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by fan dongcheng

alibaba has been very active recently.

taobao’s access to wechat pay is one of them. taobao recently announced that it is expected to fully access wechat pay by the end of september. wechat said that the function adaptation with merchants on the taobao platform is currently being opened. since wechat allowed the jump to taobao in 2023, this is another major step in the cooperation between alibaba and tencent.

hema, which is also in the retail business and a key force in the new retail field, has also attracted much attention.

what needs to be noted is that hema is showing a trend of shrinking in some cities in china.

taking dalian as an example, hema opened four stores, jinhui, jinzhou, zhongshan and xigang, from 2019 to 2021. the jinzhou store closed in july 2023, and the zhongshan store and xigang store closed in march and august 2024 respectively. now, the earliest jinhui plaza store has been changed to a rt-mart store recently.

in shenyang, the only hema store in shenyang was changed to a rt-mart store in august 2024. in addition, the haixiu store and guomao store in haikou were closed on august 8 and september 9 respectively, and the only hema store in sanya will be changed to a rt-mart store on september 26.

but hema's expansion pace has not slowed down.

official data shows that in july 2024, the number of hema stores nationwide will exceed 400. according to alibaba's financial report, in fiscal year 2024, that is, the 12 months ending march 31, 2024, the number of hema stores will be about 360, and the overall gmv (gross merchandise volume) will exceed 59 billion yuan; in fiscal year 2023, that is, the 12 months ending march 31, 2023, the number of hema stores will be about 300, and the gmv will reach 55 billion yuan.

in terms of the number of stores alone, hema has added 60 stores from fiscal year 2023 to fiscal year 2024, and more than 40 stores have been added in less than half a year in the natural year of 2024. previously, hema also announced that it would re-pilot the forward warehouse model.

unlike the high-profile "moving mountains price" in 2023, hema has entered a low-key and accelerated adjustment phase after the change of leadership, closing inefficient stores while rapidly deploying new stores. in response to the profound changes in the domestic consumption pattern and the uncertainty of the direction of alibaba's new retail business, hema urgently needs to explore a long-term development path that meets the expectations of all parties.

01

repeated pattern changes

according to the official announcement, hema restarted the forward warehouse in order to provide customized services based on the needs of specific regions.

specifically, hema has observed that even in cities with dense store coverage, there are still some areas that cannot enjoy hema's instant service due to factors such as geographical location or population density. the restart of the forward warehouse is not to "cast a wide net" to seize the market as before, but to expand the areas with "30-minute delivery" convenient service in a targeted manner to further optimize the user experience.

but this is essentially no different from the previous "hema station".

in the eight years of operation, hema has tried 12 different formats. its basic format is "hema fresh", which is a standard version of a supermarket plus fresh food store, with a common area ranging from 3,000 to 5,000 square meters. at that time, hema was famous for its sales per square meter far exceeding that of traditional hypermarkets. the turnover of hema's first store, the jinqiao store in shanghai, was 250 million yuan in 2016, with a sales per square meter of more than 50,000 yuan, while the sales per square meter of general hypermarkets was between 10,000 and 25,000 yuan.

this strongly corresponds to the "new retail" concept proposed by jack ma in 2016, which is to use the internet to integrate online, offline and logistics to transform the traditional retail industry. in 2017, jack ma and zhang yong, then ceo of alibaba group, appeared at the hema jinqiao store to promote hema.

since then, hema has embarked on a rapid iteration journey based on internet thinking.

for example, in 2017, convenience stores became more popular, and new brands such as bianlifeng were hot. hema took advantage of the situation and launched the "hema f2" format. this type of store is a catering convenience store based on office scenes, similar to a combination of convenience stores and food courts. it is larger than ordinary convenience stores and focuses more on catering. you can "eat and cook" or pick up in the store after placing an order.

the popular forward warehouse model later inspired hema. in 2019, hema tried a variety of formats, including a small version of the community store "hema mini", a forward warehouse business "hema station", and a community vegetable market "hema vegetable market". however, these attempts failed to survive.

the key issue of the forward warehouse is cost. daily youxian, which also focuses on the forward warehouse model, has accumulated losses of more than 10.8 billion yuan from 2019 to 2021. daily youxian went public in 2021 and delisted in 2023, and has only "a mess" left so far. dingdong maicai, which also went public in 2021, lost 1.87 billion yuan, 3.18 billion yuan, 6.43 billion yuan and 807 million yuan from 2019 to 2022, with a cumulative loss of more than 12.2 billion yuan. hema stopped the operation of hema station in 2021.

when overseas retail giants sam's club and costco were actively expanding their chinese market, hema also opened the "hema x membership store" in 2020 to compete with sam's club. in 2021, hema launched the "hema neighborhood" that focuses on community group buying and the "hema outlet" discount store that sells expiring products from hema fresh stores.

according to the official website, hema currently maintains only four business formats, namely hema fresh, hema x member store, hema neighborhood and hema outlet. the previously widely deployed hema neighborhood has also narrowed its operating scope, withdrawing from cities such as beijing, xi'an, chengdu and wuhan, leaving only shanghai and jiaxing still in operation.

a strategy that is too flexible will inevitably affect user confidence.

the changes in the membership system are quite typical. the basic membership fee of hema x member store is 258 yuan per year, and the rights and interests are similar to those of other warehouse membership supermarkets, and there is a 12% discount on membership days. in july 2023, hema launched the "mountain moving price" campaign, targeting sam's club. after that, hema carried out a "discount transformation", further expanding the scope of commodity discounts, and also lowered prices through "offline exclusive prices". these discounts in ordinary stores obviously conflict with the price preferential status of the paid membership system of x member store, which once caused dissatisfaction among members. at the end of 2023, hema announced the cancellation of the membership system.

now the wind has turned. in march 2024, hou yi, the former ceo of hema, stepped down and cfo yan xiaolei became ceo. one month later, hema announced the restoration of the membership system, added some membership benefits, and lowered the free shipping condition from 99 yuan to 49 yuan.

the details of the internal game are difficult for outsiders to know, but hou yi, who has always been known for his outspokenness, remained silent for a long time before posting on wechat moments in august 2024, saying that he had opened a restaurant specializing in low-priced seafood in huangpu district, shanghai.

02

profits to “save lives”

the strategy change stems from profit pressure.

after yan xiaolei became ceo, hema began to focus resources on expanding basic stores and upgraded hema outlets. as mentioned earlier, the original hema outlets mainly sold some of the products that hema fresh had not sold out, such as vegetables from its own brand "ri ri xian". these products were priced high when they were first sold, and the requirement to sell them only on the same day would also lead to a high loss rate. hema outlets can just take over the secondary sales when the products are not spoiled, and while attracting customers at low prices, it can also reduce the loss of hema fresh stores.

the upgraded hema outlets are "nb discount stores" that focus on "hard discounts" rather than expiring products. in june 2024, hema opened up franchises for this type of store.

in terms of basic stores, hema outlets and hema neighborhood stores at different levels, hema radiates downward with large stores as the center, and can link multiple hema nb self-collection stores and hema neighborhood self-collection points in the surrounding areas to form a community network system. with the combined effect of franchise mechanism, small stores and non-store community self-collection points, hema can achieve rapid expansion at a relatively low cost.

this arrangement continues the idea of ​​"one big and four small" during the hou yi period. the "one big" in the original "one big and four small" refers to the standard store of hema fresh, and the "four small" refers to hema vegetable market, hema mini, hema f2, and hema station. the cost of opening a standard store is high, the cycle is long, and the site selection requirements are high, which is not conducive to rapid and large-scale expansion. small-area, low-cost stores can just complement them and form a dense network to cover a wider area.

shanghai, where hema stores are most concentrated, is a typical example.

according to statistics from haike finance on the information on hema's official website, in shanghai, hema has 64 large stores, including 59 hema fresh stores and 5 hema x membership stores, as well as more than 120 hema outlet stores and more than 200 hema neighborhood community group buying locations.

whether it is discounting changes or the existing model, the purpose is to control costs and expand.

when hema was first founded, hou yi described it as "running at full speed" and claimed to open 2,000 stores. in 2018 and 2019, hema opened more than 80 new stores each year. by the end of 2020, the total number of hema stores exceeded 240.

however, with the reform of alibaba group, it was first divided into four major business segments and claimed diversified governance, and later changed to "1+6+n", requiring the business segments to operate independently and be responsible for their own profits and losses.

therefore, hou yi changed "running for life" to "running for life", and in a letter to employees in january 2022, he clearly proposed "tightening the belt" to push hema from single-store profitability to overall profitability. alibaba's financial report shows that from october to december 2022, hema recorded double-digit same-store sales growth. in january 2023, hou yi said that hema's main business, hema fresh, has achieved profitability.

even the "offline exclusive price" that was once criticized by members is essentially intended to reduce costs: on the one hand, hema wants to seize the market with lower prices and compete with sam's club; on the other hand, this low price makes the originally high fulfillment costs more difficult to cover, and it can only encourage users to consume offline in this way.

after the change of leadership, the measures to reduce costs and increase efficiency are more direct. after march 2024, some hema store employees will be outsourced, meal subsidies will be cancelled, and relevant staff of some businesses will be laid off.

the corresponding results are also quite significant. many media reported that from march to june 2024, hema achieved off-season profits for the first time, and the last continuous and overall profits were from the fourth quarter of 2022 to the first quarter of 2023. it should be noted that the two or three months after the spring festival every year are the off-season for traditional supermarkets. off-season profits mean that hema's overall profitability has been greatly improved.

03

more options or

alibaba's attitude towards new retail has changed significantly.

after the organizational change, alibaba classified sun art retail, hema, intime, ali health and other businesses into the "all others" segment. the financial report shows that in the three months ending june 30, 2024, alibaba's revenue from this business was 47.001 billion yuan, a year-on-year increase of 3%, mainly due to the revenue growth of hema, ali health and smart information, partially offset by the revenue decline of lingxi interactive entertainment and sun art retail; the loss decreased from 1.733 billion yuan in the same period of the natural year 2023 to 1.263 billion yuan, mainly due to the improved operating performance of sun art retail, hema, ali health and lingxi interactive entertainment, partially offset by the increased investment in technology business.

since alibaba invested heavily in sun art retail in 2017 and subsequently increased its stake in sun art retail, alibaba has placed high hopes on sun art retail, but the business has not yet produced a sufficiently impressive report card. in early 2024, there were rumors that alibaba was going to sell sun art retail and hema.

in response to investors in february 2024, alibaba chairman joseph tsai said that alibaba still has some traditional physical retail businesses on its balance sheet, which are not core focus businesses, and it is reasonable for alibaba to withdraw, but considering the current market conditions, the withdrawal may take time to achieve.

the trend is gone, the wave has stabilized, and more and more people are realizing that new retail will eventually return to retail itself.

reality has proved that the "transformation" of the internet has limited effect: sam's club only began to join online ordering and delivery links in 2020, and its business model has not undergone fundamental changes. costco did not launch its online platform until 2024; even hema, which is rooted in the internet, is not much different from traditional supermarkets except for online ordering and delivery. if you want to lower prices, you also need to build a procurement system with oem/odm (original equipment manufacturing and private label) as the core. ultimately, it depends on the supply chain.

for example, sam's club's popular product, osmanthus fermented rice and daifuku, is priced at 69.9 yuan per box, which contains 16 daifuku, each weighing about 66g. the product became popular as soon as it was launched due to its good taste, and there are more than 10,000 related notes on xiaohongshu. subsequently, hema also launched osmanthus fermented rice and daifuku, priced at 36.9 yuan, 9 pieces per box, and each weighing about 65g. calculated by a single daifuku, hema is 0.2 yuan cheaper than sam's. but this does not prevent some netizens from "complaining" and "avoiding" this single product of hema. they believe that the single product of hema is far from the sam's version from the skin to the filling.

the situation is similar for another single item, cheese lime cake. sam's cheese lime cake is priced at 69.9 yuan per box, which contains 6 cakes weighing 100g each; hema's is priced at 29.9 yuan per box, which contains 4 cakes with a total weight of 330g. calculation shows that, based on 100g, sam's price is 2.59 yuan higher than hema's. some netizens also think that the taste of the two is very different, and they prefer sam's cheese lime cake.

xiao xiong, a pastry chef who compared the two cheese and lime cakes, told haike finance that the materials and craftsmanship of the two are quite different. xiao xiong said that the supply chain of sam's baked products is at the top of the industry, and it is difficult for ordinary supermarkets to match it; if ordinary dessert shops want to make the same taste as sam's, the cost is at least 20% higher. some small-scale cafes and dessert shops will even directly purchase sam's cakes to package and sell, because most customers are not picky about its taste.

the success or failure of sam's club is also closely related to the supply chain. for example, during the "mountain moving price" period of hema, the durian thousand-layer cake, which was popular due to bargaining for price reduction, was famous for its high pulp content and large portion. however, in 2024, it also caused user dissatisfaction due to the change of suppliers. many users said on social platforms that the product was not as delicious as before.

hema is not without its own advantageous categories. for example, in the field of fresh food, hema has indeed "brought down" the prices of previously expensive fresh products such as boston lobsters and king crabs. durian is also an example. in october 2023, hema officially launched a vietnamese durian order agricultural base in vietnam. now hema has also reached cooperation with many overseas brands. for example, the ice cream and baked goods of coles, a leading australian retail company, have entered china for the first time through hema.

the relative strengths have prepared hema for another battle. according to alibaba's financial report, in the 2023 fiscal year, that is, the 12 months ending march 31, 2023, more than 90% of hema stores that have been in operation for more than one year have achieved positive cash flow. data from research firm questmobile shows that hema's average mau (monthly active users) from july to september 2023 was 36.7369 million, and the average mau from april to june 2024 has risen to 43.7135 million.

it is not difficult to find from recent actions that hema has let go of its obsession with the "new" in "new retail" and turned to a more pragmatic and refined operational strategy.

previously, hema sometimes turned its attention to warehouse-style membership supermarkets, trying to attract middle-class consumer groups; sometimes it turned to the community market, intending to achieve a layout that blossoms everywhere. this process has its value, but the investment is huge, and the brand positioning and corresponding competitiveness are also affected.

from opening to closing, from releasing to collecting, hema, which has undergone strategic reorganization, is facing changes in internal and external environment. the pressure at this moment is no less than before, but the possibilities may be greater than before.