---
title: "Does Hema Deserve Such Adulation?"
description: "Despite the praise and adoration Hema Fresh has received, a closer look at its data and business model reveals significant issues, including heavy subsidies, high fulfillment costs, and questionable profitability, leading to doubts about its long-term sustainability."
author: "祁建宝"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
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published: "2019-02-25"
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# Does Hema Deserve Such Adulation?

> Despite the praise and adoration Hema Fresh has received, a closer look at its data and business model reveals significant issues, including heavy subsidies, high fulfillment costs, and questionable profitability, leading to doubts about its long-term sustainability.

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Recently, Jack Ma and Daniel Zhang visited a Hema Fresh store, signaling that Hema has finally gained the approval of Alibaba's top management and will surely gain access to Alibaba's various resources. That's why Mr. Hou Yi confidently said, "So far, Hema Fresh has not seen any competitors."
The internet is also filled with unanimous praise, analysis, and admiration for Hema Fresh, including some professional investor reports. Hema Fresh has become the first model of new retail, with unprecedented momentum.
However, being well-received doesn't necessarily mean it will be a box-office hit! After field research and careful consideration, I believe Hema Fresh has many questionable aspects that lay significant hidden dangers for its sustainable operation. The pitfalls that traditional retail enterprises have stepped into are unavoidable for Hema Fresh's current model.
**First, let's look at the recent data released by Hema Fresh:**
> 1. The Jinqiao store's annual turnover in 2016 was about 250 million yuan, with sales per square meter of about 56,000 yuan, far higher than the industry average of 15,000 yuan;
>
> 2. Online orders account for over 50%, and mature stores operating for more than half a year can even reach 70%;
>
> 3. The online product conversion rate is as high as 35%, far higher than traditional e-commerce.
At first glance, these figures are indeed impressive. But the truth requires a meticulous analysis:
First, the excellent performance of the Jinqiao store cannot represent the whole. Many retail enterprises have star stores, and the single-store performance of these star stores is incomparable to that of the Jinqiao store.
Second, the issue of online order proportion. Hema Fresh forcibly excludes many offline consumers in the payment process. In addition, Hema Fresh's free delivery for online orders is actually a high-subsidy strategy (detailed later), so the proportion of online orders naturally becomes very high.
Third, regarding Hema Fresh's online product conversion rate being higher than traditional e-commerce, I think the comparison targets are probably B2C models like Tmall Fresh and JD Fresh. In reality, there is a huge difference in traffic: in the O2O model for fresh food, users logging into the Hema APP have a strong purchase intention, so the conversion rate is naturally high; while Tmall Fresh and JD Fresh often see random conversions from users "browsing" online, so the conversion rate is naturally low. Thus, such a comparison is not very meaningful. If a comparison must be made, the conversion rate of fresh food sections in physical supermarkets exceeds 90%; how can Hema compare?
Therefore, Hema only discloses partial, process-oriented indicators, while remaining silent on sales, profit margins, and other operational result indicators. This is a practice of reporting only the good news and hiding the bad, which is indeed unconvincing. The hidden truth is that Hema's operational results are not optimistic. Of course, as a company still in its startup phase, using such PR tactics is a common routine.
Below, I will make a speculative analysis of Hema's operating conditions based on some data, for industry discussion:
A top-ranked Hema store has daily sales of 400,000 yuan, a gross margin of 20%, an average transaction value of 60 yuan, and a delivery cost of 12 yuan per order. What do these figures represent? That is, if the store's monthly sales are 12 million yuan, the gross profit would be 2.4 million yuan.
Referring to the traditional supermarket front-end store expense rate of 15-18%, Hema's front-end store expenses would reach 1.8-2.16 million yuan. However, the difference is that Hema's back-end logistics costs are as high as 1.44 million yuan (calculated based on 200,000 monthly orders, with 60% online orders at 120,000 orders, and fulfillment cost of 12 yuan per order), resulting in a monthly loss of 840,000 to 1.2 million yuan! The above data simulates a relatively well-performing branch.
The above data comes from field research and can only be roughly accurate. But the precision of this data does not affect our basic business judgment: Hema Fresh is subsidizing, and Hema Fresh is seriously loss-making!
In addition to data analysis, I will explain from a business logic perspective why Hema Fresh has fallen into a loss-making quagmire.
Anyone who has visited Hema Fresh knows it has several typical features, which are also the focus of imitation by many companies:
> a. A huge fresh seafood section;
>
> b. Integration of dining and shopping;
>
> c. Store-warehouse integration, with ultimate logistics and delivery experience.
But are these features or bugs? The root of the losses may be based on these features, which look beautiful but often cannot withstand the test of market and time:
1
Product Strategy: The Huge Seafood Section is a Gross Profit Black Hole
Hema Fresh's huge fresh seafood section is indeed impressive and eye-catching. Because few dare to do this, and users often find it novel. But why don't established retail companies like COSTCO and Sam's Club dare to do this? They are all companies with extremely impressive single-store performance.
Anyone who has worked with fresh food knows that fresh aquatic products are basically a profit black hole, very difficult to profit from, and are basically used as structural supplementary categories, mainly high-frequency freshwater aquatic products, including fresh food experts like Yonghui. The operating direction for this category is mainly high-standard frozen and chilled products.
Hema Fresh, however, operates large-scale fresh seafood in a more extreme way! This category is characterized by low frequency, high unit price, and high loss. Low frequency is determined by users' dietary structure. Although our living standards have improved a lot, our dietary structure has not fundamentally changed.
Hema's target customer group is young white-collar workers, and this group's spending power does not support high-frequency consumption of high-priced fresh food, and this group's recognition of fresh food is not that high. High unit price is determined by the high logistics costs and high loss of fresh seafood.
There is a seafood supermarket called TAKE in Shekou, Shenzhen, which also operates a large amount of fresh seafood, but it targets the high-end business banquet customer group of surrounding large enterprises. TAKE's single store is very successful. Hema's problem is that it has positioned the low-frequency, differentiated consumer group of fresh seafood on a large scale. Who is it serving? Will these customer groups continue to pay? The difference will lead to different results.
In addition, apart from the huge seafood section, Hema's other products are not much different from boutique supermarkets. On the contrary, due to the limited consumption scenarios, the product mix is easily covered by competitors, and from the consumer's perspective, this consumption scenario is not convenient. Hema's interpretation of scenarios is subjectively stitching together the "eating" scenario, not truly organizing products from the consumer's perspective.
2
Category Mix: The Dining Outsourcing Area May Collapse
Let's talk about the integration of dining and shopping. Many commentators believe this is Hema's pioneering model, but I do not agree. In fact, the supermarket industry has always operated categories like fast food, cooked food, and pastries, and there are various light dining combinations. What is the essential difference from Hema?
It's just that under the wave of consumption upgrade, slow-moving supermarket companies have not upgraded these categories in terms of taste, variety, packaging, environment, and service, causing this category to become increasingly low-end, gradually becoming a choice for employee meals or low-income people. Therefore, calling Hema's combination of dining and shopping a so-called cross-border business model is, in my opinion, too exaggerated!
I also discovered an interesting logic: Hema's goal is to attract traffic online, which inevitably leads to relatively fewer customers visiting the store; and its in-store joint-venture dining merchants basically rely on dine-in, so they can only compete for the remaining 30-40% of traffic. How can they continue to operate? If they can't operate, how can they contribute rent?
Of course, with Hema's brand influence, the occupancy rate of joint-venture dining merchants may be maintained at a passable level for a period of time, just like many street shops always close down but someone always takes over. But in such a state, how can it be said that Hema Fresh's model is competitive?
A while ago, when I went to Hema for research, I saw many joint-venture stores undergoing adjustments. In the long run, the integration of outsourced dining and self-operated shopping will be difficult to maintain, and frequent tenant changes will be the norm.
If we want to explore the integrated operation of dining and shopping, I prefer Yonghui's Super Species approach. "They are serious about dining," with clear customer positioning, effective efficiency and cost control, fully self-operated for easy scaling, and very solid and reliable work.
3
Logistics: Fulfillment Cost is Twice the Industry Average
Speaking of Hema's logistics, it is essentially store-warehouse integration and self-operated delivery. This model itself is nothing new; many fresh food e-commerce startups have done this. What is different is that Hema has truly achieved the ultimate user experience, raising the competitive barrier.
But in reality, this comes at a very high price: a fulfillment cost of 12 yuan per order. Don't question this data; look at the salary structure of Hema Fresh delivery staff: during the protection period, 20 yuan per hour, plus 2 yuan per delivery; after the protection period, 8 yuan per order (data from public recruitment websites).
In addition, Hema also has to pay for the large sorting back-end rent, equipment, personnel, and packaging costs. That's why the 12 yuan per order data is reliable. Third-party delivery costs are often only 5-6 yuan per order, and they have already begun to shift to user payment.
Each Hema branch is equipped with a large, modern sorting back-end to ensure their order processing capability. On the surface, this logistics investment improves sorting efficiency. But in reality, fresh food orders and takeout orders often have strong concurrency. This configuration is often designed based on peak order volume. Just like the government designs road width based on peak traffic flow, the utilization rate is actually not high, and the overall calculation may not necessarily bring efficiency improvements.
The above actually reflects a serious problem: Hema has improved consumer experience, but it has not improved corporate operational efficiency. Logistics costs and store routine costs are rigid. At this stage, Hema's store expense rate should be twice that of ordinary supermarkets. I believe Hema has been subsidizing users all along, and how long can the prosperity brought by this subsidy last? How long can the subsidy last?
4
Operations: Limited Room for Improvement in Later Operations
Does Hema have strong online operational capabilities that can gradually improve its operating statements through later operations? I think it is very difficult.
A major change in the current business environment is the fragmentation of business districts. Ten years ago, we could point out where the commercial center was without thinking. Now try it.
This is the result of comprehensive factors such as changes in user consumption habits, accelerated pace of life, changes in commercial patterns brought by real estate, rising store rents, and increased competition. In this business landscape, Hema's approach is like raising a big hippo in a small pond; even if all the aquatic plants are given to it, it won't be enough! Even if your operational capabilities are strong and your penetration rate is high.
The deep-seated reason for Hema's predicament lies in the misallocation of resources. Many startup failures are due to turning small businesses into high costs. Another common reality is that the store growth cycle is shortening, and it will enter a stable plateau period in a very short time, after which there will be no greater growth rate. This is increasingly like the restaurant industry, where life and death are determined within half a year. So blindly hoping for the future may lead to disappointment. Hema's old stores have been around for about two years; will there really be high growth?
Another reason affecting Hema's operational growth is that this hippo is very "picky"! Mr. Hou Yi said, "From Hema Fresh's perspective, 80% of our consumers are post-80s and post-90s. They are the original inhabitants of the internet, the generation of consumers who have become wealthy since the reform and opening up, and they pay more attention to quality, care about the pursuit of quality, and are not very sensitive to price."
I agree with Mr. Hou Yi's statement and also agree with the precise core customer positioning theory, but I do not agree with Hema's treatment of non-core users: almost obsessively sweeping them out. The consumer group characteristics of fresh food users may be special, showing a typical "dualization" feature: the elderly group and the housewife group, and this pattern may persist for a long time. The housewives that Hema sweeps out are often the decision-makers and implementers of three meals a day. This sweep almost loses half of the transaction opportunities. How can we talk about increasing penetration rate by more than 70%?
Therefore, should the target customer positioning be more reasonable based on the family unit rather than the individual? In addition, single young people actually have very low consumption of fresh ingredients; they only have rigid demand for quality fast food, but compared with professional fast food, Hema does not have a core advantage.
I have analyzed many problems with Hema's model above, but I am not a malicious attacker, just an objective commentator. Finally, I would like to offer three constructive suggestions, without going into detail, for reference only:
First, guide users rather than change users, and retain users rather than tempt users. The trend of users going online is inevitable, but the process is slow, and artificially accelerating it may not work. Therefore, I think we should follow the laws and be prepared for both.
Second, compress the water and turn big stores into small ones, evolving into "Hema Little King Kong." Only by shedding the heavy cost burden can Hema survive. Small stores have better property availability, which can solve the bottleneck of rapid expansion; a large number of stores can give Hema more tentacles to stick to and convert offline users, supporting its online strategy.
Third, quickly integrate B2C to monetize traffic and make up for the current product structure shortcomings. Fresh food often can only be a traffic category, and it is difficult to be a category for obtaining gross profit. The fresh food e-commerce entrepreneurs who died in the past two years may have a deeper understanding of this. This is determined by the current competitive situation in the fresh food industry; it is difficult to make money purely from the retail link.
Alibaba may have high hopes for Hema, hoping that Hema can output methodology and build a team to integrate the physical retail enterprises it has acquired. This is the starting point for new retail. But Hema has not yet proven itself, which may be the reason why Alibaba has not taken further action after a series of acquisitions.
The inflection point of the retail industry has arrived, just as the supermarket format replaced the traditional format in the 1990s irreversibly. Although Hema has many problems, we cannot ignore the self-adjustment ability of this entrepreneurial company! Whether Hema will become the new king or leave quietly remains to be seen.
**Extended Reading: Hema Consumer Experience Notes**
After a 2-hour experience at Hema Fresh, we had a steak "fast food" for 108 yuan. We saw the "new" and "fast" of new retail, but did not taste the "irresistible" of new retail. Some consumers said, "I never want to come again."
"How long have you waited for this crab?"
- Consumer: "More than an hour."
"Is it delicious? How does it taste?"
- Consumer: "It's better to eat it raw." He shook his head while turning the crab shell, and the other call button on the table had not yet been pressed.
This is a conversation that took place at the Hema Fresh experience store in Building B of Beijing Lecheng Center. Low efficiency, slow order taking, bad taste, insufficient seating... Hema Fresh, which has been established for nearly 3.5 years, although business continues to be booming, still has a lot of room for improvement in the offline experience.
Visiting Alibaba's Super New Retail Representative - "Hema Fresh"
"Are you looking for Hema Fresh? Yes, enter from the entrance of this building and go down to B2."
On the evening of July 20, the iyiou team visited Alibaba's super new retail format "Hema Fresh". That night, they came to the store in Building B of Lecheng Center, Shuangjing, Beijing. Since the location was not easy to find, we had to ask for directions.
Before arriving at the location, we saw many delivery riders in Hema Fresh blue uniforms riding electric bikes in and out near the entrance of a shopping mall. They need to deliver online orders to users within a 3-kilometer radius of the store within 30 minutes.
At the entrance of the experience store, Hema Fresh's shopping cart caught our attention. It has a small blue shopping basket on top, which can be used for seafood, meat, marinated food, and other fresh foods, separated into two layers from the large shopping basket below for daily necessities.
Entering the store, we found that Hema Fresh's floor area is not small. Its interior is basically divided into areas such as "daily necessities area", "tea, alcohol, and beverages area", "fruit and vegetable area", "meat area", and "seafood area", presenting a "horizontal + vertical" layout. Basically, each area has a shopping guide. At the end of the supermarket is the "on-site cooking area" and "rest/dining area". From the perspective of product settings, it basically covers people's daily needs.
Comparing the goods in the daily necessities area, iyiou found that the product variety is relatively small, and the prices are slightly higher than ordinary supermarkets. For example, for a certain sanitary product, the same imported foreign product is priced at 8.5 yuan per pack in ordinary supermarkets, while Hema Fresh's price that day exceeded 11 yuan per pack.
However, Hema Fresh's advantages are also obvious, reflected in Alibaba's proud "new retail":
First, each product has a barcode below it. Scanning the code can place an order or use the Hema APP to scan the code for details. The same product can not only be bought in the supermarket but also purchased at home through the APP.
However, there seem to be more special offers or promotions in the supermarket. For example, that night there were activities like "buy one get one free steak" and "199 yuan super crayfish buy one pound get one pound free". The specific steak promotion was buying a 98 yuan "Wagyu sirloin steak" and getting an 88 yuan "Wagyu chuck steak" free. The products were all dated that day, which seemed quite cost-effective.
Second, Hema Fresh's online ordering and offline delivery can guarantee arrival within 30 minutes (user radius within 3 kilometers of the store). This is also the main reason why we saw many delivery riders rushing in and out when we first entered the building.
Third, the open and visible food conveyor belt inside Hema Fresh supermarket is also impressive. From the appearance, it is the same as what iyiou authors experienced a year ago. When we pushed the cart to the meat area, two Hema delivery riders were carrying 26 bags each, picking products according to online user order slips, preparing for delivery. This is also an entry point for Alibaba to connect online and offline new retail formats.
Fourth, payment is very convenient. You can either self-checkout or queue to pay, but self-checkout requires downloading the Hema Fresh APP, and after downloading, you can jump to Alipay with one click. This step increases the difficulty of settlement for first-time users.
At the entrance of the Hema Fresh experience store, there are several self-checkout machines, with at least one staff member stationed there to help users complete settlement.
That night, our experience focused not only on Alibaba's "new retail" but also on the offline physical store experience - fresh food supermarket and dining.
Hema Fresh is a complex of "fresh food supermarket + e-commerce + dining + logistics and delivery", but based on that night's experience, Hema Fresh clearly encountered some problems in the offline dining link.
After a 2-hour experience at Hema Fresh, some consumers said they never wanted to go again.
Hema Fresh's "on-site cooking" is one of its major selling points, limited to the aquatic products and steaks you buy at the physical store. You only need to pay an additional 20 yuan per serving at the counter during business hours, and you can taste the "freshly made" food after processing. However, the conversation at the beginning of the article took place in Hema Fresh's dining area, which sounds not very optimistic.
On the night of the experience, we bought two steaks. Since we couldn't finish too much, we only sent one for processing, but the process of queuing to pay was not smooth.
At the steak processing area, I and three other customers were queuing to pay the processing fee, while my companion went to find a seat in the dining area. After the customer in front paid, I told the staff that I wanted to process one of the steaks, but the chef said, "Don't process it for now, we're too busy." The staff went to help, without apologizing to me or saying how many minutes I needed to wait. It took about 5-8 minutes before a new staff member came to ask about my processing intention.
Not only was the paying user experience poor, but the dining area environment was also not good. The dining area had fewer than 50 seats. After looking around, my companion found that not only were there no empty seats temporarily, but many tables still had leftover plates and garbage from the previous diners, and there were some empty bags on the seats. Half of the consumers at the tables did not have processed meat or aquatic products; they were also waiting.
After finding a seat and sitting down, because there was a lot of garbage on the table, we asked the waiter who was busy walking around the dining area if they could clear the table garbage. But the waiter said no, saying that there had been a complaint because cleaning staff mistakenly took away food that users had not finished, so users need to handle it themselves.
Looking around, Hema Fresh also posted reminders like "Please take your plates away after dining" next to the tables and chairs in the dining area. But for the garbage left by users who do not take the initiative to clean up, if the waiters do not clean it up in time, the experience for subsequent users will only get worse.
In addition to the dining environment needing improvement and service experience needing enhancement, the most direct problem for consumers is cooking efficiency and the "taste" of the food. During the wait, the iyiou author chatted with two men sitting opposite. They ordered a bread crab and a lobster. The crab came first, and the following conversation unfolded:
"How long have you waited?" - "A long time, an hour already."
"Is it delicious?" - "Not delicious. The crab is better eaten raw."
It was already 8:40 PM, an hour after we arrived at Hema Fresh. The few skewers of marinated food we had just bought had been eaten. My companion and I discussed ordering takeout to eat while waiting. The man opposite said it was indeed not delicious and strongly suggested we do so. One of the men lost interest after a few bites.
Half an hour later, the steak came, and the rice noodle takeout we ordered had also arrived. After half an hour of eating with our heads down, we still didn't finish the steak because it was too oily, but the rice noodle soup was "favored".
Before leaving, the diner sitting opposite told my companion that he had never been to Hema Fresh before. This time, he wanted to try something new, but after 2 hours of waiting and dining, he experienced a poor environment and service experience, fast-food-style plates, bad taste, and overly long waiting times. He didn't plan to try it a second time.
As for the taste of the food, my companion commented: "I think the best thing was the rice noodles, followed by the rice noodle soup, then the marinated chicken feet, and finally the steak. It felt like eating fast food at the price of a regular steak restaurant (88 yuan plus 20 yuan processing fee equals 108 yuan)."
That night, after the experience, I posted on Moments, and a friend commented: "(A certain part of Hema Fresh's offline experience) is essentially a restaurant. If a restaurant has too many people, either there's no place to sit, or you wait 1-2 hours for food. The experience is bound to be bad. If the experience is good, you can only control the number of people."
From a consumer's perspective, this first "electric shock" experience with Hema Fresh was not good. Although Alibaba's new retail format does have its strengths, if the offline experience is not strengthened, when people's novelty wears off, what should Hema Fresh do if its offline experience "cools down"?
Anyway, as a consumer, I probably won't go again next time. And I'm not the only one with this thought.
Source: Changjiang Business Review, Qi Jianbao
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