△2018 China (Luohe) Food Marketing Innovation Summit and the 3rd Leisure Food Manufacturers' Precision Matchmaking Conference Free registration is in full swing; scan the QR code for details. Core Tip: "Is this lobster better steamed with garlic vermicelli or baked with cheese and butter?" During the May Day holiday, Xiao Chen, who is in charge of seafood dishes at Hema Fresh's Guangzhou Yaoyicheng store, answered similar questions hundreds of times a day. On April 28, Hema Fresh opened stores simultaneously in 10 cities: Guangzhou, Xi'an, Beijing, Shanghai, Hangzhou, Suzhou, Chengdu, Shenzhen, Nanjing, and Wuhan. This was Hema's second large-scale store opening; the first was on September 28, 2017, when Hema opened 10 stores in 5 cities in one day. Currently, Hema has 47 stores nationwide, expanding to 13 cities. Regarded as the number one benchmark of "new retail," Hema carries Alibaba's ambitions, and it also carries the expectations of China's physical retail transformation. Why is Hema Fresh different? A Southern Metropolis Daily reporter recently conducted an on-site investigation in Guangzhou to study this unique business model. 1 Product Selection: Rare Seafood, Hot Products, Internet-Famous Items, and Direct Sourcing Compared with other physical supermarkets, the main difference in product configuration and selection at Guangzhou Hema Fresh is, for now, likely its use of mid-to-high-end seafood, hot products, and internet-famous items to drive traffic. At its inception, seafood carried the important mission of igniting the Hema brand, and it remains the most important hot product in Guangzhou Hema. The reporter saw on-site that the signature king crab is priced at 699 yuan each, with free processing for the first four days after opening; Boston lobster is 98 yuan per jin; crayfish is the most popular, priced at 39.9 yuan per jin; and domestic abalone is 26 yuan for 4. "Although the price is not much different from the Huangsha seafood wholesale market, Hema's crabs have no straw rope, and more importantly, the prices here are transparent. In Guangzhou, if you go to the (seafood) market to buy seafood, it's impossible not to be ripped off," a customer told the reporter. Guangzhou Hema's aquatic area has 15 water tanks, with product displays similar to a seafood market, including categories such as meat crab, paste crab, river perch, crayfish, South African lobster, golden scallops, and abalone. According to official data from Hema, on the first day of opening, the most popular seafood purchased by Guangzhou citizens were: domestic abalone, Dihuangxian frozen raw South American white shrimp, Boston lobster, Dihuangxian frozen raw basa fillet, Dihuangxian Antarctic silver cod fillet, Dihuangxian salmon fillet, small blue lobster, king crab, British bread crab, and Ningde large yellow croaker... The variety far exceeded that of China Resources Vanguard supermarket, which is less than 400 meters from Guangzhou Hema. In addition to seafood hot products, Hema Fresh's hot product in the fruit and vegetable category is undoubtedly "Hema Daily Fresh." When the reporter entered Guangzhou Hema, the first thing that caught the eye was this hot product placed at the front of the refrigerated cabinets, including 13 types of vegetables such as choy sum, baby bok choy, sweet potato leaves, lettuce, and spring vegetables. "Daily Fresh" leafy greens are generally packed in 300g packs, while meats are in 280-450g packs, just enough for one dish. "This 300g choy sum sells for 2.9 yuan, while the outside market would charge about 6 yuan," Ms. Li told the reporter. It is reported that Hema launched the "Daily Fresh" concept, resolutely not selling overnight vegetables. To make this concept clear to users, Hema uses different colors and text on the packaging of vegetables. For example, for leafy greens, there are seven days in a week, so there are seven packages, each with a different color. It is revealed that the "Daily Fresh" series currently covers vegetables, chicken, and pork, and will soon include "Daily Fresh" milk, eggs, and mushrooms. In product selection, Tmall's internet-famous products are also a highlight of Guangzhou Hema. In the snack food area, the reporter found Japanese popular cookies Shiroi Koibito, Hokkaido pure white cheesecake, Knoppers wafers, and blue Coca-Cola. Also hidden on the shelves were Anessa small gold bottle sunscreen, Binaise mouthwash, RE:CIPE crystal sun spray, and春雨 (Spring Rain) masks. In addition, there were internet-famous foods from Tianrun, such as "Cheese Power," "Tempted by Pomelo," "Chocolate Broken," and "Ice Cream Melted." These internet-famous items all had a red card: "I'm an internet celebrity. Take a photo with me and share it on your Moments." "Hema's product selection relies on its strong upstream resources and direct sourcing capabilities. This not only eliminates intermediate links and reduces losses but also ensures product freshness." According to Hema, every day, fruits, vegetables, seafood, and meat products from origin countries such as the United States, Canada, Chile, Peru, Mexico, Argentina, New Zealand, Australia, Russia, the United Kingdom, Denmark, Italy, the Philippines, Thailand, and South Korea are delivered to Hema stores as quickly as possible via dozens of flights and containers. "From the field to Hema's shelves, Daily Fresh takes as little as 8 hours." The most typical case is king crab. Hema found a partner with fishing rights in the Alaskan waters where king crabs live, allowing direct orders. After being caught, king crabs are packed in insulated boxes and stored for 12 or 24 hours according to cold chain standards, with temperature control throughout. After arriving in China, Hema checks their survival rate, re-immerses them in water for temporary farming, and then delivers them to customers' homes or stores. The reporter noticed that due to the hot product and direct sourcing model, Hema's product line is wider than that of other physical retail companies. For example, for fresh milk, Hema Fresh sells six brands: Weiji, Yantang, Bright, Tianrun, Chenguang, and Xiangmanlou; for frozen dumplings, there are eight brands including Asian Choice, Wu Dasao, Bibigo, Wonton Master, Wndefeng, Pumiduo, and Tangyechengpin; in addition, the Hema Fresh APP also offers brands such as Chuange Spanish mackerel dumplings, Anxinyu Hali meat dumplings, Sanquan dumplings, and Daniu dumplings; for beef, there are seven brands including Haoyue, Dihuangxian, Wndefeng, Tianlaixiangniu, and Chuzhijia, covering nearly 20 types. At the China Resources Vanguard supermarket less than 400 meters from Hema Fresh, fresh milk brands are only four: Bright, Yantang, Xiangmanlou, and Chenguang; dumplings have six brands: Longfeng, Sanquan, Synear, Wonton Master, Bibigo, and Runzhijia, with Runzhijia being China Resources Vanguard's own brand. 2 Display and Layout: Fresh Supermarket + Internet-Famous Restaurant + Wet Market In addition to product selection, the dining area is the most attractive part of Hema Fresh, with many consumers even treating it as an "internet-famous restaurant" to check in. The biggest difference from other physical supermarkets is that Hema allows customers to "shop while eating." After purchasing seafood in the store, customers can weigh it at the processing counter, choose a processing method, and then sit down to eat on-site. The reporter saw on-site that in the 4,500-square-meter Hema Fresh Guangzhou Yaoyicheng store, there are seven major areas: aquatic area, dining area, snack food area, bakery area, meat area, fruit and vegetable area, and wine area. However, the dining area occupies nearly one-third of the space. According to the reporter's estimate, the dining area can accommodate about 100 people at a time, but on May Day it was packed with consumers who like to "shop while eating," with long queues at the seafood processing counters for crayfish, king crab, and other items. Guangzhou Hema's dine-in area also features eight different co-branded merchants, including: Shitou Pai Braised Meat Research Institute, Huahui Changfen, Butcher (steak shop), Xi Niu, Baoshenwei & Xinggangdao, Bangbang Chicken Legend, Tiaopi, and Bianlimao. The categories include Chaoshan braised food, rice rolls, porridge, steak, Japanese cuisine, dim sum, rice in soup, Sichuan braised food, skewers, beer + sausages, as well as four self-service machines for coconut juice, coffee, orange juice, and multigrain drinks. "After preliminary market research, Hema will develop some dishes with Lingnan characteristics based on the tastes of Guangzhou consumers and sell them in Guangzhou stores." It is revealed that Guangzhou Hema has developed its own "Hema One Pigeon," which is hand-torn squab at 28 yuan each; the crayfish that sold well during the May Day period was also adapted to Guangzhou consumers' preference for mild spiciness, at 100 yuan for 3 jin; in addition, Guangzhou citizens like to drink slow-cooked soup, so Hema's catering R&D team will launch semi-finished products such as Pueraria and mud carp soup, tangerine peel and old duck soup, and bitter melon and pork rib soup according to the season. Currently, ten types of slow-cooked soup have been developed, with two featured each week. The reporter noticed that Hema's store layout in Guangzhou attempts to preserve the consumption scenario of seafood markets and food stalls where food is cooked on the spot. However, a retail industry insider told the reporter that although Guangzhou Hema has set up a separation zone between the water tank area for displaying seafood and the dine-in area, the fishy smell of seafood still affects the dining experience. In addition, if water splashed from the water tank area and hand-washing area is not cleaned in time, it will affect the hygiene of the cooked food area. How to keep the wet and dry areas clean is also a problem that Guangzhou Hema will face next. Furthermore, the reporter also found that in terms of display, except for some bulk vegetables and fruits, most fresh food in Hema's store is mainly packaged clean vegetables. Industry insiders say this can reduce losses and costs, but packaging costs will also increase. Currently, only Sam's Club has such a high proportion of packaged fruits and vegetables among physical hypermarkets. 3 Killer Service: 30-Minute Near-Scene Delivery If all of Hema's existing assets and advantages were removed, and only one could be retained, which would Hema choose? In response to this question, Hema Fresh CEO Hou Yi gave the answer: 30-minute instant delivery. When Guangzhou Hema opened, it also launched a similar service, mainly relying on the Hema Fresh APP. It is reported that general food delivery platforms use a combination of self-built delivery teams and third-party crowdsourced delivery to solve delivery issues. Hema is the same. According to Hema employees, Hema has self-built logistics, with over 70% delivered by itself. Hema's logistics delivery content is mainly divided into fresh food delivery and FMCG products. Taking fresh food delivery as an example, Hema uses a B2C delivery model with 30-minute near-scene instant delivery, because from store to customer is a 3-kilometer radius near-scene delivery, with short routes for scattered orders, and time and cost are controllable. For FMCG products, Hema adopts a next-day delivery model. It is reported that FMCG products are mostly delivered before lunch or dinner, which is also to stagger peak work hours. During the peak dining period, when stores and warehousing are both at peak operation, fresh food delivery is the main focus. The idle time around 3 p.m. is the peak for FMCG order delivery. In this regard, Yonghui's Super Species adopts a delivery model roughly the same as Hema. The reporter learned that currently, supermarkets in Guangzhou such as Walmart, ParknShop, and Aeon have cooperated with JD Daojia to launch similar 3-kilometer 30-minute free delivery services, and these supermarkets, relying on their existing store networks, cover a wider area than Hema. However, from the design stage, Hema stores use warehouse-style shelves and inventory design, meaning that the shelf positions and inventory of Hema store products can be dispatched in real time. "At the product level, Hema has achieved full digital operation, enabling the system to track all products in real time, including the spatial distribution of inventory. For example, there may be 30 on the front shelves, 60 in the back warehouse, and 10 in the external warehouse. Their quantities and locations are visible in real time in the system, so products in the external warehouse are not wasted or lost, and sales and replenishment can occur simultaneously." A Hema executive previously revealed that when employees process orders, the system directly guides them to the target location to complete specific actions, combined with Hema's hanging chain system (a highly automated device that solves in-store efficiency), which allows for zone-based picking without requiring pickers to run all over the store. 4 Online-Offline Integration: Digitalization of Supply Chain, Sales, and Logistics Fulfillment "Hema is not a supermarket, not a convenience store, not a restaurant, and not a wet market. Many people say Hema is a 'four-not-like' business model, but we prefer to see Hema as a data- and technology-driven new retail platform," Hema told the reporter. The reporter saw in Guangzhou Hema that, except for the manual cashier area in the cooked food section, all other checkouts are self-service. Consumers must use the Hema APP to pay with Alipay (otherwise they cannot enjoy discounts and online free delivery services). In addition, Taobao has given Hema Fresh a traffic entry point. Users can directly order Hema Fresh products through the Taoxianda entry on the Taobao homepage, and on the Hema Fresh APP, users can log in with their Taobao or Alipay accounts. "Hema's dine-in area occupies about one-third of the space. According to traditional retail logic, this would affect the display and operating area of the store. However, Hema relies on APP checkout and uses an online-offline simultaneous ordering model, so it not only does not affect the display categories but also saves some costs," a retail industry insider said. Data provided by Hema shows that online orders account for more than 50%, and some even exceed 70%. The reporter found that all products in Guangzhou Hema have exclusive barcodes and use electronic price tags, allowing real-time inventory tracking and one-click dynamic price adjustments electronically. "Currently, Hema's supply chain, sales, and logistics fulfillment links have all been digitalized," Hema revealed. From product arrival, shelving, picking, packing, and delivery tasks, workers use smart devices for identification and operations, which is simple and efficient, with extremely low error rates, greatly improving labor efficiency, sales per square meter, and logistics efficiency. Currently, Hema Fresh's sales per square meter can reach 56,000 yuan per square meter per year, while traditional retail stores only achieve 15,000 yuan. In addition, the online product conversion rate reaches 35%. However, some consumers have also reported that Hema's online-offline integration is carried out through the APP. If you don't want to queue, you can only use the self-service checkout machines in the store, which means consumers cannot pay while selecting products. "If you're thirsty during dine-in and want to buy a bottle of water, if you don't go back to the self-service checkout at the entrance to queue, you have to queue at the manual checkout, which is very inconvenient. Now many supermarkets cooperate with WeChat mini-programs, so consumers can scan a QR code to pay directly with their phones after picking up a bottle of water, making the consumption scenario more user-friendly." Focus Cost Considerations: How Difficult Is It to Replicate a Hema? Hema's popularity has made many retail practitioners see new business opportunities, but is this model really easy to replicate? One difficulty may be the cost threshold. Driven by the current star effect, Hema's offline foot traffic in the early stage of operation is much higher than that of traditional supermarkets, but labor costs, rent, and daily maintenance costs are also higher than those of traditional supermarkets. First, in terms of labor, in the early days of opening, in addition to arranging shopping guides and cashiers like ordinary supermarkets, the Hema Fresh Guangzhou Yaoyicheng store also needed a staff member at each self-service checkout machine to guide consumers on how to use it. In addition, Hema provides delivery services within a 3-kilometer radius of the store, guaranteeing delivery within 30 minutes, which requires a sufficiently large delivery team to support. Second, as a new entrant in the industry, Hema does not have an advantage in rent levels compared with traditional supermarkets, especially in Guangzhou, a region with extremely developed traditional retail. It is not easy to choose a new site with cheap rent and high foot traffic. In the view of industry insiders, choosing Guangzhou Yaoyicheng as Hema Fresh's first store in Guangzhou carries significant risks. "Yaoyicheng has very poor foot traffic, but rent is cheaper than in other business districts. Hema can only drive foot traffic through its own operations. If it cannot maintain sufficient attractiveness, it will inevitably face a decline in customer flow." In addition, compared with traditional supermarkets, Hema's costs for early-stage system development, in-store decoration, and daily cleaning, utilities, and maintenance cannot be ignored. According to the reporter's on-site statistics, in the approximately 3,000-square-meter display area of Hema Fresh Guangzhou Yaoyicheng store (4,500 square meters minus one-third for the dining area), there are nearly 60 constant-temperature cabinets, including 15 freezers in the fresh food area, 3 water tanks, and dozens of refrigerated and fresh-keeping cabinets in the vegetable and bakery areas. In comparison, China Resources Vanguard, a nearly 10,000-square-meter hypermarket, has only about 90 refrigerated cabinets, with fewer than 10 fresh food freezers. This means that Hema Fresh's in-store hardware equipment and daily utility costs are double those of traditional supermarkets of similar scale. In addition to high cost investment, the application of smart technology is the second major threshold for Hema Fresh. "Hema's core capability is algorithm-driven," an insider at Hema Fresh told the reporter. Smart algorithms have penetrated the entire process of Hema's product selection, procurement, sales, and final logistics fulfillment. First, in member management, Hema attempts to build a community member network centered on stores and achieve personalized and scenario-based interaction with consumers through the Hema Fresh APP. "In the future, Hema's product recommendations and activity information will become 'thousand people, thousand faces'," the insider said. Second, algorithms enable real-time inventory management. It is reported that Hema shares one inventory between online and offline, requiring keen real-time calculations of the supply chain for transfer and replenishment. All Hema products have exclusive barcodes and use electronic price tags, allowing real-time inventory tracking and one-click dynamic price adjustments electronically. In fact, how to achieve digitalization of members and products is a direction all traditional retailers are exploring. Wang Tian, chairman of Bubugao, once told the reporter that Bubugao's digital strategy is divided into three parts: digital customers, digital products, and digital operations, but the current focus is still on digital customers. "In 2018, we will achieve digitalization of 5 million members, and in the second half of the year, we will begin online-offline integration." "At present, most supermarkets cannot achieve smart inventory management and control; at best, they are semi-manual and semi-informationized," Wang Xianqing, president of the Guangdong Provincial Commercial Economics Society, pointed out to the reporter. Hema's inventory management methods are quite advanced in the industry. In addition, after online and offline integration, how to achieve efficient delivery of online orders is also a shortcoming of traditional retailers. On the ceiling of Hema Fresh stores, a chain-type conveyor belt can be seen, which the industry calls a "hanging chain sorting and delivery system." Hema uses this system to complete picking and packing in 10 minutes, delivery within a 3-kilometer radius in 20 minutes, and arrival within 30 minutes. "When we designed the hanging chain system, we also worried that if we had 5,000 or 10,000 orders a day, would there be no one in the store, and everyone would become pickers?" Hou Yi said. But through automated equipment, it can achieve normal operation of 10,000 orders a day. This system is also used in conjunction with electronic price tags and intelligent sorting. It is reported that Hema uses a distributed approach in the picking, transfer, packing, and delivery of orders, no longer centering on individual orders. Smart devices use identification chips and barcodes to enable efficient online-offline product flow. For traditional retail supermarkets, without an intelligent logistics system, they can only handle a few hundred delivery orders a day at most. Source: Southern Metropolis Daily -END-