Hema's forward warehouse is testing the waters again, but the cost problem remains to be solved
2024-08-28
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Recently, there are reports that Hema Fresh has restarted the forward warehouse model in Shanghai that was abandoned four years ago. In response, Hema said that "it is not a new model or a new business format."
After restarting the membership system, Hema once again piloted the forward warehouse model. As Hema said, this is not an attempt at a new model. Four years ago, Hema first tried the forward warehouse model and set up more than 70 Hema stations for trial use. Later, it transformed them into community supermarkets Hema mini and abandoned the forward warehouse business.
With the penetration of instant retail, small shops and vegetable markets are gradually disappearing from the lives of young people. The "disappearing neighborhood" is replaced by e-commerce, and the forward warehouse plays an important role in this. The forward warehouse can flexibly adjust the inventory and location according to the order volume and user needs, but a major pain point of the forward warehouse is the high cost.
After a period of rapid development, the fresh food e-commerce industry is facing a reshuffle. In recent years, the market competition of the forward warehouse model has been fierce. Some companies have achieved certain results, but they are generally facing losses and bankruptcy. However, it cannot be ignored that the instant fresh food delivery market represented by the forward warehouse still has a large room for growth.
After the new CEO Yan Xiaolei took office, Hema is accelerating a series of reforms. Restarting the membership system and retesting the forward warehouse model are important parts of this. The fresh food e-commerce track is facing problems such as traffic anxiety, competition among giants, and high supply chain costs. In the process of reshuffle, each company can only choose to shrink and optimize costs and efficiency, and focus on the main business to survive.
Hema gave up and restarted, and the control of fulfillment of forward warehouses became the number one problem
The forward warehouse model is an e-commerce logistics distribution model, which is characterized by setting up small warehouses (forward warehouses) close to consumers, usually near densely populated communities. Through big data, some goods will be pre-placed in warehouses near consumers to shorten delivery time and improve delivery efficiency.
In 2020, when talking about the development plan of Hema in 2020, Hou Yi, then the president of Hema, said that Hema would abandon the forward warehouse business and all Hema stations would be upgraded to Hema mini. At that time, Hema store, which had been in operation for less than a year, closed down, and the large store Hema Xiansheng and the small store Hema mini became fixed partners.
The forward warehouse can flexibly adjust the inventory and location according to the order volume and user demand, and meet consumer needs more quickly. However, a major pain point of the forward warehouse is the high cost.
Initially, the concept of forward warehouses was born with the fresh food e-commerce platform. In 2015, MissFresh built its first “forward warehouse” in Wangjing, serving users within 3 kilometers, bringing forward warehouses into the public eye.
After 2017, Dingdong Maicai, PuPu Supermarket, Meituan Maicai and others were born one after another, and they continued to increase their investment through self-operated forward warehouses or self-operated + franchise models. Ten years later, the business model of forward warehouses has gradually matured.
However, after a period of vigorous development, the fresh food e-commerce industry is facing a reshuffle. In recent years, the market competition for the forward warehouse model has been fierce. Although companies such as Miss Fresh and Dingdong Maicai have achieved certain results in the forward warehouse model, Miss Fresh went bankrupt in 2022 and Dingdong Maicai has been in a state of loss for a long time. Hema also realized that the forward warehouse model requires higher operational efficiency and cost control to achieve profitability.
At that time, Hou Yi believed that the forward warehouse model of Hema Station was not in line with the overall tone of Hema. Hou Yi believed that the offline stores of Hema Mini were more effective in attracting customers and influencing the brand, while Hema Station needed to rely on promotion and spending money to attract new customers and drive sales.
The market competition for the forward warehouse model is extremely fierce, and major companies are competing for market share through technological innovation and market expansion. For example, JD.com, Meituan, Ele.me and other companies are actively deploying forward warehouse businesses, attracting merchants and consumers by providing omni-channel digital solutions and optimizing operational efficiency. In addition, some traditional supermarkets such as Yonghui Supermarket, Tianfu Convenience Store and Sam's Club are also expanding forward warehouses to improve service quality and response speed.
As more and more forward warehouses are built and cover a wider range of people, their fulfillment costs will also increase. In this case, controlling fulfillment costs has become the number one problem that needs to be solved at the moment.
Slow down the discounting and focus on sinking, the forward warehouse model is still exploring profitability
Although the cost of forward warehouses is high, it is still the model adopted by many fresh food e-commerce companies to cultivate the market or even gain a head start in success.
The restart of the forward warehouse model is not a simple copy and paste. According to Hema, "Restarting the forward warehouse model is not a new model or a new business format. In cities where Hema stores are already very dense, there are still some areas that fresh food stores cannot cover for the time being. To further enhance the user experience, Hema will pilot the use of forward warehouses to increase the service radius and provide residents within a 3-kilometer radius with a delivery service of as fast as 30 minutes."
After the appointment of new CEO Yan Xiaolei, Hema is accelerating a series of reforms, including restarting the membership system and retesting the forward warehouse model.
In addition to the forward warehouse model, in April this year, Hema resumed the card opening and renewal services for X Gold Members and X Diamond Members, and adjusted the rights and interests of the original members. This was only four months after it suspended the opening of paid memberships.
Soon after the new CEO took office, Hema released a signal of a U-turn, including resuming membership activation and adjusting shipping costs. According to Hou Yi's idea, Hema should carry out a comprehensive discount transformation. Considering that Hema is vigorously making a discount transformation, after all products are reduced in price in the future, there will be no need to buy additional memberships to enjoy low prices.
In April, some Hema stores quietly cancelled the "offline exclusive price" and restored the same price online and offline. Hema has not yet completely cut off the discount reform internally, but it has already gradually returned to the trend of "as we saw at the beginning (mid-to-high-end route)".
While Hema has slowed down the pace of "discount transformation", it has also focused on the development of fresh stores and NB discount stores. According to the plan, Hema Fresh will take on the task of developing the sinking market and will open 70 new stores within the year. At the same time, by March 31, 2024, Hema NB discount stores will open 300 stores nationwide.
This time, Hema will restart the forward warehouse model again in 2024. It is not ruled out that seeing the success of Sam's Club and other companies in the forward warehouse model, it believes that the forward warehouse still has opportunities.
Data source: iResearch Consulting Group, Charting: Beijing News Shell Finance Reporter Cheng Zijiao
At present, fresh food e-commerce faces limited premium space for upstream products, and downstream consumers have strong bargaining power due to low service differentiation. Traffic, customer acquisition, and contract fulfillment are the "three mountains" facing fresh food e-commerce. The fresh food e-commerce track faces common problems in the industry, such as traffic anxiety, competition among giants, and high supply chain costs. In the process of reshuffle, each company can only choose to shrink and optimize costs and efficiency, and focus on the main business to survive.
According to iResearch Consulting, the fresh food retail market will reach 6.8 trillion yuan by 2025. With the impact of the COVID-19 pandemic, the fresh food e-commerce market has developed rapidly, reaching 458.49 billion yuan in 2020. The instant delivery fresh food e-commerce platform has also experienced explosive growth during and after the epidemic. From 2018 to 2020, the size of the instant fresh food delivery market represented by forward warehouses increased from 8.1 billion yuan to 33.7 billion yuan, with a compound annual growth rate of 107%.
Northeast Securities Research Report shows that from the data, it can be seen that although my country's fresh food market is huge, the proportion of online fresh food is still low, and the proportion of instant fresh food delivery market represented by forward warehouses is even smaller. In 2020, its market penetration rate was less than 1%, which has a large room for growth. And compared with the overall market growth rate of fresh food e-commerce, the growth rate of the forward warehouse market is much higher than the overall. However, the forward warehouse model is still in the process of exploring profitability, with high fulfillment costs, and requires sufficient orders and customer unit prices to achieve profitability of forward warehouses. Since the construction of forward warehouses requires the establishment of refrigerated areas and normal temperature areas, the construction and maintenance costs are high, and a certain number of personnel are required for operation and distribution, and the monthly fixed expenses are high. In addition, the gross profit of fresh products is generally low. If you want to achieve front-end profitability, you need to have sufficient order support, and the customer unit price must reach a certain level so that the gross profit can cover the fixed costs.
Cheng Zijiao, financial reporter of Beijing News Shell
Editor: Yue Caizhou
Proofread by Liu Baoqing
