Hema feels like it's back on track

This article deeply analyzes the strategic adjustments of Hema after the retirement of its founder Hou Yi, and explores its challenges and transformation attempts in the new retail field, as well as the market environment and competitive pressures it faces. The article provides unique insights for readers who are concerned about the development of new retail, e-commerce platform strategies and changes in the consumer market.

One month after founder Hou Yi retired, Hema’s previous series of business strategies were “put on the brakes”.

In the Hema app, you can view the latest announcement about X members: "It is planned to resume the card opening and renewal services for X Gold members/X Diamond members on April 24, and at the same time, the rights and interests of original members will be upgraded and adjusted."

(Source: Hema App)

We found that many products that were originally offered at the "offline exclusive price" have returned to their original prices. Although this strategy is the core of Hema's low-price strategy, the offline price cuts are not very convincing to Hema's online consumers, and instead give them a feeling of "imbalance."

In addition, the controversial free shipping threshold has also been adjusted again. The free shipping threshold for a single order on Hema's online store will be restored to 49 yuan, and the amount below that will be charged at 6 yuan per order. Previously, the free shipping standards in Beijing, Changsha and Nanjing had been raised to 99 yuan.

Hema is Alibaba’s exploration of new retail business, and it is also a boutique fresh food supermarket loved by the middle class. In its early days, Hema represented high-quality life, and even the residences within its delivery range were sought after as “Hema District Houses.”

But since 2019, Hema has begun to constantly try various business models. In addition to Hema Fresh, more than ten business formats such as Hema Neighborhood, Hema Outlet, and Hema MINI have been launched one after another, for fear of missing any opportunity.

In short, because of constant changes in strategy and change of direction, Hema not only offended new and old customers, but also lost its original brand tone and became a discount store with "unstable" quality.

After experiencing a series of events such as "moving mountains" by cutting prices, streamlining SKUs, rumors of acquisitions, and the founder's dismissal, Hema has finally taken concrete actions, trying to show a new development trend. Could it be that Hema thinks it's doing well again?

01

In fact, the fundamental reason why Hou Yi, the former CEO of Hema, adopted the discount strategy was the change in the macro-consumption environment. The new retail business of Internet companies has risen entirely in line with the general trend of consumption upgrading.

After several years of hard work, everyone realized that consumption upgrading is just a "trap" with a glamorous appearance, and it is a false proposition. In contrast, Pinduoduo, which has been deeply cultivating low-end users since its birth, has a market value that once exceeded that of Alibaba and JD.com. In 2023, Pinduoduo's revenue reached 247.6 billion yuan, a year-on-year increase of 90%, while Pinduoduo's customer unit price was much lower than that of JD.com and Taobao.

In the early days, Hema targeted the urban middle class, but its rapid expansion meant that the middle class was not enough. In 2019, the number of Hema stores soared to hundreds. At that time, Hou Yi said: "Hema is still running at full speed this year. We still need to expand Hema's large stores to at least one of the top."

However, as Hema expanded, its operating costs also rose. In addition to high expenses on manpower and facilities, there were often many fresh seafood and tropical fruits from across the ocean in Hema stores that could not be bought by customers in time.

As user consumption habits changed, Hema had to make drastic discount reforms. In addition to directly reducing prices, it also reduced costs by selecting products and compressing supply links. However, in this process, Alibaba's layout of new retail has also failed one after another.

(Source: Rhine)

What is New Retail? Simply put, Alibaba wants to achieve a closed loop of online and offline scenarios for users through offline consumption venues such as Hema.

However, almost no Internet companies were able to do both online and offline business well before. Alibaba may be the one closest to success by continuously "transfusing blood" to Hema. In 2019, Hou Yi said that the new retail is completely above all giants. However, the "giants" that Hema relies on are not in good condition. On the one hand, Alibaba's main business has also suffered a shock in recent years, and its core position is already in danger. Taobao needs to deal with the expansion of Pinduoduo and Douyin e-commerce; on the other hand, Alibaba Cloud business also has to face competition from Telecom Cloud, Huawei Cloud, etc.

The most important thing is the failure of the new retail business, including Hema. Obviously, Alibaba did not run this business model. After Alibaba announced the "1+6+N" structural reform last year, Hema was classified as "N". Through several speeches by Alibaba's new CEO Wu Yongming, it is not difficult to see that retail businesses such as Hema have become Alibaba's heavy asset burden.

In mid-March, there were rumors in the market that "Hema Fresh will be acquired by COFCO for 20 billion yuan", but Hema denied it. Prior to this, Alibaba announced plans to list Hema and Cainiao, but they were eventually shelved. It was rumored that the valuation given by investors was lower than Hema's expectations. On April 21, there were market rumors that Hema founder Hou Yi and Alibaba's former CEO Zhang Yong intended to jointly acquire Hema and offer a price of 2 billion US dollars. However, this news was quickly denied by Hema.

02

What Hema wants to be like is probably Sam's Club. According to market sources, by 2023, Sam's Club will have 48 stores in China, with annual sales of 80 billion yuan, of which online sales account for nearly half. Hema can only win in terms of the number of stores. As of September 2020, there were 72 Hema stores in Shanghai, while Sam's Club, which also targets the middle class, still has only 3 stores in Shanghai.

As far as we know, Hema Fresh's delivery range is 3 kilometers, Hema NB (formerly Outlet) is 800 meters, and Sam's Club's delivery covers almost the entire city. In Shanghai, Hema may be able to tie the two by store density, but in non-first-tier cities, Hema's coverage is far inferior to Sam's Club.

From a business perspective, Hema also seems to be interested in "learning from" Sam's Club. In addition to launching a membership system, Hema has also reduced the number of SKUs in standard stores and strengthened the construction of its own brands, which is similar to Sam's "wide SPU, narrow SKU" principle.

However, in this process, Hema could not avoid the lowering of product evaluation standards, the complexity of SKU management, and the dependence on suppliers. Faced with the pressure of a rapidly changing market and a high number of SKUs, Hema's procurement team found it difficult to replicate Sam's merchandising power.

But judging from the results, whether it is learning from the Sam's Club model or engaging in price wars with "Moving Mountains", Hema has not been doing well. After the new CEO Yan Xiaolei took office, Hema still maintained the "old tradition", and no matter what the result is, "changing orders every day" will not work. On the one hand, Hema tried to further focus on mid- to high-end consumers and improve user stickiness and purchase frequency by re-launching membership business, canceling offline discount prices, and unifying the threshold for free delivery.

However, the effectiveness of this strategy needs further observation. Especially in the fiercely competitive market environment, how to ensure that the X membership business can truly attract and retain mid- to high-end consumers will be a major challenge for Hema. On the other hand, when adjusting its pricing strategy and delivery threshold, Hema needs to take into account the decline in online orders and the lack of significant growth in the number of offline customers.

Previously, Hema's online transactions accounted for more than 65% of its total transactions. The decline in this proportion will directly affect its overall performance. Therefore, how to expand the offline market and increase store traffic while ensuring the stable development of online business is also a difficult problem that Hema needs to solve.

The recent series of adjustments by Hema Fresh do reflect its efforts to find a new positioning and development direction. However, in the context of the overall contraction of Alibaba's new retail strategy, it is still difficult to say that Hema is doing well again.

Author: Gao Linglang; Editor: Zhang Congbai; Source public account: Shili Village (ID: 317763)