If last year's keyword for traditional supermarkets was 'adjustment and reform,' then for new retail supermarket Hema, it was definitely 'profitability.' Compared to the 'borrowed' approach of adjustment, Hema's innovation is undoubtedly worth learning from for many traditional retailers. In March last year, Hema changed its leadership, with new CEO Yan Xiaolei taking office. On December 31 of the same year, Yan Xiaolei sent an internal letter to all staff stating that over the past year, Hema achieved double-digit growth on the basis of nine consecutive months of overall profitability, with customer numbers growing by over 50%. The letter also clearly indicated Hema's future development direction—focusing on Hema Freshippo and Hema NB, with the former replicating the successful model and the latter refining the advanced model.
Hema Goes Downmarket with a 'New Business Format'
The downmarket has always been a challenge Hema has strived to overcome, having launched various business formats over time, all ending in failure. As its main business format, Hema Freshippo opened stores aggressively last year, opening 72 Freshippo stores at a pace of one new store every five days, bringing the total to nearly 430. This is reportedly the fastest store-opening pace for Hema in the past five years. Most of the newly opened Freshippo stores are focused on second- and third-tier cities, becoming the 'pioneers' of Hema's downmarket expansion. Take Weifang, Shandong, for example. On December 28 last year, Hema Freshippo's first store in Weifang officially opened. Located in the Weifang Xinchen Tiandi store, it covers an operating area of about 4,000 square meters. On the opening day, the store was bustling with people, with crowds so dense that it was 'a small stop every three steps, a big pause every five.' The private-label peanut oil became a bestseller, restocked four times within the first hour of opening. It is understood that starting from December 6, Hema's Weifang store opened online 3-kilometer delivery services on its app, covering over 200 surrounding residential communities and more than 500,000 residents, with delivery in as fast as 30 minutes after ordering. Besides Weifang, similar bustling scenes were seen in many Hema Freshippo stores in lower-tier cities. Last year, Hema expanded to places like Tongxiang in Jiaxing, Dongying in Shandong, Weinan in Shaanxi, and Zhangjiagang in Jiangsu, all achieving good results. The downmarket expansion of 'Freshippo' is undoubtedly a dimensionality reduction strike against local chain systems. A local distributor in Weifang who deals in 3R categories told the author: 'The opening of Hema has had a huge impact on local systems like Weibai and Jialejia, especially in the 3R category. The instant bakery category in surrounding stores had its worst sales in recent years during the first half month after the opening.' As a strong category for Hema, the 3R category has even spawned related daigou (proxy purchasing) businesses in some regions. Again taking Weifang as an example, a group of daigou agents were once active locally, traveling daily to other regions to purchase popular items from Hema, Sam's Club, and others, such as Swiss rolls, strawberry cakes, and prepared dishes, for resale at a markup. With Hema's opening in Weifang, part of the local daigou business quickly shrank, while some shifted to other chain systems. In addition, Hema Freshippo has extended its store openings to lower-tier cities in the East China market, such as Taixing, Suzhou, Zhenjiang, Gaoyou, and Jurong. None of these cities have Hema stores yet, and they are the new downmarket regions Hema plans to expand into in 2025. Hema has also publicly stated that it will open a hundred Freshippo stores in dozens of emerging cities this year.
Lessons from Hema Línlǐ, Upgrades for Hema NB
The history of Hema NB can be traced back to 2021, with its predecessors being Hema Línlǐ (Neighbor Business) and Hema Outlets. To expand into the downmarket, Hema launched the community group-buying model of Hema Línlǐ at that time, shouldering the responsibility of Hema's expansion in lower-tier markets. However, due to persistently high operating costs, Hema Línlǐ was eventually forced to retreat to Shanghai, becoming a pickup point for Hema Outlets. Hema Outlets initially served as a channel for Hema Freshippo and X Membership stores to clear soon-to-expire and excess inventory, but gradually added fresh produce such as vegetables, fruits, and meat, as well as 'Hema NB' private-label products. Among the many business formats Hema has explored, NB is its closest answer to the downmarket. Hema's former CEO Hou Yi once publicly stated: 'The NB model has proven viable. Opening 10,000 Hema NB stores across China's 2,800-plus county-level cities and around 290 prefecture-level cities is not a dream; it will definitely be realized.' Currently, Hema NB has over 232 stores. The core of the NB store is the '1+N+N' model—that is, one discount supermarket (outlet) drives N pickup stores (NB) and N storeless community points. Compared to previous Hema store formats, NB stores are a true hard discount format:
Store SKUs are around 1,200, with 1-3 brands selected per category, focusing on high-frequency, essential items;
Private-label NB accounts for up to 35% of the store's products, with some items priced 30% lower than Freshippo, such as Swiss rolls;
Low prices: the same products are priced at about half of supermarket prices. In terms of market competition, the emergence of the NB format, while creating differentiated competition with former rival Sam's Club, will still face competition from community retail rivals such as Aldi and discount stores as it continues to expand and go downmarket in East China. On March 28, the first Hema NB store in Wuxi opened, causing quite a stir. Wuxi, as one of the only two cities where Aldi has expanded outside Shanghai, will also officially open its store on the 19th of this month. With NB's expansion, Aldi's move out of Shanghai, and the rise of discount supermarkets, the community chain format may also usher in a new round of competition this year. Although NB has a clear price advantage, there are still some quality issues. NB and Freshippo do not share the same supply chain, so many consumers have complained about the quality control at NB stores. With Freshippo setting a high standard, NB stores should also put serious effort into the quality of non-standard products. If Hema adheres to the business philosophy of 'first have, then optimize,' it is believed that Hema will continue to refine the NB growth curve in the future. But if it remains as before, merely aiming to cover more people, history has already shown the outcome for NB.
Membership Stores Shrink, Front Warehouses Restart
Hema Challenges the 100-Billion Target
In addition to increasing investment in 'Freshippo' and 'NB,' Hema is also accelerating the contraction of its former 'business format jungle.' Last month, Hema X Membership Store announced on its WeChat official account that due to business adjustments, the Shanghai Hema X Membership stores at Gaoqing, Dachang, and Donghongqiao would suspend operations starting April 1. After these closures, only two Hema X Membership stores will remain in Shanghai, with one each in Beijing, Nanjing, and Suzhou. Hema X Membership stores mainly benchmark against warehouse membership stores like Sam's Club and Costco, and previously engaged in a price war with Sam's Club through its 'Move Mountain Price' campaign. The closures have been interpreted by many external media as Hema no longer benchmarking against Sam's Club. In the author's view, Hema's biggest problem in its operations is that it is too eager to find competitors while forgetting to find itself. Over the years, Hema has launched more than a dozen models based on convenience stores, shopping malls, community group buying, etc., including Hema F2, Hema MINI, Hema Li, Hema Xiaozhan, Hema Jishi, and Hema Pick'n Go, all of which ended in poor performance. How to survive with quality should be the primary consideration for retail enterprises. But through this proactive closure of X membership stores, Hema has undoubtedly shown everyone a more sober side. Subtracting in business formats, Hema is adding back in online channels. Looking back at last year, Sam's Club China's sales exceeded 100 billion yuan, with online sales accounting for as much as 48%, clearly indicating that online revenue has become an unavoidable topic for major retail brands today. Therefore, this year Hema has also launched the '1 store + N warehouses' model in Tianjin, Tangshan, Shijiazhuang, and other places, restarting front warehouses (i.e., one Hema Freshippo store plus multiple front warehouses). As early as four years ago, Hema had tested the front warehouse model, setting up over 70 Hema Xiaozhan, which were later transformed into community supermarkets called Hema mini. However, the front warehouse model did not last long and was quickly abandoned. This time, Hema's new model appears similar to Sam's Club's front warehouse, but there are differences. Sam's Club uses a bestseller logic for its front warehouses, focusing on star products + quality fresh produce + selected standard products (food and non-food). Hema, on the other hand, uses a scenario logic, focusing on the cooking scenario for three meals a day plus the ready-to-eat scenario, providing full-temperature (hot, ambient, chilled, and frozen) ingredients and ready-to-eat products. In addition to opening front warehouses at Freshippo stores, NB stores in Hangzhou are also recruiting in-store delivery personnel. Hard discount formats like Hema NB typically have gross margins of around 15%, but whether such low gross margins can cover the cost of instant delivery remains a big question mark. However, as Hema's store count continues to increase, its economies of scale will gradually become apparent. As for the '100 billion in three years' target proposed by Yan Xiaolei, Hema still needs to take solid steps one by one.