Compensate customers for 8.83 million, why is Fat Donglai "capricious"

China News Weekly

2024-06-28 12:39China News Weekly official account

A total of 8.833 million yuan was compensated for customers. The Internet celebrity supermarket Fat Donglai has once again become the focus.

In the early morning of June 27, the official account of "Fat Donglai Trading Group" issued the "Investigation Report on the Poor Sanitary Environment of the Rolling Dough Processing Site of Fat Donglai Catering Merchants in Xinxiang", and gave the customer a cash reward of 100,000 yuan for helping to find major food safety hazards; All customers who purchased rolling dough and spicy noodles at the catering department of Xinxiang Fat Donglai two stores between June 9, 2024 and June 19, 2024 will be refunded and given a compensation of 1,000 yuan (a total of 8,833 copies).

hopes to follow suit and become an Internet celebrity supermarket, as well as Yonghui, the "giant of China's supermarket".

At more than 5 o'clock in the morning on June 19, a long queue gradually formed on the outdoor platform of Xinwan Plaza in Jinshui District, Zhengzhou City. Four hours later, the first store of Yonghui Supermarket, which was renovated by "Internet celebrity supermarket" Fat Donglai, will reopen.

The staff came to work at 7 a.m., when there was already a queue. The supermarket opened at 9:15 a.m., and it was only more than 20 minutes after it opened that the flow began to be restricted.

"I knew that there were many people, but I didn't expect so much, which is more exaggerated than the New Year." For the staff at this Yonghui supermarket, it was a flow of people he had never seen before. At 3 o'clock in the afternoon, the hottest time of the day, at the entrance of Yonghui Supermarket on the first floor of Zhengzhou Xinwan Plaza, the flow of people queuing to enter the venue was still increasing. The serpentine long queue stretches from the outdoors to the indoor, and then turns to the outdoors, about 200 meters long, and it takes at least half an hour to follow the flow of people to the entrance. There were local residents in the crowd who dragged their families with their families, and there were also bloggers who broadcast the whole process, and many interviewees bluntly said, "I came here for Fat Donglai."

The ever-gathering crowd attracts more businesses to come. The clerk wearing the overlord tea Ji overalls invited people to try it for free with a whole plate of tea samples, and ordered on the spot. KFC has set up a stall directly at the entrance of the queue to sell coffee and desserts.

For Yonghui, this "adjustment and reform" (investigation and transformation) is not only an experiment, but also a salvation. In 2023, 13 traditional supermarket giants such as Yonghui Supermarket, BBK, and Zhongbai Group will lose a total of 4.921 billion yuan; In the first quarter of 2024, 31 supermarkets including Walmart, RT-Mart, and Wumart will close hundreds of stores; Hema Xiansheng, the representative of new retail, has also shown weak growth from 2023 onwards and has suspended its listing plan.

At a time when traditional retailers' profits are shrinking and stores are closing stores on a large scale, this "help and reform" under the spotlight has triggered a collective wait-and-see in China's retail industry: is the "retail geek" Fat Donglai a flash in the pan or a lifesaver?

The staff structure of Yonghui Zhengzhou Xinwan Plaza store has been adjusted, and the store explained to consumers: Most of us are new employees, our skills are not mature, and the service is not thoughtful, we will accelerate the growth, please understand.

How long can the "Internet celebrity effect" last?

"The transformation of local small enterprises into listed large companies is naturally topical, which makes Yonghui return to the public eye." Zhuang Shuai, the founder of Bailian Consulting, also speculated with his peers how much Yonghui's stock price could rise, but no one expected that on May 8, the day after the news of Fat Donglai's "adjustment" of Yonghui came out, Yonghui Supermarket had an intraday limit, and within one day, the market value soared by 2.2 billion yuan.

Regarding the adjustment and reform of Yonghui's first supermarket, Fat Donglai has made full preparations.

Before the official launch, Yonghui Supermarket's first supermarket was temporarily replaced with a Xinwan Plaza store. According to the investment manager of the shopping mall, this is the largest commercial body in Jinshui North of Zhengzhou, with convenient transportation, and the shopping mall is located at the intersection of Fengqing Road and Guoji Road. There are not only mature communities and business office areas in the surrounding area, but also more than 10 kindergartens, primary and secondary schools, many colleges and universities and more than 20 functional departments, and the consumption power cannot be underestimated.

A store manager led by Fat Donglai told China News Weekly that at a company meeting in mid-May, it was determined that a person in charge of Xuchang and Xinxiang would each be assigned to assist Guan Na, the general manager of Fat Donglai, in arranging the adjustment and reform work, "as needed, from the two places at any time."

"The time for closing the store and adjusting Yonghui is much longer than the adjustment and reform of backgammon." Guan Na, the commander-in-chief of the adjustment and reform team, told China News Weekly that the store was greatly renovated in the early stage, reorganizing the layout, planning the moving line, adding processing rooms, and even including the ceiling, lights, and walls have been reorganized, so detailed that every mosquito killer lamp is in place.

Yonghui Supermarket sent Chen Hongguang, general manager of Henan Co., Ltd., to serve as the commander-in-chief, and three Yonghui supermarket managers led the team to contact Fat Donglai for specific work. The store is adjusted according to the three categories of groceries, fresh food, and home department stores, and the internal is divided into three major sections: logistics, engineering, and business procurement.

"If it used to be a fresh food store, now it's more like a boutique." A staff member of Yonghui procurement platform commented. Compared with the past, in terms of product structure, Yonghui reorganized the product structure, removed 10,841 single products from the shelves, accounting for 81.3% of the original products, and added 12,581 new products, accounting for 80% of the new single products. After combing, the commodity structure has reached more than 90% of the commodity structure of Fat Donglai.

What the adjustment and reform headquarters hopes to replicate is not only the store structure of Fat Donglai, but also the model of the Internet celebrity supermarket. In the early stage of the adjustment and reform plan, the current restriction plan has been prepared, such as renting tents, newly purchased iron horses and isolation belts.

After entering the store, the products printed with the "Fat Donglai" logo can be seen everywhere, including more than 70 products such as juice, liquor, oatmeal, laundry detergent, etc. The on-site staff said that these Fat Donglai's self-operated commodities are consistent with the price of Xuchang Fat Donglai.

Fat Donglai's Internet celebrity mooncakes and craft beer are the most sought-after. Yonghui Supermarket has set up a special area on the first floor of Xinwan Plaza, and queued up separately, each person is limited to one case of beer and two boxes of mooncakes, "which are basically sold out before noon." On a table in the most open space in the middle of the store, there is a collection of Yu Donglai's essays "Walking on the Road of Faith".

Fat Donglai's biggest label is the Internet celebrity supermarket. Fat Donglai, who loomed in the public eye in the past, seems to have suddenly regained control of the traffic password, and has frequently appeared on the hot search list in the past two years.

The founder, Yu Donglai, began to continuously output "management golden sentences": "Employees are not allowed to make work calls after work", "the company's management has achieved 190 days of vacation", and fat Donglai employees "do not want to go to work and are not allowed to approve leave", and they can also "have an average salary of 7,000 yuan", and may even receive a grievance award of 5,000 yuan.

Among the tourists who line up to check in every day, there are not only bloggers who visit the store, but also government and enterprise teams who have made a special trip to study and travel. In Xuchang, it has even given birth to new professions such as supermarket research tour guides, as well as a number of service organizations specializing in business research. Fat Donglai has turned itself into a "6A scenic spot without off-season".

Fat Donglai empowers Yonghui Supermarket, first of all, it is undoubtedly the massive flow of people brought by the Internet celebrity effect. On June 19th, the supermarket began to limit the flow after only 20 minutes of opening, and the store staff kept adjusting the placement of items.

On June 19, Yonghui Zhengzhou's first supermarket store was opened, and Yu Donglai (middle) appeared at the scene, and was scrambled by citizens to take a group photo to "check in". Photographer/Reporter Li Mingzi

According to Yonghui Supermarket, as of the end of business hours on the evening of June 19, the first-day sales of Yonghui Supermarket Zhengzhou Xinwan Plaza Store reached 1.88 million yuan, about 13.9 times the average daily sales before the adjustment, and the daily passenger flow exceeded 12,000 people, about 5.3 times the average daily customer flow before the adjustment.

"This mall was dying last month, and it didn't have any popularity at all." A merchant at Xinwan Plaza told China News Weekly that he was both curious and expectant: can Fat Donglai save Yonghui, and can the skyrocketing passenger flow continue?

"The biggest difficulty in traditional stores now is that there is no customer flow." Wen Zhihong, a partner at Hejun Consulting and an expert in chain management, said that with the same goods and prices, online shopping is more convenient, and the attractiveness of traditional stores in the e-commerce era is being lost.

"For the offline retail industry, which continues to be sluggish, how to reduce costs and increase efficiency is the next thing to consider, and the most important thing at the moment is to attract customers and restore the vitality of the store." Wen Zhihong told China News Weekly. There is no doubt about the short-term effect of Fat Donglai's adjustment and reform of major supermarkets, and it is still unknown whether it can save the domestic supermarket industry.

How can the local army transform the regular army?

The little brother in the retail industry "helps" the big brother, why does Fat Donglai, who has a huge difference in size, adjust Yonghui?

In terms of scale, as of June 19, Yonghui had 958 stores, while Fat Donglai had only 13 commercial entities, and the former was 73 times the size of the latter. From the perspective of national distribution, Yonghui supermarkets are located in 517 cities in 29 provinces (autonomous regions and municipalities), and Fat Donglai is only developed in Henan Province, of which 11 are in Xuchang and 2 are in Xinxiang. In 2023, Yonghui's revenue will be 78.642 billion yuan, although it will decrease by 12.71% year-on-year, it is still 7 times that of Fat Donglai.

But in terms of profitability, Yonghui is in trouble. In the past few years, under the impact of e-commerce, the development of traditional chain supermarkets represented by Yonghui Supermarket has been struggling. Compared with the peak of development, Yonghui Supermarket has closed more than 400 stores. As of the end of fiscal year 2023, Yonghui Supermarket's net profit attributable to its parent company has been in the red for three consecutive years, with a total loss of 8.036 billion yuan.

In contrast, the local overlord Fat Donglai declared that "it is not for the purpose of making money", and its revenue will exceed 10 billion yuan in 2023. Yu Donglaiyun talked lightly that he originally planned to earn 20 million last year, but he didn't expect to earn 140 million by the end of the year.

As the "king of China's supermarkets", Yonghui has been trying various self-help solutions. On May 5th and 6th, Zhang Xuansong, chairman of Yonghui Supermarket, took more than ten executives to Xuchang to visit Fat Donglai. According to an exclusive report by Yu Donglai's partner Lianshang.com, before this, Zhang Xuansong had in-depth exchanges with Yu Donglai 3 times. At the fourth closed-door meeting between the two sides, Yu Donglai finally relented and announced that he would help adjust the two stores of Yonghui Supermarket.

Can the Fat Donglai model be replicated on Yonghui? From the business model itself, there are still many questions.

Towards the end of business hours, Yonghui was reorganized, and the cooked food and pastry areas of the supermarket also set up a "clear on the same day" sign as Fat Donglai. "Almost all the suppliers have been replaced by the supply team of Fat Donglai." Ji Bin, a purchasing leader of the adjustment team, told China News Weekly. However, the staff of the above-mentioned Yonghui procurement platform said, "There are only a few head suppliers, and before Fat Donglai adjusted and reformed, Yonghui also cooperated with these suppliers, and the biggest difference is that it was mainly joint ventures before, and now it is more self-operated." ”

Zhuang Shuai, founder of Bailian Consulting, explained that in the past, a large part of the profit structure of domestic supermarket chains came from the background, that is, to charge suppliers a variety of admission fees such as shelf fees, pile fees, and promotional fees. Through self-procurement, retailers have stronger bargaining power, can improve the gross profit margin of goods, and earn front-end profits by selling goods.

Adjusting the supply system will ultimately change the profit model of supermarkets. Intuitively, it is the loss of a large amount of the supplier's "entrance fee". For Yonghui, it will take longer to determine whether the profits generated through operations can cover the losses of replacement suppliers after the rapid replacement of the supply system.

"If you only think about short-term benefits, you don't have to make changes." For example, Ji Bin said that in Fat Donglai, the markup rate of fresh products with a large supply volume is generally not more than 5%, which guides suppliers to earn reasonable profits in this way, but does not allow huge profits, so as to ensure the high cost performance of goods. But he also admits that the regionalized supply cooperation model may not be suitable for national chain supermarkets.

Chang Bin, founding partner of Qicheng Capital, has repeatedly emphasized that "Fat Donglai is a typical regional multi-format integrated retail group, with a much richer profit structure than supermarkets". He analyzed to "China News Weekly" that Fat Donglai has improved the gross profit margin of supermarkets through self-operated products, and at the same time, it has also developed self-operated businesses in the fields of tea, wine, jewelry, and medicine, and the profit margin of mixed formats is naturally higher.

Zhuang Shuai believes that in a relatively closed urban environment, it is easier for leading enterprises to gather high-quality resources, which means that Fat Donglai is more likely to give priority to the agency of brand goods and consolidate its leading position.

In addition to the high self-procurement, high self-management strategy, perfect employee incentive system, and high-quality service known as the "Haidilao" in the supermarket industry, these are all important advantages of Fat Donglai, which is often mentioned.

In Xuchang, Fat Donglai is an iron rice bowl comparable to a public institution, recruiting a position, sometimes attracting thousands of people to submit resumes. According to Yu Donglai, the average salary of Fat Donglai employees is as low as 7,000 yuan, which is much higher than the average salary level of Xuchang locals.

At the entrance of the Xinwan Plaza store, Yonghui Supermarket released a "Letter to Customers" showing that employees' wages have been increased from 2,500 yuan/month to 4,500 yuan/month, working hours are no more than 8 hours per day on average, and annual leave has been added, and 10 days of annual leave can be enjoyed after one year.

What does the significant increase in employee wages and benefits mean for Yonghui? According to Yonghui Supermarket's 2023 annual report, the remuneration of key management personnel will reach 23.3164 million yuan, and the company has more than 98,500 employees. But the reality is that Yonghui Supermarket also lost 1.329 billion yuan last year.

"If you go out of Xuchang, in Zhengzhou or other cities, whether such wages are still competitive, and whether the enterprises that have been adjusted and reformed can afford to double the labor costs, these are all issues that need to be seriously considered." Zhuang Shuai believes that there are many supermarket brands in first- and second-tier cities, surrounded by wolves, and facing the dimensionality reduction blow of e-commerce, the competition is extremely fierce, and whether self-operated goods with high gross profit can be recognized by the market is the key to whether they can provide unique value, which takes time to explore and verify.

Previously, Fat Donglai also verified whether he could get out of Henan on a small scale. According to the data of Lianshang.com, the two BBK supermarket stores that Fat Donglai adjusted and reformed achieved a total sales of 10.8325 million yuan during the Dragon Boat Festival holiday. As of June 10, the average daily sales of both stores in June exceeded 1.3 million yuan, and the average daily customer flow exceeded 10,000 people.

"The short-term effect of individual stores is not enough to prove that their experience can be replicated on a larger scale." Analysis by a retail expert who has been in the industry for more than 20 years. It is not difficult to replicate business technology in one or two stores, but a larger adjustment to a chain enterprise will inevitably involve deep organizational changes, mechanism adjustments, and even reversal of the business philosophy of corporate decision-makers.

Xuchang, the base camp of Fat Donglai, and Changsha, where BBK is located, are quite different in terms of consumer groups and market environment. At present, the commodity structure of BBK has also been adjusted to 90% of Fat Donglai, everyone is waiting and seeing, whether local consumers can continue to pay, and after Fat Donglai leaves, BBK will not change back to its original appearance.

"The team that has made the high-profile changes is still on the ground." Guan Na said that Yonghui's first supermarket in Zhengzhou has successfully resumed business, and the Fat Donglai team will continue to be stationed at the site for two or three months. "Transforming a store is not simply to put products in the store and re-layout, new business standards and processes need to be slowly established and adjusted."

Compared with the first-tier cities, the impact of e-commerce on Xuchang's supermarket format is not as serious as that of the first- and second-tier cities, which is a background that is ignored by many people. "The model of Fat Donglai is regional. If it is rolled out on a large scale without Xuchang, the difficulty of supply chain management will increase, and the ultimate service will be difficult to guarantee, and even deformed. Zhu Danpeng, an analyst of China's food industry, analyzed the media.

"Expansionist ambitions" cannot be hidden

On May 30, after the mobilization meeting of Fat Donglai to adjust and change Yonghui Supermarket, in the face of questions from local media, Yu Donglai once again stated: "I will not enter (Zhengzhou)." ”

As early as five years ago, at an event, Yu Donglai explained in a public response to questions from the audience: "The housing prices in Zhengzhou are too high, and the employees can't afford them, and they don't want them to drink the northwest wind." When someone asked him if he would open Fat Donglai to the whole country in the future, Yu Donglai firmly refused: "This is not suitable for Fat Donglai." ”

In fact, Yu Donglai also had the idea of expansion. In 2012, the Fat Donglai supermarket chain once increased to more than 30. According to the official information of Fat Donglai at that time, starting from the more than 40 square meters of Wangyuelou Fat Store in 1995, in 17 years, Fat Donglai has become a well-known and reputable commercial retail enterprise in Henan's business circles, covering three major commercial formats: professional department stores, electrical appliances and supermarket chains.

Fat Donglai was in the limelight for a while. Relevant people from the Xuchang Municipal Bureau of Commerce have publicly disclosed that in 2011, the retail sales of Fat Donglai accounted for more than 60% of the total retail sales in Xuchang. In April of the following year, Fat Donglai began to implement the system of "closing stores every Tuesday for rest", which set off a wave of public opinion in the domestic retail industry. At that time, it was rumored that this system was ostensibly for the health of employees, but in fact it was also in response to relevant requirements, reducing business hours and providing space for other companies to develop. Soon after, Fat Donglai successively closed 14 supermarkets, involving thousands of employees.

As for the reason for the reduction of stores, Yu Donglai responded at the annual meeting of the Henan Provincial Chamber of Commerce many years later. According to an article in the case library of the China Management Case Sharing Center, Yu Donglai said on the spot: "It is because of the blind expansion in the past few years that the company's philosophy cannot be input into every employee in an orderly manner, resulting in the development of the enterprise being too large and the company's culture (being diluted)." ”

Fat Donglai, who retired to Xuchang, began to make internal adjustments. Today, the practical operation manuals of all positions of Fat Donglai add up to more than 80,000 pages, detailing service standards and taboos, and a complete reward and punishment system.

"In the retail industry, Fat Donglai has always been a magical existence, and many of its business ideas are unconventional." For example, for example, 95% of the profit is given to employees to pay dividends, regardless of the cost of purchasing goods needed by customers, and the increase in purchase volume takes the initiative to increase the price of suppliers to maintain the quality of goods. As a result, in Xuchang, Fat Donglai has become synonymous with quality, and in today's developed e-commerce, locals are still willing to go to Fat Donglai to buy daily necessities, while there are few other shopping malls nearby.

Fat Donglai began to consciously "output mode". Since March 2022, Yu Donglai has cooperated with Lianshang Network to initiate the establishment of the "Lianshang Donglai Business Research Institute", with Pang Xiaowei, the actual controller of Lianshang.com, as the president. In May, the seed class of the institute was launched, and 12 regional supermarket enterprises were absorbed, with an annual tuition fee of 500,000 yuan per family. This is also the first batch of enterprises to be adjusted by Fat Donglai.

Soon, Lianshang.com issued a new enrollment notice, "due to the limited time and energy of Donglai Brother", the seed class will no longer be expanded. The institute has successively launched two president classes, the first of which has a tuition fee of 30,000 yuan for two days of intensive study; The tuition fee for the second phase is 100,000 yuan, and it is planned to conduct three intensive studies and irregular exchanges in a year. The enrollment requirements are strict, with a limit of 100 students, and the selected students need to meet three conditions at the same time, that is, the company has been established for more than three years, the net assets are not less than 50 million, and the profit in 2022 is positive.

The offline retail industry continues to be sluggish, and Fat Donglai seems to have become a "life-saving straw" in the industry, with followers vying to imitate and willingly paying tuition.

Fat Donglai has not stepped out of Henan at present, nor can he walk on the negotiating table of venture capital institutions. "Despite its strong ability to self-hematopoiesis, its ability to expand is not yet visible." According to an interviewed investor, the return on investment either depends on expansion or the company to maximize the interests of shareholders, but from the perspective of Yu Donglai's plan for the company, these two are obviously not in his consideration.

Many people are more curious, what is Fat Donglai's purpose to "help" friends and businessmen?

Not only shared the supply chain, Fat Donglai also brought a full line of popular self-operated products to the supermarket that was adjusted. Fat Donglai products such as Internet celebrity moon cakes, craft wheat beer, and juice engraved with the DL logo were quickly sold out on the shelves of BBK's Changsha Meixi Lake store. Customers found that the adjusted backgammon became a purchasing store for Fat Donglai. The relevant person in charge of BBK once told the media that in May 2024, the sales of Fat Dong's branded goods accounted for 28.22% of the total sales of BBK's Changsha Meixi Lake store.

From regional supermarkets to consulting companies, by providing self-operated products, Fat Donglai has become an upstream supplier of the assisted enterprises. However, Yu Donglai denied this statement at the opening site of Yonghui Supermarket's Xinwan Plaza store. Yu Donglai said that all of Fat Donglai's products are auctioned with other suppliers, and his product research and development expenses are not included in the supply cost, in fact, the supply of many products is loss-making.

In Zhuang Shuai's view, Fat Donglai is equivalent to "making himself a consulting company" by adjusting and reforming other supermarkets. The difference is that Fat Donglai has rich practical experience, and can also provide professional procurement and sales personnel, supply chain systems and self-operated goods, and export enterprise management concepts and culture with the help of tangible "assistance" to "expand in another way".

At present, there are two Yonghui stores that have been adjusted by Fat Donglai, both of which are located in Henan, the base camp of Fat Donglai, namely Yonghui Zhengzhou Xinwan Plaza Store and Xinxiang Baolong Plaza Store. Yonghui Supermarket said that it will start the adjustment of the second store on July 1.

After the adjustment of Yonghui's two stores, does Fat Donglai have a new assistance plan? When Yu Donglai appeared at the opening site of Yonghui Xinwan Plaza store, he said: "Save Yonghui first." ”

(At the request of the interviewee, Ji Bin is a pseudonym in the article)

Published in the 1146th issue of China News Weekly magazine on July 1, 2024

Magazine title: A "self-help" experiment in China's supermarket industry

Author: Li Mingzi

Editor: Min Jie

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