Sam's Club needs to learn marketing from Hema, while Hema needs to learn supply chain from Sam's Club

"Competition" is no longer the only path for companies and brands to succeed. The best solution to ensure sustainable development is to shift from the black-and-white "you live and I die" to the gray area of ​​"cooperation and complementarity".

The competition between Sam's Club and Hema has not come to an end, but the gap has widened in the 2024 season: the former is accelerating its "gallop", while the latter is caught in a "swing" in its business.

Walmart's latest financial report shows that Sam's Club's same-store sales in the second fiscal quarter increased by 5.2%, the number of members climbed to a new historical peak of 5 million, and membership income increased by 23% year-on-year. In addition, its territory expansion continues to accelerate, and it plans to open 6-7 new stores in the Chinese market each year.

In contrast, although Hema reportedly achieved profitability for the first time during the off-season from March to June 2024, after encountering the cancellation of its independent listing plan and the retirement of its founder, its previous "discount" reform was completely overturned, its business was frequently adjusted, and its development path remains turbulent.

How did the old “you finish your song and I take over” mentality change to Sam’s Club becoming more and more powerful while Hema is making frequent adjustments?

From the perspective of business style, Hema is particularly good at marketing, and even placing Sam's Club in the "rival" position is a "magic stroke" of Hema's "touching porcelain" marketing, but how to convert "traffic" into "retention" has become Hema's shortcoming. This is an important test of solid product strength and supply chain strength in addition to marketing, and it is also Hema's defect and Sam's Club's secret.

From a reverse perspective, Hema's marketing methods are also worth studying by Sam's Club, which has been in a state of "turnaround" recently. For Sam's Club and Hema, they are both rivals and mentors to each other. By shifting from competition to competition and learning from each other's strengths, the effect of "1+1>2" will be achieved. Specifically: Sam's Club can learn from Hema's marketing methods, and Hema should deepen the essence of Sam's Club's supply chain.

01 Marketing requires “play”

From Apple's press conference to the Mid-Autumn Festival, Hema's "homophonic pun" marketing has never been absent.

On September 10, when Apple released the iPhone 16, Hema held an "Apple Pomegranate" press conference in its store. The next day, Hema's "Intestines and Goose Are Coming" took on the Mid-Autumn Festival's popularity. The "homophonic pun" plus "hot" marketing successfully made Hema, which has nothing to do with it, gain some popularity in the traffic pool.

Image source: Weibo

Looking at Hema’s actions in various hot events, this is not the first time it has “done something new”.

Some time ago, Black Myth: Wukong was all the rage, so Hema launched alkaline golden hoop bread and crispy rice golden hoop stick. And when the song "Thank you, I want to diss you" became popular, Hema responded quickly by launching "Crab Emperor" products and creating a "Chengdu Disney" surrounding area in the store.

Behind each of these marketing campaigns that accurately hit the trend and attract attention, Hema’s profound grasp of the three elements of “people, goods, and place” is indispensable.

In the "people" dimension, marketing needs to keep a close eye on the interests of target consumers and build resonant topics to narrow the distance between the brand and users.

In addition to keeping up with hot topics, Hema also uses a humorous way to create a brand image that is approachable and likable, such as the interesting product description "Although I am black and earthy, I smell good", and Hema's slightly silly IP image.

Image source: Internet

Secondly, Hema is also remarkable in terms of the abundance and renewal of "goods". On the basis of capturing consumer demand, Hema continues to innovate in product development. Taking Eight Treasure Rice as an example, after seeing the trend of New Year's Eve dinner decision makers shifting to Generation Z, Hema immediately joined hands with Dongfadao to launch novel flavors such as taro, custard, and cheese.

With the rise of the co-branding trend, HEMA has also kept pace and launched three chicken delicacies with "Peace Elite": crispy roast chicken, Chuncheon chicken, and Hainanese chicken rice; in addition, it has also co-created new flavors of Big Butt Face Ice Cream Maple Macchiato with Tims Coffee, using co-branded products to expand its influence in the circle and attract young consumers.

Based on the foundation of "people" and "goods", Hema's shaping of the "place" also gives it the function of value transfer. While creating a good shopping experience for consumers, it can subtly convey the brand concept.

For example, in the pop-up store "Meimaobing Zhishi Supermarket" jointly created by HEMA and Dingxiang Doctor, healthy eating tips and rumor-busting knowledge can be found everywhere in the store. Interesting exclusive labels are cleverly set up to target customers with different dietary preferences. For example, the snail noodle area is humorously named "Smells Like Each Other Club", which not only highlights the brand characteristics of HEMA, but also cleverly conveys the concept of healthy living.

The three elements of "people, goods, and places" each have their own characteristics, but "people" must be the core. It is precisely because HEMA has grasped the marketing lifeline based on "people" that it can break through in hot spots time and time again with unique marketing.

Compared with Hema, Sam's marketing clearly lacks a bit of "human touch".

First, Sam's marketing strategy is traditional, focusing on the display of its products, and putting "goods" above "people". Take Sam's Mid-Autumn Festival advertisement "Beware of Good Things" as an example. Although its creative conception is ingenious, it fails to arouse the audience's enthusiasm for participation and lacks comments.

It is true that the quality of Sam's products is its core competitiveness, but this one-dimensional marketing output lacks two-way interaction with consumers and will inadvertently build an invisible wall between the brand and its customers.

Second, Sam's marketing methods are relatively limited and single, which makes it difficult to stimulate consumers' desire for exploration. Comparing Sam's and HEMA's apps, we can find that the latter uses diversified sections such as HEMA Town and Hema Fans' Talk, integrating fun games with community interactions, building social connections through consumption, and converting consumption through social connections, effectively improving user activity and stickiness. In contrast, the design of Sam's App focuses more on a simple shopping platform. Although this can focus the purpose on consumption, it is difficult for consumers to remember to open the Sam's App outside of consumption.

Figure: Comparison between Sam’s Club and HEMA App

In fact, Sam's Club has a solid foundation for creating hit products. For example, the giant instant noodle bucket launched by its Shenzhen flagship store in April sparked heated discussions online and was snapped up. However, due to the need to reduce costs, Sam's Club's investment in marketing is relatively limited, and it relies more on the reputation of the product itself to drive market response.

However, Sam's Club's "metaphysical marketing" has inexplicably risen and then overturned in the recent public opinion field, and coupled with frequent food safety doubts, the direction of online public opinion has become tighter. Now its strategic layout for expanding into the sinking market is on the way. Perhaps by learning from HEMA's marketing strategy, it can narrow the distance with Chinese consumers, expand its market influence and enhance brand affinity, which can play a certain shock-absorbing role in the public opinion field.

As for Hema, although it can "play" well in the public opinion field, how to maintain its advantages and "play" to new heights is a topic that it urgently needs to explore in the future.

02 Sam's Club Standard VS Hema Speed: The Battle of "Quality" and "Variety" of Products

Although Hema is unique in marketing, its products cannot effectively attract traffic and it is still difficult to pose a threat to Sam's Club, which has solid product strength.

In constructing its product matrix, Sam's Club adheres to the concept of "wide SPU, narrow SKU", that is, pursuing comprehensive coverage of product categories, and strictly screening in each sub-category, usually only providing 1 to 3 high-quality products for members to choose from, completing the pre-screening of brands and quality for members. For example, in the category of refrigerated fresh milk, Hema has nearly 30 options on the shelves, JD Seven Fresh has more than 40, and Sam's Club has only 3.

In order to select the products with the best value for money, Sam's purchasing team and standards are quite strict.

Everyone in the purchasing team is a product manager. It is understood that Sam's purchasing team particularly favors people with overseas study experience, who have lived in a more mature commodity society and have a higher aesthetic ability for commodities.

Sam's Club has a unique process for selecting products. A retail industry insider revealed, "Sam's Club's product standards are much stricter than the national standards. Product manufacturers need to sign specifications separately, undergo surprise 'flying inspections' and pass three quality inspections from Sam's Club, SGS and Tianxiang."

Specifically, during the product selection stage, the Sam's Club purchasing team will determine whether a product is worth listing, and will first negotiate with the industry leader, striving to achieve the lowest cost through economies of scale. If the price does not meet expectations, they will flexibly turn to the next best or mature companies in related industries, and continue to seek the best price-performance ratio. Even for outsourced products, Sam's Club will transform them to a certain extent according to the "Sam's Standard".

For products produced in accordance with Sam's standards, Sam's will implement a comprehensive "underwriting" strategy, providing suppliers with huge purchasing volumes. Sometimes a single product can achieve sales of hundreds of millions of yuan, bringing rich returns to suppliers.

However, if the outsourced brands fail to meet the standards, Sam's Club will rely on its deep insight into members' needs and massive accumulation of data to independently develop innovative products.

For example, its own brand Member's Mark, although only accounting for 25% to 30% of the total merchandise, contributes nearly 40% of Sam's Club China's turnover.

Guided by the product selection principles and the "Sam's Standard", we use both external sourcing and self-research to ensure that every product meets the highest quality standards. This not only speeds up the shopping decision-making process of members, but also consolidates Sam's brand image as a "symbol of quality life". At the same time, this strategy can also attract more high-quality suppliers to join, forming a positive cycle.

Compared with Sam's Club, Hema is slightly inferior in terms of product strength. Although it has used the "Mountain Moving Price" marketing to "touch the porcelain" of Sam's Club products and advertised higher durian content and lower prices in the price war of durian thousand layers, this single-point breakthrough method is difficult to fully demonstrate the overall product competitiveness and advantages of the brand.

Image source: Xiaohongshu

In general, Hema still maintains the style of domestic supermarkets, with a wide variety of products. The number of SKUs in Hema Fresh offline stores is more than 5,000 (SKUs will be reduced to about 1,800 by the beginning of 2024). In addition, although Hema's new products are launched frequently, its product planning lacks stability to a certain extent. It is reported that the update cycle of Hema's own-brand products is an average of 45 days, while it only takes about 30 days for series products.

Although the rich variety of products and rapid iteration can provide consumers with more choices, it also means that the energy invested in each product in the selection stage will be reduced, the quality requirements will be lowered, and the uncertainty of product benefits will increase. For example, at the end of 2023, Hema had removed more than 3,000 poorly performing products from its shelves.

Sam's Club's product planning period is usually 12 to 18 months. It pays special attention to the breadth of consumption scenarios and product life cycle. It tends to avoid products with short shelf life and strong seasonality, and instead focuses on products with a life cycle of at least one year, aiming to ensure broad market acceptance and lasting consumer repurchase rate.

In addition, there is a significant difference in business layout between Sam's Club and Hema: Sam's Club does not engage in the fresh food sector, but the fresh food business is Hema's key business.

Photo: Hema seafood area

Sam's Club once explained that live seafood is very prone to death, disease and secondary contamination during transportation and temporary storage, and its nutrition and flavor are difficult to guarantee stably. In addition, the pursuit of fresh fish and shrimp from fishing to stores requires high logistics costs and a high rate of cargo loss. These factors inevitably push up product prices and affect cost-effectiveness.

The core challenge is that it is extremely difficult to standardize fresh products. Hema Fresh is often criticized for quality control issues. For example, the quality of the lobsters purchased by customers will be greatly reduced after being processed by Hema, which is very disappointing. This consumer experience of "it is difficult to guarantee the delicious taste" has seriously weakened customers' trust in the Hema brand.

We believe that in the face of numerous challenges in the fresh food market, as the saying goes, "the bigger the storm, the more expensive the fish", the absence of Sam's Club provides an opportunity for Hema. Hema should take this opportunity to deepen its presence in the fresh food market, build a solid competitive barrier, and construct a unique moat.

03 Supply chain determines life and death

The competition of products is actually a game of supply chain system. In order to provide members with high-quality and affordable products, Sam's Club has a strict supply chain management system.

In the upstream, Sam's Club has established a solid long-term cooperation with the source manufacturers, locking in resources when the raw material prices are low, thereby resisting market fluctuations and ensuring the stability of commodity prices. At the same time, Sam's Club will also put forward requirements for the raw material management of cooperative suppliers from the two dimensions of cost and quality.

Taking bird's nest porridge as an example, Sam's Club forced suppliers to go to Indonesia to reconstruct the bird's nest supply chain, realize raw material traceability, factory upgrades and scale expansion, and successfully improved the cost-effectiveness of bird's nest porridge from the original 300mg*6 bowls for 168 yuan to 600mg*6 bowls for only 119 yuan.

Photo: Sam's Bird's Nest Porridge

In the midstream, Sam's Club will conduct full traceability through internal teams and third-party companies, covering raw materials, design, packaging materials, distribution, and display. It strives for excellence in every link, eliminates redundancy, and directly returns every penny of cost saved to consumers. Some products can even achieve a price reduction of up to 35%.

For example, Sam's Club cancelled the unnecessary card-insertion design of a certain health product of its own brand, which directly reduced the packaging cost per unit by 0.2 cents. In addition, Sam's Club's products generally adopt large-volume packaging, with high unit price and low average price, and improve the cost-effectiveness through large-scale sales.

As for the downstream, it is to build an omni-channel system, strengthen online e-commerce, enter JD.com, set up forward warehouses, etc., to expand market coverage and amplify scale effects.

By 2023, Sam's Club will have nearly 500 forward warehouses in 25 cities across the country, achieving an efficient linkage of 1:10 between stores and forward warehouses. With an efficient distribution system, Sam's Club's online business is booming, with orders accounting for more than 50% and annual online sales approaching 40 billion yuan.

Vertically, Sam's Club optimizes the entire industry chain, reduces costs and improves efficiency, thus bringing affordable prices to members in a healthy and sustainable way. Horizontally, it relies on its global supply chain advantages to carefully select global high-quality products to meet the high-quality needs of members.

An employee of Sam's Club said, "We have local retailers and suppliers in every country, and we have mature and stable cooperative logistics providers for sea and air transportation in global cross-border trade. Whether it is access to upstream supplier resources or docking with logistics and transportation links, we can supply the world's selected products to the Chinese market."

In addition, Sam's Club is backed by Walmart, and Walmart's deep supply chain resources make it even more powerful for Sam's Club.

Looking at Hema's supply chain, although it has the support of Internet companies, it still has a certain distance to go in terms of refined management compared with Sam's Club. However, it is worth mentioning that Hema is currently actively engaged in global layout and continues to increase the breadth of its supply chain.

In early April 2024, Hema set sail for overseas markets, with the United States as its first stop, entering Dahua Supermarket and Yamibuy.com. Its own-brand products topped the list of new products on the east and west coasts of the United States in the first week of its launch. By July, its sales had soared 3.6 times compared to May.

Image source: Hema Weibo

In early August, HEMA took advantage of its success and expanded its overseas territory to Singapore, with its own brand products landing on the e-commerce giant Lazada platform.

Judging from HEMA's current actions, it is still in the trial stage of going overseas and has not involved physical supermarkets. Instead, it has adopted a strategy of lightly deploying its own-brand products, carefully selecting food categories with small packages, long shelf lives and that are popular in the domestic market, and steadily exploring the international market.

The road to going overseas is full of challenges and opportunities. If Hema wants to further expand its global business, it needs to face and solve multiple problems, including deepening its understanding of local cultural customs and consumer preferences, overcoming strict product standards, and solving supply chain problems in depth.

Sam's Club and Hema are both teachers, friends and rivals. Hema excels in marketing innovation and fresh food, but is slightly inferior in product strength and global supply chain. It should uphold its existing advantages, learn from Sam's Club's strengths, improve product strength, and expand global supply chain to narrow the gap. For Sam's Club, the warehouse membership store model has been deeply rooted in the hearts of the people in China. In the future, in addition to opening new stores, it needs to play with marketing, break through the circle, and strengthen brand influence.

From an industry perspective, the membership-based supermarket market is already full of competition, with Costco, Yonghui, RT-Mart and other brands eyeing the Chinese market, and the competition is becoming increasingly fierce. It is worth looking forward to how the story of Sam's Club and Hema, this pair of "happy enemies", will unfold.

Author: Mai Zhiqing Editor: Li Mengran This article is written by the author of Operation Pie [Retail Business Finance], WeChat public account: [Retail Business Finance], originally created/authorized to be published on Operation Pie, and any reproduction without permission is prohibited.

The title image is from Unsplash, based on the CC0 protocol.