Due to rapid store expansion, management and human resources have failed to keep pace with the pace of store openings, and the Hema team received the 'Rotten Strawberry Award' at Alibaba's Organizational Department conference last year, which also indicated Alibaba CEO Zhang Yong's dissatisfaction with Hema at this stage. As a sample of new retail, Hema has encountered bottlenecks, reflecting the difficulties of the entire industry. Recently, fresh e-commerce companies have been closing down in droves. The store at Kunshan Wuyue Plaza in Suzhou will close on May 31, and Hema officially confirmed the news. It is reported that this is the first store closure in the three years since Hema Fresh opened. On April 16 this year, Meituan's new retail format Xiaoxiang Fresh announced the closure of stores in Wuxi and Changzhou. Earlier, SF Preferred, a new retail brand under SF Express, also closed stores in Wuhan, Qingdao, Chengdu, and Shanghai. In addition, JD 7FRESH's expansion pace has repeatedly slowed... The fresh e-commerce industry is in a state of widespread distress. According to data from the China Electronic Commerce Research Center, among the more than 4,000 players in fresh e-commerce, only 4% of merchants break even, 88% suffer losses, 7% suffer huge losses, and 1% are profitable. According to another set of public data, in 2018, China's fresh food market transaction scale reached 4 trillion yuan, of which the fresh e-commerce industry's market transaction scale reached 210.32 billion yuan, a 49.93% increase from 2017 (140.28 billion yuan). In other words, fresh e-commerce, which has a large transaction scale and is known as the last blue ocean of e-commerce, has long suffered from a low profitability probability of 1%. The wave of store closures has just begun From the current situation, the survival status of "everyone" is not satisfactory, and the store closure events may just be the beginning. The essence behind the store closures is the collective cold reception of new retail "internet celebrities" represented by Hema. How much development "money" prospect does the rapidly expanding fresh e-commerce still have? In response to the store closure incident, Hema stated, "There is no 100% certainty in retail, especially as the scale of stores increases. The good ones need to be better, and the bad ones need to be adjusted in time to maintain a healthy body." Due to rapid store expansion, management and human resources have failed to keep pace with the pace of store openings, and the Hema team received the 'Rotten Strawberry Award' at Alibaba's Organizational Department conference last year, which also indicated Alibaba CEO Zhang Yong's dissatisfaction with Hema at this stage. As a sample of new retail, Hema has encountered bottlenecks, reflecting the difficulties of the entire industry. Death of the model? New retail has been the biggest trend in China in the past three years. In the past, trends were basically driven by startups, followed by giants entering and setting the pace. New retail, on the other hand, has been deeply involved by giants from the very beginning, providing unlimited support from capital to traffic. Hema Fresh has more than 150 stores nationwide. Calculated at a single-store cost of 60 million yuan, the initial investment should have exceeded 10 billion yuan, not including daily operation and maintenance costs. In the past six months, when publicly discussing Hema Fresh, Hema CEO Hou Yi and Alibaba CEO Zhang Yong have clearly changed their wording, such as "It's better to close than to suffer long-term losses" and "The key is to run for a long time." Some say that the recent wave of store closures by Hema and others is related to the macro environment, and everyone is cautious about expansion. But given the strength of major internet giants, if it is a real trend, they will never be timid. This shows that there is a problem with new retail. Problem 1: The ceiling of online traffic. One core principle of new retail is the integration of online and offline, with offline guiding traffic to online, and online providing orders and data to offline. Hema achieved an online order ratio of over 50% in a very short time. While becoming an internet celebrity, the concept of "Hema district housing" also emerged. Many new retail formats attach great importance to the proportion of online orders, but ignore the fact that no matter how many Hema districts there are, they are limited, meaning the user scale in a certain area is stable and has an upper limit. The increase in online orders inevitably means a decrease in offline customer flow, which is a process of one rising and the other falling. It is by no means that online orders can grow indefinitely. Hema Fresh's main category is fresh food, especially seafood, which has high average order value and high gross margin, but there is also a problem: three meals a day, who eats mantis shrimp every meal? When just-needed, high-frequency categories meet a very small user base, the advantages of scale effects cannot be reflected at all. Problem 2: It is still a real estate business. Since the concept of Internet+ was born, internet people have been like finding a hammer, seeing everything as nails, believing that every traditional industry can be internetized, and traditional retail is no exception. Problem 3: Another fake trend? The reason why the Hema model relies too much on location and cannot form network effects is that the relationship between supply and demand is static. But the Hema model is not like that. First, the stores are fixed, and second, the user's location is basically fixed. Because people consume Hema mainly at home, and each Hema user has only one home. Unlike takeout users, who can order takeout anytime and anywhere at home, at the office, on business trips... a user's demand can grow exponentially. When there is no dynamic relationship between supply and demand, the transaction variables are actually very small, making it difficult to scale. Therefore, the Hema model is essentially unrelated to the internet economy, and scale effects can only be solved by continuously opening stores, especially in prime locations. This is what Wang Jianlin has been doing for decades. Can you say he is a pioneer of new retail? Making money is the king Only by finding the reasons for failure can we prescribe the right medicine. Why have these seemingly glamorous fresh e-commerce companies suffered Waterloo? At a recent internal conference, Hema Fresh founder Hou Yi made a related report, clearly proposing several reflections on Hema: including "Are packaged foods competitive?", "Is innovation sufficient?", "Is Hema Fresh the best business model?", and "Can online logistics costs be covered?" E-commerce analyst Xu Bin told reporters that these questions raised by Hema Fresh are in fact the key issues facing the fresh e-commerce industry. Some insiders frankly said that no matter what kind of retail, profitability is the king. No matter how well you play with concepts, if you don't make money, there is no future. Some analysis points out that high loss rates and high fulfillment costs are the fatal killers of fresh e-commerce. Usually, the packaging cost for fresh e-commerce is around several yuan, plus cold chain storage, packaging, and home delivery, the cost is too high, and the average order value needs to reach more than 200 yuan to be profitable. "Among the many fresh e-commerce platforms, the front warehouse model is considered a relatively successful operating model," Xu Bin pointed out. In the front warehouse model, each store is a small and medium-sized warehousing and distribution center, which allows the central warehouse to cover the last mile by supplying to stores. After consumers place orders, goods are shipped from nearby retail stores, which solves the problem of rapid product delivery and improves the consumer shopping experience. Nevertheless, the initial supply chain construction investment is huge, and not all merchants can afford it. In this regard, some insiders pointed out that it is also possible to actively explore new fresh food delivery methods by establishing intelligent self-pickup cabinets, jointly building regional cold chain logistics facilities, creating platform internal logistics incubators, and promoting the intelligent application of cold chain logistics. Li Yongjian, director of the Financial and Strategic Research Center of the Chinese Academy of Social Sciences, said that fresh food is inherently a high-margin product. E-commerce platforms can compress links and reduce circulation costs through capabilities such as direct sourcing from origin, which can amplify profit space and provide the possibility of profitability. Whether adding FMCG or fresh food categories, enterprises need to intensively cultivate the supply chain and provide more detailed services in terms of products, distribution, and other dimensions. With the continuous upgrading of consumption, personalized needs in the fresh e-commerce field will gradually become prominent, such as overseas fresh food, healthy food, organic food, etc. In this context, whether fresh e-commerce platforms can insight into and meet consumer needs, and whether they can innovate, is extremely critical. It can be said that Hema Fresh, which has exposed problems, is actually a microcosm of the new retail industry that is eager for change. Hou Yi believes that although new retail has encountered many obstacles and problems, "new retail replacing traditional retail is a trend that cannot be replaced." One characteristic of the internet economy is scale effects. Taking social networks as an example, the more users, the higher the activity, and the greater the platform stickiness. The same is true for e-commerce. The network effects formed by users will eventually lead to winner-take-all, because the internet has no boundaries. But new retail supermarkets represented by Hema Fresh do not have network effects. No matter how popular the Shilipu store is, it will not benefit the stores in Qinghe or Yanjiao. In plain terms, every time Hema Fresh opens a store, it is equivalent to starting a business from scratch. The performance of a new store has no necessary relationship with whether the total number of stores before is 1 or 1000. The fundamental reason lies in location. No matter what coat new retail wears or what banner it holds, site selection capability is the most important core competitiveness of Hema and others. No matter how cheap Australian lobster is, it won't sell as much in the urban-rural fringe outside the Fifth Ring Road as in the internet celebrity stores in the city. At present, the prime commercial locations in China's first- and second-tier cities are basically monopolized by traditional commercial real estate. Large shopping malls have become the largest retail traffic entry points in Chinese cities. The internet can subvert traditional models and traditional brands, but it cannot subvert location. Internet giants that are used to being online traffic entrances become personal webmasters of the PC era when they go offline. And once location selection becomes the biggest variable in new retail, what is the difference from traditional retail? One against a hundred From high-end seafood and popular dine-in, to the current front warehouses and vegetable markets, Hema has always been at the forefront of trends, the difference is that it has changed from a trend maker to a trend chaser. According to Hema Fresh's past positioning, the population it covers is relatively limited. To face second- and third-tier markets, suburban markets in first-tier cities, etc., it is impossible to have a one-size-fits-all store model. Facing the competition from Meituan and Ele.me in the vegetable market field, and the diversion from new formats such as Miss Fresh, Dingdong Maicai, and Yipin Fresh, Hema is also "one against a hundred." Behind the shift in new retail trends is always the demand for "how to gather traffic." After supermarkets and department stores, the vegetable market format has clearly become a new traffic capture point. Relevant data shows that China's fresh food transaction scale has grown year by year, with traditional farmers' markets still being the main channel for residents to buy fresh food, accounting for about 73%, while supermarkets account for only 22%, making it the second largest channel. Around the vegetable market format, there are already internet giant-led Ele.me Maicai and Meituan Maicai, as well as vegetable market agents such as Cai Laobao and Tao Cai Mao. The "fresh and cheap" impression that vegetable markets have always left has also become a weapon for fresh food operators to gather traffic. Miss Fresh also recently launched the "Youxian Caichang" interface, using the cheap selling point of vegetable markets to offer vegetables priced at 0.99 yuan to attract traffic. However, the vegetable market model also has many operational difficulties. The traditional vegetable market model mainly focuses on selling loose vegetables. Compared with packaged and weighed vegetables and fruits, the most prominent problem is high loss and relatively high cost. If this loss cost is added to the vegetable price, it will lead to higher pricing and limited appeal to consumers. For fresh food categories, it is very difficult to seek a balance between cost and profit, so everyone is looking for value-added after fresh food traffic diversion, but currently it is still in the exploration stage, and there is no good solution. Hema Related Links 1. Hema Fresh It is a new retail format that Alibaba has completely reconstructed for offline supermarkets. Hema is a supermarket, a restaurant, and a vegetable market, but such descriptions seem inaccurate. Consumers can buy in-store or place orders on the Hema App. One of Hema's biggest features is fast delivery: within 3 kilometers of the store, delivery within 30 minutes. On July 14, 2017, Alibaba Group Chairman Jack Ma and CEO Zhang Yong and others tasted freshly baked seafood at Hema Fresh. "Hema Fresh" had been quietly prepared for more than two years within Alibaba. With Alibaba Group Chairman Jack Ma's visit to the store, this little-known "biological son" of Alibaba was pushed into the spotlight and officially became a new member of Alibaba's "zoo" after Tmall, Cainiao, and Ant Financial. 2. Major Events On November 19, 2018, the Shanghai Jing'an District Market Supervision Administration filed a case against Hema Fresh for the "label swapping" incident, and 73 boxes of carrots in stock were immediately removed from shelves and sealed. On December 11, 2018, the State Administration for Market Regulation issued the latest food sampling notice, saying that in the organized sampling of 1,781 batches of 11 categories of food including pastries, potatoes and puffed foods, aquatic products, grain processing products, dairy products, and edible agricultural products, 11 batches were unqualified. Among them, crucian carp sold by Guangzhou Hema Fresh was found to contain antibacterial drugs. On May 31, 2019, the store at Kunshan Wuyue Plaza in Suzhou, Jiangsu, will close on May 31. 3. Service Targets Hou Yi said that Hema will mainly serve three types of people in the future. First, family users who are at home most of the time in the evening. Second, targeted convenience stores or light meals based on office scenarios. Third, users who go to supermarkets on weekends with their children to go out for a walk. 4. Logistics System The biggest difference from traditional retail is that Hema uses big data, mobile internet, intelligent IoT, automation, and other technologies and advanced equipment to achieve optimal matching between people, goods, and places. From supply chain, warehousing to distribution, Hema has its own complete logistics system. However, this model also brings huge costs to Hema's initial investment. Public reports show that Hou Yi once revealed that the single-store opening cost of Hema Fresh ranges from tens of millions of yuan. The ability to achieve 30-minute delivery lies in the core capability driven by algorithms. According to store staff, the metal chain mesh rope hanging in the store is part of Hema's full-chain digital system. From product arrival, shelving, picking, packing, to delivery tasks, operators use smart devices to identify and operate, which is simple and efficient, and the error rate is extremely low. The entire system is divided into front-end and back-end. Users place orders, and within 10 minutes, picking and packing are completed, and within 20 minutes, delivery within 3 kilometers is achieved, realizing the integration of store and warehouse. Due to rapid store expansion, management and human resources have failed to keep pace with the pace of store openings, and the Hema team received the 'Rotten Strawberry Award' at Alibaba's Organizational Department conference last year, which also indicated Alibaba CEO Zhang Yong's dissatisfaction with Hema at this stage. As a sample of new retail, Hema has encountered bottlenecks, reflecting the difficulties of the entire industry. Source: Modern Logistics News If the tip is adopted, a payment of 400-2000 yuan will be made. China FMCG + Internet Professional New Media Committed to FMCG manufacturers' transformation and upgrading and channel digital solutions