On March 17, rumors emerged that Freshippo would be sold to COFCO Corporation. Although the rumors were denied, the next day, Hou Yi, who had served as CEO for nine years, retired, and CFO Yan Xiaolei took over. In recent years, Freshippo has faced a series of challenges and controversies—declining membership benefits, packaging bag incidents, IPO suspension, and Hou Yi's retirement. Recently, reports suggest Freshippo plans to restart its membership system and pause its discount strategy.

Looking Back at the Development Path

2015-2016 were two years of rapid development for China's internet industry, with new retail at the forefront. Founded in 2016, Freshippo quickly became an industry leader and a pioneer of new retail, thanks to its innovative business model and novel user experience.

  • In January 2016, Freshippo opened its first store in Shanghai's Jinqiao Plaza.
  • In August 2018, Freshippo announced the creation of a "new zero-supply" relationship with 500 agricultural product bases and brand suppliers.
  • In October 2020, the first Freshippo X Membership Store opened in Pudong, Shanghai, adopting a warehouse-style membership model.
  • In July 2021, it launched the affordable "Freshippo Neighborhood" (Hema Lili) service.
  • In July 2022, two supply chain operation centers in Wuhan and Chengdu were fully operational.
  • On November 15, 2022, Freshippo's self-built supply chain center in Hangzhou officially went into production.
  • On October 13, 2023, Freshippo implemented a comprehensive discount reform.

At its inception, Freshippo improved the integration of people, goods, and places, combining online and offline operations. This allowed offline customers to see the freshness of products firsthand, while online customers felt more confident in their purchases.

People: Initially, Freshippo's target customers were mostly young people visiting after work for dinner, families with children seeking quality products, and others who led fast-paced lives, had strong purchasing power, low price sensitivity, pursued quality of life, were open to new things, and accepted online shopping. The combination of "dining + retail + delivery" attracted significant foot traffic in the early days. "People" referred to the traffic mutually guided between online and offline.

Goods: In addition to global direct sourcing, Freshippo combined direct sourcing from production areas and local sourcing for domestic products. This changed the passive situation of middlemen squeezing prices, shifting to cooperation with producers. Freshippo did not charge entry fees or promotional fees, and producers transported fresh products directly to Freshippo's city warehouses, solving issues of quality and price. In August 2018, Freshippo held its first "New Zero-Supply Relationship Conference" and announced the establishment of a "new zero-supply" relationship with 500 agricultural product bases and brand suppliers. Retailers and suppliers each played their roles: retailers focused on channel construction, customer experience, and service, while suppliers focused on product R&D and production. Freshippo also explored private labels from the start, launching its own brand of Wuchang rice at the opening. By 2022, Freshippo's private label sales accounted for 35% of total sales, compared to Sam's Club, which had been in China for 28 years, with private label penetration of 25-30%. This demonstrates Freshippo's rapid development in private labels and indirectly indicates its foundation as a manufacturing retailer.

Place: Freshippo's offline stores serve not only as retail outlets but also as warehouses: they are physical stores and carriers for online warehouse operations. Orders placed online are fulfilled directly from the stores, reducing warehousing costs and increasing throughput to lower the maintenance and management costs of fresh products. In stores, Freshippo pioneered a hanging chain system. When users place orders on the app, the system automatically locates products, assigns them to nearby pickers, and calculates the optimal route. This reduces time spent searching for products and greatly improves logistics efficiency. This intelligent and automated picking method is now used by many large supermarkets in China. It can be said that Freshippo's explorations have covered various aspects of the retail industry. Freshippo promises 30-minute delivery within 3 kilometers for online orders. Behind this 30-minute promise is the efficient collaborative operation of Freshippo's digitalization and automation.

From New Retail to Discounting

Freshippo "On the Road"

With intense competition and saturation in first- and second-tier city markets, Freshippo began targeting lower-tier markets in 2019 with three formats: Freshippo Mini, Freshippo Neighborhood, and Freshippo Outlets.

Freshippo Mini is a smaller version of Freshippo Fresh. Its investment cost is about one-tenth of a large store, with streamlined SKUs, mostly bulk items, a higher proportion of seafood, and more affordable prices. Locations are typically in suburbs, towns, and county cities, targeting lower-tier markets. Its main role is to connect large stores and radiate market coverage. Former CEO Hou Yi set a goal of opening 100 Freshippo Mini stores in a year, but to date, there are only about 20 nationwide. "Because we didn't open franchising, execution was difficult, investment was high, and expansion was really slow," Hou Yi later reflected.

Freshippo Neighborhood is a service model similar to community group buying—pre-sale + self-pickup + next-day delivery. Freshippo Neighborhood expanded rapidly, opening over 400 stores in just three months, covering 10 cities nationwide. Freshippo Neighborhood was born during the pandemic, riding the wave of community group buying. However, unlike community group buying, its costs were high, requiring two to three full-time employees, independent stores, cold storage warehouses, and other standard facilities. Within less than two years, Freshippo Neighborhood sharply contracted and closed stores, and now operates as a self-pickup service for Freshippo Outlets.

Freshippo Outlets became the hope for lower-tier market expansion after the setbacks of Freshippo Mini and Freshippo Neighborhood. Initially, Freshippo Outlets served as a channel to clear near-expiry and excess inventory from Freshippo Fresh and X Membership Stores. But now, besides fresh produce like vegetables, fruits, and meat, it mainly sells various private-label products labeled "Freshippo NB." Currently, along with Freshippo Fresh and Freshippo X Membership, it is one of Freshippo's "three carriages," achieving year-on-year growth of 555%, 25%, and 247% respectively in 2022. By the end of October last year, Freshippo Outlets had opened over 60 stores in Shanghai alone within just two years, an astonishing pace. Perhaps the "10,000-store" ambition of bulk snack stores further strengthened Freshippo's determination to transform into a discount retailer.

On October 13, 2023, Freshippo announced its biggest discount reform in eight years, with over 5,000 products in offline stores seeing price reductions. In addition to lowering prices, it also streamlined the original 5,000+ SKUs to 2,000-3,000. At the New Zero-Supply Conference, Hou Yi said: "Discount transformation has become a trend and is an inevitable path for Chinese retail." In 2024, Freshippo will accelerate its offline store expansion, and with further improvements in price competitiveness, the expansion of Freshippo Outlets will also accelerate. "The model has been proven. With over 2,800 county-level cities and about 290 prefecture-level cities in China, opening 10,000 Freshippo NB Outlet stores is not a dream; it will definitely be realized," Hou Yi believed. He expected Freshippo Outlets to expand at a rate of 1,000-2,000 stores per year nationwide. However, this aggressive inventory clearance and discounting inevitably led to conflicts between retailers and suppliers. Wang Xiaolu's chicken feet series could not be sold at the company's standard price in Freshippo, so it stopped cooperating with the Freshippo system. Within less than two months, Wang Xiaolu and Freshippo reached a strategic cooperation for 2024. However, it is an indisputable fact that many brands were forced to leave.

Retail Industry Transformation

Freshippo's discount attempt is a microcosm of the current transformation in Chinese retail. In January this year, Walmart China announced that 29 stores nationwide had completed upgrades. Focusing on customers, it streamlined 50% of SKUs and reduced ineffective promotions; improved product cost-performance, lowering prices on daily necessities and quality items; and increased product differentiation. The stores added discount zones with items priced at 1.99 yuan, 9.9 yuan, and 19.9 yuan, offering multiple discounted products. For example, "one-cut cold fresh pork" at no more than 9.9 yuan per jin, and 19.9 yuan shampoo and body wash. Walmart officially defines this as "leapfrog" cost-performance, meaning you can enjoy quality goods at low prices that exceed your price expectations. Similarly, RT-Mart has adopted a "multi-format" layout, building a diversified system including "RT-Mart Super," "Little RT-Mart," and "M Membership Store," and through "product category upgrades" and "shopping scene upgrades," it meets users' needs for "shopping" and the enjoyment of "browsing." On the other hand, RT-Mart uses an omni-channel strategy, focusing not only on offline scenes but also on online channels, offering "discounts" and "delivery" services to attract online orders. In January 2024, RT-Mart opened 12 new stores in 10 cities including Shanghai and Nanjing. Additionally, RT-Mart plans to upgrade stores older than 10 years into M Membership Stores. In the past two years, RT-Mart has focused on expanding membership stores, opening M Membership Stores in Changzhou, Yangzhou, Nanjing, and other places. Looking at the market situation over the past two years, many supermarket retailers have started discount transformations, but most are exploring multi-format strategies based on their existing business foundations. Few have announced a full-line discount strategy like Freshippo. Regardless, the starting point is to find new ways out in this "wave." It is not hard to see that in the current difficult market environment, discounting seems to have become a "lifeline" that many retailers believe they can grasp. However, recently, Freshippo posted a public consultation on its app about resuming membership and upgrading benefits, indicating plans to restart the membership system, which indirectly suggests it intends to pause the discount strategy. Many industry insiders believe that restarting the membership system less than two months after Hou Yi's departure is a correction of the aggressive discount measures. Perhaps how to truly highlight "premium but not expensive" and maintain its "quality" image in consumers' minds is the ongoing challenge Freshippo should address. How Freshippo's "discount move" will play out remains to be seen; we will wait and see.