About Top Brands?"
description: "Liu Chunxiong says Pangdonglai has the greatest impact on two types of enterprises: supermarkets and brand owners. By helping Bubugao and Yonghui, Pangdonglai removed 80% of SKUs and launched its own supply chain, challenging top brands. Supermarkets are shifting from being outlets for top brands to being outlets for private labels, and Pangdonglai itself is transforming from a retailer into a brand owner."
author: "刘春雄"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
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published: "2024-09-30"
language: "en"
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# Chinese Supermarkets Learn from Pangdonglai: What About Top Brands?

> Liu Chunxiong says Pangdonglai has the greatest impact on two types of enterprises: supermarkets and brand owners. By helping Bubugao and Yonghui, Pangdonglai removed 80% of SKUs and launched its own supply chain, challenging top brands. Supermarkets are shifting from being outlets for top brands to being outlets for private labels, and Pangdonglai itself is transforming from a retailer into a brand owner.

Liu Chunxiong says Pangdonglai has the greatest impact on two types of enterprises: first, the supermarket group. Pangdonglai has set an example for Chinese supermarkets, and they will follow suit. Second, the brand owner group. When Pangdonglai helped Bubugao and Yonghui, it removed 80% of SKUs and initiated the retailer's own supply chain. This is a huge challenge for brand owners. In the past, supermarkets were the selling floor for top brands. Now, supermarkets are the selling floor for private labels. Moreover, Pangdonglai has also launched its own brand, seemingly transforming from a retailer into a brand owner. Previously, supermarkets were just the client of top brands; now, Pangdonglai has become a peer of top brands.

New Retail, Hard Discount, and Pangdonglai

The late Phoenix TV chief commentator Ruan Cishan said (paraphrase) that there is a logical connection between different news events. Borrowing this context, the three major events in the retail industry in recent years—Alibaba selling RT-Mart, the popularity of hard discount snacks, and Pangdonglai helping supermarkets—are also logically connected. Alibaba's sale of RT-Mart declared the failure of the internet's overall transformation of retail, that is, the failure of New Retail. This is not to say that the internet has no impact on retail; it may just not be as big as Alibaba initially imagined. New Retail originally hoped for internet + retail, but now it has become retail + internet, and the dominant relationship has changed. The signs of New Retail's failure were already there. Since New Retail doesn't work, there must be a new path. The emergence of hard discount and Pangdonglai came at the right time. Hard discount chose snacks as a breakthrough and was very successful. Snacks are high-frequency, and as a long-tail category, distributors and retailers have particularly high profit margins, making them the best breakthrough point for supply chain revolution. Snack hard discount is indeed very hard, hard in the huge contrast, and it will be difficult to find similar categories in the future. Hard discount with only snacks is not enough; the breakthrough of comprehensive hard discount is the real breakthrough. But currently, the gameplay of comprehensive hard discount does not show clear hope.

Wang Tian of Bubugao said after the success of the first store assistance: after the epidemic, store sales were only 40% of pre-epidemic levels. They tried all promotional means and exhausted various methods, feeling very confused and frustrated, even doubting whether physical stores have a future under the impact of e-commerce and various businesses. Will young people still come to supermarkets to shop? Whether it's hard discount or Bubugao's promotional methods, they are all imitating e-commerce's low-price route. The logic of this route is: use low prices to grab competitors' share. This is a typical involution route. Originally intending to kill competitors, they didn't expect to die first. The wonder of business is that two completely opposite business mindsets can both be valid. The hard discount route is valid, and the opposite direction may also be valid. Yu Donglai shared at Yonghui: "Low prices will lead enterprises to death." This is a shining statement! What's more powerful is that Pangdonglai practiced this statement. If Pangdonglai had not left Xuchang, perhaps the public would think this is a non-replicable case, just as they think Pangdonglai's corporate culture and extreme service are non-replicable. Through helping many leading supermarkets in China, the Pangdonglai model has been sought after nationwide, representing another business route. What is the essence of this route? I think it is high value and new supply chain. Through helping Bubugao and Yonghui, Pangdonglai has given regional supermarkets national value. No doubt, Pangdonglai has changed supermarkets. From now on, supermarkets will bear the imprint of Pangdonglai. Pangdonglai has become the spokesperson for new supermarkets.

Summary: New Retail has lost its central position. Hard discount and Pangdonglai, one goes down in involution, the other goes up in enhancement. Both different business paths are effective.

Pangdonglai Removes Top Brands

Compared with the strong presence of top brands in traditional supermarkets, it is not an exaggeration to say that Pangdonglai removes top brands. First, the proportion of top brands in Pangdonglai is not high. When Pangdonglai helped, it removed more than 80% of SKUs from Bubugao and Yonghui, and these SKUs were mainly top brands. Therefore, it is not an exaggeration to say that Pangdonglai removes top brands. It's not that Pangdonglai has no top brands, just that the proportion is not high. Second, in Pangdonglai and the supermarkets it helps, there is no phenomenon of top brands dominating the shelves. In the past, top brands bought entire shelf layers, forming a common phenomenon of single-brand products in contiguous sections. From a category management perspective, this is brand owners' category management replacing the retailer's category management. Now this phenomenon no longer exists in Pangdonglai and its assisted stores. Third, brand owners have fewer end-cap displays in Pangdonglai and its assisted stores. Pangdonglai believes that end-cap displays hinder traffic flow, but the value of buying end-cap displays for brands is precisely that traffic flow brings people. Fourth, Pangdonglai and its assisted stores do not do promotions, and salespeople do not do sales. How to do promotion without promotions and salespeople? Brand owners probably have never encountered this. Salespeople interfering with consumer purchases is beneficial to brand owners, detrimental to consumers, and of course detrimental to retailers. In short, since KA stores entered China, the shelf rental model led by Carrefour has ended, and the era of specialty stores dominating shelves has begun.

Summary: What Pangdonglai and its assisted stores remove is not only the products of top brands, but also the operational model of brands in traditional supermarkets. Top brands need to think about whether they have a place in the future supermarket format.

Retailer Brand Coverage

The concept of brand coverage was elaborated in my book "Chinese-style Marketing" published in 2008. Simply put, it means that retailers endorse brands, forming retailer brands, thereby covering manufacturer brands. For example, when Pangdonglai becomes a well-known brand, consumers can feel assured when buying white-label products that enter Pangdonglai. Therefore, Pangdonglai dares to do its own category management, disrupting the category layout of top brands. Thus, on Pangdonglai's shelves, there are three types of brands: First, private labels. These are the retailer's own brands, such as Pangdonglai's DL. The proportion is already relatively high. Second, white labels. Whether it's Pangdonglai's customized products or products Pangdonglai has sourced from the market, regardless of brand awareness, they gain consumer trust because of Pangdonglai's brand endorsement. I found many such products in Pangdonglai's specialty stores and bought some. Third, national brands. Excerpt from "The Private Label Revolution: European Market Research and Practical Cases": With the continuous growth of private label market share, some worry that well-known brands will eventually become redundant. However, private labels and well-known brands are complementary because well-known brands generate store traffic, thereby supporting retailers in optimizing profits and providing consumers with choices. It is worth noting that high private label sales penetration and large private label market share in a category do not necessarily lead to maximized category profitability. The share of top brands will certainly decline, and the number of SKUs will significantly decrease, but what remains will be the best. Products chosen by many supermarkets have the potential to become national brands. China currently does not have true national brands, mainly because the product upgrade process has not been completed. I chatted with an industry leader, and we both believe that China's future mainstream products may be one level higher than those in Europe and America. Therefore, it is not yet the time for national brands to emerge. Once a product becomes a national brand, it is highly likely to appear on the shelves of all retail formats, whether hard discount or value-based supermarkets. The above passage indicates the principle of brand symbiosis in future supermarkets. The three types of brands coexist and jointly support the supermarket ecosystem.

Summary: Pangdonglai's value-based business format going nationwide is a rare opportunity for top brands to become national brands.

**Symbiosis with Pangdonglai and Others**

Supermarkets are reducing SKUs of top brands and increasing private labels. This is an irreversible trend. However, supermarkets cannot have only private labels; they will definitely retain brands with traffic-generating value, but the quantity will certainly decrease. Therefore, competition among top brands in supermarkets will be more intense. How to coexist with Pangdonglai and others? I think we should do the following:

**First, establish a new supply chain.** Walmart has only one procurement center globally, but to adapt to China's KA format, each store became a procurement center. Chinese retail businesses, whether hard discount or Pangdonglai and others, will not do this in the future. This is the so-called supply chain revolution. The supply chain revolution means that brand owners directly supply retailers, and directly to headquarters, bypassing distributors. The traditional deep distribution channel aims to cover China's relatively scattered terminals with mass products, including over 6 million retail terminals and over 8 million catering terminals. Therefore, manufacturer → distributor → secondary wholesaler → retail store → consumer is the standard configuration for top brands. Deep distribution works because the long distribution channel requires strong management by the manufacturer to control. The result of deep distribution is high channel circulation costs and low efficiency. This is the other side of deep distribution. In the era of rapid growth of mass products, efficiency gave way to growth; in the era of shrinkage, supply chain efficiency must be solved through supply chain revolution.

**Second, value-added new mainstream products.** Pangdonglai needs high-value products with relatively high quality-price ratio, meaning the price is not that high. Recently, a strange term "quality-price ratio" has become popular. I initially disliked it; isn't cost-performance ratio the same as quality-price ratio? After understanding the context, I think it is necessary. Cost-performance ratio sets the price first, then talks about quality and performance. Quality-price ratio sets quality first, then talks about price. One is the bottom-line price, the other is the bottom-line quality and performance. Pangdonglai's products are upgrading, prices are not high, and the quality-price ratio is obviously good. This may be the reason for Pangdonglai's popularity. Pangdonglai's high quality-price ratio means that even scalpers can still make considerable profits. This is caused by insufficient supply. It also shows that products with this quality-price ratio have relatively low gross margins in longer channel systems. In other words, they are profitable in the Pangdonglai system but may not be profitable in other business systems. This is a tricky issue.

**Third, Pangdonglai's product promotion model.** Pangdonglai does not do promotions, salespeople do not do experiences or sales. So, without buying shelves or end-cap displays, how can products be promoted? In the past, KA stores were not strong, but money could solve problems, just at a higher cost. Now facing Pangdonglai, where money cannot solve problems, it is a tricky issue.

**Fourth, become a national brand.** A national brand is a super bestseller that any supermarket must have, such as Coca-Cola. Becoming a national brand means brand owners reduce SKUs and focus their main energy on national brands.

**Summary:** There used to be a saying that top brands account for 70% of sales in KA stores but only 30% of profits. If they lose 70% of sales, then even the 30% profit disappears. Pangdonglai represents the future of supermarkets, and one must keep up with this upward force.


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