In today's Chinese FMCG market, new terms and concepts emerge constantly. One such term in 2024 is 'overhaul' (tiaogai). I believe that when we systematically understand a 'new thing,' we must first identify its source. History serves as a temporal microscope for cognition; understanding its roots and origins helps us grasp the essence and evolution logic, while also avoiding cognitive biases and misjudgments. What is a true overhaul? Why can most enterprises fail at it? How should brands and suppliers think in the face of change? We all know that the overhaul originated from Pang Donglai's external assistance. Regarding Pang Donglai's external assistance, I believe it can be divided into two phases. Phase One, before 2020, Pang Donglai focused more on internal exploration. During this process, Pang Donglai's core culture and organizational system had already formed, and Pang Donglai also provided external assistance through some exchanges. Phase Two, after 2021, Pang Donglai began systematic external assistance. Mainly in the form of executive classes for some regional small retail enterprises, until 2024, when Pang Donglai began intervening in the overhaul of large retail systems, such as Bubugao and Yonghui, achieving extremely significant results. Thus, the term 'overhaul' began to ferment and enter more people's视野. But today, the term 'overhaul' has been heavily exaggerated, leading to conceptual generalization. This year, I have been traveling extensively in the market, visiting frontline stores and communicating with owners and employees. We roughly believe that the current market overhauls can be divided into three categories: The first category is the 'Pang-ified' overhaul, that is, the 'overhaul' led by Yu Donglai himself. Most of these have achieved good results. Whether it's early enterprises like Yasi and Xiya, or enterprises that directly benefited from the executive classes (such as Yijiaqin and Lülanzi), as well as last year's Bubugao and Yonghui, at least at the micro-store level, they have achieved excellent results. The second category is retail enterprises that begin self-overhaul by learning some of Pang Donglai's concepts. This is characterized by partial store renovations, such as adjusting product structures and procurement methods. Generally, results are mixed, and compared to the first category, overall performance is not satisfactory. The third category is 'fake overhaul' under the generalization of the 'overhaul' concept, which narrowly defines 'overhaul' as new negotiation and bargaining tactics with suppliers. Therefore, as an industry researcher, I believe it is necessary to clarify some concepts to avoid cognitive biases caused by conceptual generalization. The market generally believes that supermarket overhaul involves adjusting products, selecting products, adding cooked food, adjusting prices, adjusting store structures, adjusting supplier cooperation methods, etc. In fact, none of these are the core of the overhaul. If you want to understand the overhaul, I suggest returning to the origin of 'overhaul' and carefully studying Yu Donglai's thoughts, to see how someone who has personally assisted many retail enterprises in successful transformation thinks about the path to truly successful overhaul. What is a true overhaul? It is to return retail to its essence, to the first principles of retail—that is, whether you can sincerely serve every consumer. Overhaul refers to reshaping the corporate culture and forming corresponding organizational capabilities with the goal of returning the retail enterprise to the essence of 'sincerely serving consumers.' Once this culture and organizational capability are formed, the enterprise's manifestations will naturally be excellent private-label products, cooked food, product selection, displays, healthy supplier cooperation methods, etc. The misunderstanding in today's overhaul is that many enterprises are learning the 'manifestations' without understanding the essence of 'overhaul.' So today, retailers talk about 'overhaul,' and suppliers also talk about 'overhaul,' but they are not talking about the same thing. What suppliers call 'overhaul' is retailers starting new price negotiations; what retailers call 'overhaul' is renovating original stores, adding cooked food, internet-famous products, and Pang Donglai-style private-label products. However, looking at the overhauls led by Pang Donglai, the first step is not adjusting prices, nor is it adjusting stores. Yu Donglai's first step is called closing stores , and the second step is called raising wages. Why these two steps? Because these two steps are the foundation for the enterprise to 'return to the essence of retail': Closing stores breaks the entrepreneur's obsession with growth, shifting values from pursuing 'growth' and 'fame and fortune' to 'serving consumers well.' Raising wages allows the organization to form a self-motivating mechanism to 'serve consumers well.' Without this cultural and organizational foundation, and without the founder's self-awakening as a prerequisite, 'overhaul' has no foundation. All technical-level overhauls are manifestations that naturally arise from the founder's personal awakening, corporate culture reengineering, and the industry returning to its essence. In fact, the retail industry is a very simple industry, with not many stories or gimmicks. All advanced retail enterprises in the world return to the essence. This essence is to persist in serving consumers well, motivating employees through organization, treating suppliers well, building stable production-supply-marketing relationships, and continuously providing high-quality and affordable products to consumers, thereby winning more trust and repeat purchases, and then further benefiting consumers to build a business flywheel effect. The foundation for this business flywheel to spin is building the corporate culture. What is advanced retail corporate culture? I once borrowed Costco's framework to interpret it, namely: 1. Treat suppliers well; 2. Treat consumers well; 3. Treat employees well. Advanced retail enterprises take 'treating suppliers, consumers, and employees well' as their core philosophy because these three together constitute the ecosystem for sustainable development. Treating suppliers well builds a stable value chain. This is the only way for enterprises to choose long-termism. Through stable, long-term cooperation, product and cost reduction can be driven. Treating consumers well forms long-term intangible assets. Today, many brands complain that consumers are too picky, but valuing consumer feedback and making consumers brand ambassadors can build a corporate moat. In the stock competition cycle, acquiring a new consumer costs far more than retaining an old customer and enabling self-propagation. Treating employees well fosters an internal culture of 'better serving consumers' and reduces high turnover. Whether it's Trader Joe's or Costco, advanced retail enterprises share the common feature of higher wages and retention rates than peers. This reminds me of a conversation with a boss who attended a Pang Donglai training class. He told me that Yu Donglai's teachings were too abstract and hard to implement, without any 'practical' techniques. So regarding the overhaul, it's like 'those with intention need no teaching; those without intention cannot be taught.' Yu Donglai has already revealed the underlying logic, but you just don't understand or perceive it. For brands and suppliers, how should we think in the face of change? There are two things that can serve as references. First, learn to choose. In the future, not all money needs to be earned, nor can you earn all money. Choose partners who share your values and can respect each other, and walk together long-term. Lower your expectations; choosing who to associate with is far more important than short-term profits. In the stock competition economic cycle, giving up the obsession with growth and cooperating with a retail enterprise with correct values can lead to growth. Such partners will not blindly pressure you on prices; they will leave you reasonable profits. A truly value-oriented, successfully 'overhauled' enterprise will definitely grow together with suppliers, just like today's Pang Donglai and Xinyulou, and like China's future Costco. This is also what 'New Distribution' hopes to do. We hope that in the ecosystem, all partners share consistent values and long-termism, so that everyone can reduce screening costs and achieve long-term win-win. Second, the overhaul will not be limited to the retail industry in the future; brands, suppliers, and distributors all have opportunities for overhaul. That is, returning to the matter of serving consumers well. Future distributors will neither simply serve brands nor simply serve retailers, but will think from the consumer's standpoint, helping retailers and brands further optimize, forming 'retail support capabilities.' We have also said that overhaul is about reshaping corporate culture and organizational capabilities. New culture and organizational capabilities will become more important in the mature stage of the industry cycle, not limited to retail enterprises. Why do we say that the overhaul adjusts not technology but 'mindset' and 'cognition'? Because in the mid-to-late stages of industry development, when growth across the entire industry stagnates, the challenges to founders' mindsets and organizations are immense. When a company stops growing or declines, various problems begin to surface. When revenue cannot grow, how should the team that conquered the market set KPIs? So the overhaul also adjusts 'mindset,' letting go of the obsession with growth and lowering expectations. If the board puts too much pressure on management, it is easy for actions to deform, causing greater disaster for the enterprise. The overhaul also adjusts 'cognition,' requiring further internal exploration, building a 'new corporate culture' centered on employees, partners, and consumers, and a healthy corporate ecosystem, forming new differentiated competitive advantages. This is also the essence of 'beautiful business' as refined by Pang Donglai.
Final Thoughts
Finally, regarding the topic of overhaul, at the 2025 China FMCG Innovation Conference from March 17-19, we have specially set up a 'Forum/Seminar on Supermarket Overhaul Response Strategies.' At the meeting, we will discuss the cognition of overhaul and future development and cooperation from the perspectives of retailers, FMCG manufacturers, and distributors. Welcome to register! 【New Order · Symbiosis】 The 10th China FMCG Innovation Conference Time: March 17-19, 2025 Location: Chengdu, China