From 'running at full speed' to 'running to survive,' Hema Fresh, the model of new retail, is accelerating its pivot. On April 30, Hema Fresh announced it would officially close its Kunshan Xincheng Wuyue Plaza store on May 31, marking its first store closure since it began rapid nationwide expansion in 2016. In response to the closure, Hema said, "In retail, nothing is 100% certain, especially as store scale grows; the good must get better, and the poor must be adjusted in a timely manner to maintain a healthy body." Clearly, the first closed store in Kunshan Xincheng Wuyue Plaza falls into the category of "poor stores needing timely adjustment." Notably, earlier, the founder of Hema Fresh stated in a speech, "This year is still the year of running at full speed for Hema; we still need to use the fastest speed to at least double the number of large Hema stores." Now, after three years of rapid expansion, Hema has seen its first store closure. We can't help but ask: What exactly is wrong with Hema? The 'Aftermath' of Running at Full Speed As the best sample of new retail projects, backed by Alibaba's halo, with Jack Ma and Daniel Zhang (Zhang Yong) endorsing it, Hema Fresh has undoubtedly captured the attention of industry practitioners since its inception, and Hema has not disappointed. In July 2017, Hou Yi first publicly announced in an interview that Hema stores operating for more than half a year had basically achieved profitability. To meet the needs of different types of consumers, Hema also diversified into five retail formats, including Hema Fresh, Hema Cai Shi, Hema Mini, Hema F2, and Hema Xiaozhan. In terms of store count, Hema Fresh achieved coverage of nearly 150 stores in just three years, a goal that took RT-Mart nearly 13 years to reach. Rapid development is a double-edged sword, and the same is true for Hema. Notably, on April 1, "Hema Xiaoma," a joint venture between RT-Mart and Hema Fresh, also closed its Suzhou Wenti store for the first time. Unlike Hema, Hema Xiaoma made bold innovations and adjustments while retaining Hema's existing product categories. The industry generally believes that the closure of Hema Xiaoma's first store is related to factors such as business district selection, store location, and product variety. The rapid expansion in the early stage led to insufficient staffing in many stores, declining service quality, and lax quality control, causing Hema Xiaoma's reputation to plummet, which also laid the groundwork for Hema Fresh's store closures. On July 5, 2018, a netizen posted a Weibo post about encountering "regional discrimination" when applying for a job at Hema Fresh. On July 6, Hema Fresh issued a public apology letter titled "Apologizing for Our Low-Level Behavior," stating that the rapid business development had led to inadequate management guidance. This was the first time Hema's problems were exposed to the public. In November 2018, the "label incident" occurred at Hema Fresh's Shanghai Daning store, where staff were caught changing the date labels on carrot packaging. Four days later, Hou Yi had to issue an apology on social media, announcing the dismissal of the Shanghai regional general manager. On December 3 of the same year, a netizen posted a shopping receipt printed at 9:49 on December 1 on Weibo, claiming to have bought food that was two months expired at Hema Fresh's Shanghai Jinqiao store. It was reported that the expired items were two 250ml cans of "Liertai" coconut milk. The user discovered after paying and returning home that the production date was April 28, 2017, and the expiration date was September 28, 2018. By December 1, the coconut milk had been expired for over two months. In February this year, it was rumored that Hema Fresh kitchen staff swapped fresh seafood selected by customers for dead seafood with practiced ease. The video revealed that this substitution was not an isolated incident but had become a routine, standard operating procedure. At this point, user resentment toward Hema reached a small peak. Facing external and consumer skepticism, Alibaba, which adheres to "Customer First, Employee Second, Shareholder Third," had to use a "Rotten Strawberry Award" to express its attitude toward the problem-plagued Hema. The Many Faces of "Hema and Similar Players" Retail enterprises experiencing product and service issues are not isolated cases, and new retail formats closing stores or contracting are not unique to Hema Fresh. Looking broadly, how are those new species doing now?

  1. Super Species As the new retail format most likely to benchmark against Hema Fresh, Super Species is undoubtedly the most watched and expected besides Hema. Especially after Tencent invested in Yonghui, the competition between Hema Fresh and Super Species has often been seen as a battle between Alibaba and Tencent. On January 1, 2017, Yonghui opened its first Super Species store in Fuzhou. In terms of model, Super Species, like Hema, adopted a retail + dining model, where consumers can either directly purchase ingredients or enjoy cooking services and dine in the store. To date, Super Species has opened nearly 100 stores nationwide. Despite its rapid growth, Super Species could not avoid being divested by its listed parent company. In December 2018, Yonghui officially divested its Yunchuang business, mainly due to severe losses. Financial data showed that in the first three quarters of 2018 alone, Yonghui Yunchuang accumulated losses of up to 1 billion yuan, with Super Species accounting for the bulk of the loss-making business.
  2. JD 7FRESH If Super Species is Tencent's important layout in the new retail field, JD 7FRESH is undoubtedly a key chess piece for JD to strategically snipe at Alibaba. At the end of December 2017, JD 7FRESH opened its first store at Beijing Yizhuang Dazu Plaza, and 6 kilometers away was Hema's previously deployed Chengxiang Century Plaza store. As an important part of JD's unbounded retail strategy, Wang Xiaosong, former senior vice president of JD Group and president of JD 7FRESH, revealed plans to open 1,000 stores nationwide in the next 3-5 years. He also signed project cooperation agreements with 16 well-known national real estate developers, including Poly, Joy City, Vanke, Yuexiu, and Greenland, and simultaneously started store opening processes in Beijing, Shanghai, Guangzhou, Shenzhen, Chengdu, and other cities. When everyone thought JD 7FRESH was about to enter the fast lane of high-speed development, Wang Xiaosong was suddenly transferred from his post, and the business changed hands, which meant the rapid store opening plan was aborted.
  3. Meituan Xiaoxiang Fresh Food After strategically investing in and acquiring Ele.me, Alibaba became the most direct enemy of Meituan's core business. Hema Fresh, focusing on fresh food and food delivery, naturally became Meituan's most direct competitor. From this perspective, Meituan would not turn a blind eye to Hema's development. On May 25, 2018, Meituan's fresh food supermarket Xiaoxiang Fresh Food officially debuted. In terms of business model, Xiaoxiang Fresh Food not only added dine-in, fresh food, and semi-finished products but also launched its own brand "Xiang Dàchú" and food classes and other new dining elements, which is quite similar to Hema Fresh's new dining concept—combining online App + delivery with offline "central kitchen + physical restaurant" model. Clearly, Xiaoxiang Fresh Food directly targets Hema Fresh. Although it started late, Xiaoxiang Fresh Food has already covered three cities: Beijing, Wuxi, and Changzhou. But just last month, Meituan suddenly announced the closure of five stores in Changzhou and Wuxi, meaning Meituan's offline fresh food attempt now only has two stores in Beijing. In addition, Diqiugang closed due to unpaid wages, SF Preferred closed stores nationwide, retaining only Beijing and Guangdong markets, and Tianhong sp@ce, Xinhua Du Hai Wu Hui, etc., have mostly developed lukewarmly... Is New Retail Failing? Analyzing the reasons why these new retail enterprises repeatedly fall into losses, New Distribution believes the main reasons are as follows: 1. Too rapid development and eagerness for quick success Due to the pursuit of development speed, improper store location selection leads to insufficient customer traffic; lack of professional talent leads to management and service defects, and also brings serious waste problems. A Hema Fresh employee bluntly revealed to New Distribution, "Hema has high wastage. The day's oil-braised shrimp, if not sold, is directly supervised and destroyed, poured into a dirty trash can, and not even discounted to employees. The main problems now are poor coordination between departments, no promotion space, and fixed salary. They don't deduct your pay, but whether you work hard or not, your salary doesn't change much." 2. Order density in some stores is insufficient to cover operating costs It is undeniable that fresh food supermarkets represented by Hema Fresh still have high prices. Especially with increasing downward economic pressure, the appeal of Hema's packaged food and live seafood to consumers is also declining. So, does the successive store closures of new species represented by Hema mean that new retail is failing? In this regard, Wang Jun, a new retail industry expert, believes: Store closures in supermarkets are perfectly normal, and there is no need to deliberately scrutinize them, even when it comes to Hema. The essence of new retail has not changed. As physical retail chain stores, they also follow the basic laws of retail: It is normal for new stores to open and for old stores with operational problems to close and stop losses. As the vanguard of new retail, Hema once again stood at the forefront of public opinion in 2019. A series of keywords revealed the many problems Hema encountered during its development, from "running at full speed" to "running to survive," from "Rotten Strawberry Award" to "pitfalls of new retail," and even triggered a big discussion on "no more new retail from now on." The recent closures of Hema Xiaoma and Hema direct-operated stores have seemingly provided concrete evidence for this discussion. The author believes: 1. No need to deliberately deify; store closures are normal metabolism. After Hema launched the model of supermarket + dine-in + online flash delivery, it quickly captured consumer mindshare. It was a very successful model exploration that triggered many imitations in the industry, but unfortunately, after more than two years of attempts, few followers have succeeded. Hema itself, after running at full speed, has opened nearly 150 direct-operated stores. Rapid store opening means that location selection and operational issues are prone to occur. Stores that do not perform well should be closed to stop losses. This is just the beginning, not the end. Most importantly, the closure rate of less than 1% is already an excellent number. 2. The 2018 wave of supermarket closures affected few who remained unscathed Since 2017, major retail brand stores have experienced varying degrees of store closures. There are many reasons for closures, including lease expirations and operational difficulties. The number of closures at Hualian, Yonghui, Zhongbai, Jiajiayue, Bubugao, and Walmart has all increased. On the one hand, this reflects that the industry is indeed in a downward bottleneck period. On the other hand, it also puts forward requirements for innovation and upgrading of inherent models such as supermarket operation models and procurement logic. Hema's Brand Dividend Period Is Gradually Fading From the earliest Boston lobster to "Hema district" housing, from Jack Ma's endorsement to Xi'an leaders' calls, Hema's early brand marketing was like a tornado. Consumers also experienced a different kind of supermarket shopping, which quickly became a topic of conversation. In the eyes of young and fashionable consumers, it quickly built brand influence. More than two years have passed:
  4. Consumers' novelty has worn off. After the initial taste, how to firmly attract consumers?
  5. Things are no longer cheap. From the once popular Boston lobster seafood to daily necessities, consumers increasingly find that Hema's products are really not cheap anymore;
  6. More choices for 30-minute flash delivery. Hema's strongest service is the 3-kilometer, 1-hour delivery, which accounts for 50% of store sales from online orders. It is the core link in the entire new retail model. This business is now challenged by Miss Fresh, Dingdong, Pupu, and JD Daojia, which offer broader coverage, faster speed, and higher cost-performance;
  7. The dilemma of direct operation and franchising. Apart from the first batch of direct-operated stores claiming profitability, no good news has come from Hema stores in cooperation with Sanjiang Shopping and RT-Mart. On the one hand, there are management coordination contradictions; on the other hand, partners are more concerned about realistic commercial returns. When such franchise cooperation stores can develop rapidly and healthily, that will be the time when the Hema model achieves great success! Extended reading of new retail themed series articles: A reward of 400-2000 yuan will be paid once the tip is adopted. China FMCG + Internet Professional New Media Committed to FMCG manufacturer transformation and upgrading and channel digital solutions