HEMA Fresh: China New Retail Supermarket

New Retail Key Points

1. Three modes of fresh operation in new retail: online and offline integration, online-based, offline-based.

The core of the new retail business is to realize the transformation of goods (control), delivery methods (channels) and user experience through new technology means, and to complete the consumption process more efficient and user-friendly.

Judging from the category of fresh produce, there are currently three main operating modes:
(1) company with online and offline combination ecosystem;
(2) company with online operation with easy to produce fresh fruit;
(3) company based on the offline community store has a hundred orchards/ farms.

The biggest challenges in fresh operation are high logistics cost and high wastage rate. Purchase sharing, storage system sharing, and passenger flow order sharing are the main means to reduce costs. Therefore, the industry’s integrated mergers and acquisitions will continue. HEMA Fresh will combine online and offline orders based on physical stores, and double-line shared store fixed costs; Baiguoyuan M&A will increase the purchase volume and terminal outlets; Yiguo Fresh Investment Lianhua Supermarket intends to realize the merger of procurement and logistics system.

For HEMA Fresh, A-share Zhongmen stores are distributed in first- and second-tier cities. They focus on supermarket companies with new retail characteristics such as Yonghui Supermarket, Jiajiayue, Hualian Superchao, Zhongbai Group, BBK, and high-quality fresh suppliers for Fruit and vegetable.

2. Alibaba’s new fresh supermarket model: HEMA Fresh

The general feedback of HEMA Fresh experience is very positive. The offline customer flow is very healthy, but it is not clear where its core competitiveness is, and how to improve the service quality through new technology.

The company adopts the business model of “online e-commerce + offline store”. This model is the O2O omnichannel that we often say. The functions carried by the store are further increased compared with the traditional retail, and the “fresh supermarket + catering experience + online business Warehousing as one. In the research, the HEMA store was basically profitable after one year, and the efficiency reached 50,000 yuan/flat/year (4–5 times that of traditional supermarkets). The operation is efficient because HEMA includes several dimensions of innovation to the supermarkets business model:

(1) The combination of retail and catering in fresh supermarkets, the purchase of fresh food can be directly processed in the catering area, improve the conversion rate, enhance the offline experience, and drive the growth of passenger flow;

(2) Design the store’s moving line with the concept of omnichannel operation, and realize in-store sorting with automated logistics equipment. The difficulty in the distribution of online single-door stores lies in the in-store sorting. The traditional mobile supermarket design is to increase the customer’s store stay time and contact more products, which leads to the inefficiency of the O2O business in-store sorting, which is also the home of Jingdong. The reason for the slow progress in offline supermarket cooperation.

HEMA Fresh has a big difference from the traditional supermarket in the design concept of the moving line.

First, HEMA is an omnichannel supermarket in the true sense. Each item has an electronic label, which can be obtained through the app scan code. Information and online orders, no need to design complex moving lines online;

Second, in-store sorting is more efficient and convenient. Since the e-commerce business shares the offline store warehousing and distribution system, the storage cost is lower, and the timeliness of distributing customers through the store is more efficient.

HEMA has realized control and data acquisition from its business characteristics (only supports Alipay payment), adopted new technology to improve efficiency, is a typical new retail company, new stores are still expanding, and its competitiveness in first-tier cities should not be underestimated.

After the success of HEMA Fresh, Yonghui also launched the “Workshop” food experience store series such as HEMA Beef Workshop, Squid Workshop, Wheat Workshop, etc. The “Workshop” series is an internal partnership with Yonghui Store and supply chain partners. This is also a pilot attempt of its “Fresh Food + Catering Experience” business model as it is independently accounted for financially. The development of self-operated catering brands is also in line with one of the new retail features: control of goods. From the perspective of the model, the Yonghui Workshop series is a subset of HEMA, and there is no e-commerce link based on store distribution.