---
title: "Heavyweight | Hema Fresh Skips the Middleman to Make 50% Private-Label Products—Where Does Its Confidence Come From?"
description: "Recently, Hou Yi, Vice President of Alibaba Group and CEO of Hema Fresh, shared his vision for the future of supplier-retailer relations at Hema's zero-supply conference. His views sparked heated debate in the retail and FMCG sectors, focusing on two points: abolishing all channel fees such as entry fees, promotion fees, and new product fees to explore new zero-supply relations, and launching 50% private-label products. Many industry insiders dismiss this as unrealistic, arguing that the current zero-supply relationship cannot be changed and that canceling fees merely shifts back-end margins to front-end margins. Is this really the case? Can 50% private-label products truly be achieved?"
author: "袁来"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2018-08-11"
language: "en"
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# Heavyweight | Hema Fresh Skips the Middleman to Make 50% Private-Label Products—Where Does Its Confidence Come From?

> Recently, Hou Yi, Vice President of Alibaba Group and CEO of Hema Fresh, shared his vision for the future of supplier-retailer relations at Hema's zero-supply conference. His views sparked heated debate in the retail and FMCG sectors, focusing on two points: abolishing all channel fees such as entry fees, promotion fees, and new product fees to explore new zero-supply relations, and launching 50% private-label products. Many industry insiders dismiss this as unrealistic, arguing that the current zero-supply relationship cannot be changed and that canceling fees merely shifts back-end margins to front-end margins. Is this really the case? Can 50% private-label products truly be achieved?

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Recently, Hou Yi, Vice President of Alibaba Group and CEO of Hema Fresh, delivered his judgment on the future development of Hema Fresh's supplier-retailer relations at Hema's zero-supply conference. Hou Yi's views sparked widespread discussion in the retail and FMCG sectors. The core of the debate centers on two points: first, abolishing all messy channel fees such as entry fees, promotion fees, and new product fees to explore new zero-supply relations; second, launching 50% private-label products.
Many industry insiders scoff at this, believing that changing the current zero-supply relationship is nonsense, and that behind canceling all fees is merely converting back-end margins to front-end margins, with no essential change. Is this really the case? Can 50% private-label products truly be achieved?
**Let's analyze the logic behind it to see if it holds up.**
**1**
**What exactly is the buyer model?**
After describing the drawbacks of traditional zero-supply relations at the conference, Hou Yi said:
"Hema will fully adopt the buyer model. Fresh food has already fully implemented it. Next, we will push the standard products team to fully adopt the buyer model. Of course, it's difficult because current supply channels are very strong, and brands come first. We need to make concessions, but we will change this. We insist on freshness first, and gradually extend the buyer model to standard products. This is the core of today's new zero-supply relations because we adopt a buyout system. Corruption, an unresolved problem haunting the retail industry, I believe we can gradually solve it in our hands."
Before explaining, let's first popularize the concept of the 'buyer model': Buyers originated in Europe in the 1960s. The origin was that most design school students were not hired as designers, so they went to department stores to sell their skills, saying, 'Let me help you buy goods.' These people, as assistants to designers, helped bridge design and market, gradually extending into the buyer trend.
So the buyer model differs from the traditional purchasing agent function in chain retail. A purchasing agent's task is generally to purchase according to an existing procurement plan, belonging to a purely execution level. The core issues a purchasing agent focuses on are only product quality, brand, price, delivery, date, logistics, etc. Moreover, purchasing agents often buy in large quantities for direct sales.
In addition to the above work, a buyer's focus is on researching the market, consumers, and even surrounding business districts. After understanding consumer needs, they analyze and judge, determine product production, R&D, design, pricing, and later enterprise operations, customize products around consumer needs, and set product sell-through plans.
Strictly speaking, the buyer logic subverts the past procurement and sales logic. The only assessment standard for a buyer is consumer acceptance of the product. The buyer is responsible for the entire sales process of the product. If goods don't sell, it's not the supplier's problem, nor the manufacturer's responsibility; the only one assessed is the buyer.
**2**
**Because of the buyer model, there is confidence to cancel channel fees**
In the past, retailers and suppliers had a game-playing relationship. Because of the game, contradictions, and the long chain from headquarters to local levels, to reconcile contradictions and promote product sales, corruption easily bred. Over time, 'unexplainable' official agreements on entry fees, promotion fees, new product fees, etc., emerged.
The buyer model logic integrates procurement and sales, with responsibility on the buyer. Therefore, control of the product is completely in the retailer's hands, which of course also means bearing greater sales risk.
Of course, the benefits are also obvious. The buyer model can make the past complex zero-supply relations simpler and purer. With relations becoming singular, the efficiency of the buyer model can also be well resolved. Upstream suppliers focus on making good products, returning to 'manufacturing', developing and innovating products; buyers focus on product selection based on consumer consumption characteristics. A simple zero-supply relationship improves efficiency and reduces time and effort lost in the middle due to games and contradictions.
In fact, in China, the buyer model was also applied early in the apparel industry, but the key for apparel buyers is grasping fashion trends, more inclined to selecting clothing styles. Buyers for FMCG and fresh food are more inclined to the entire process from raw materials to products.
Changing traditional zero-supply relations is indeed quite difficult because there is no reference path. Successful foreign experiences cannot be fully copied to China, but it is undeniable that the logic is correct.
**3**
**Where does the confidence for 50% private-label products come from?**
For 50% private-label products, the fresh food category is easy to establish because there was no brand formation in the past; as long as quality control is done well, it works. But can it hold for standard products with high brand concentration?
First, understand the purpose of upstream manufacturers creating brands: First, premium pricing to improve corporate profitability; second, brand symbols solve consumer trust mechanisms. Seeing the name and symbol, consumers can confirm the product is trustworthy, guaranteed, and choosing this product won't be a mistake.
There are two purposes, but the core point is establishing a trust mechanism. The trust endorsement built by the brand reduces consumer doubts about the product. At the same time, as the total consumer base expands, profitability naturally follows.
Hema's logic for establishing private-label products is: 'You no longer need to build a brand to gain consumer trust. Hema is the brand. As long as consumers buy something at Hema, they can be assured it's good.' Channel-controlled products transfer trust from the brand to the channel (Hema).
**This is just one point. Besides this, who will play along with you?**
So we can see Alibaba's strategic cooperation and investment in upstream suppliers. For example, on December 21, 2017, Alibaba-affiliated funds invested in New Zealand's supplier New Hopes. Additionally, at the zero-supply conference, Hou Yi also said, 'We already have global procurement capabilities, and global suppliers have established strategic cooperation with us...'
Of course, it's not enough to have only upstream partners. If it's just Hema's 64 stores (as of now), or hundreds of stores in the future, it's hard to support comprehensive operating costs. But don't forget the Alibaba-affiliated retail landscape behind it: RT-Mart, Tmall Xiaodian, Feinio Convenience, Lianhua Supermarket, Suning...
Strictly speaking, Hema is just the vanguard and experimental field. When private-label products are validated and succeed at Hema, replicating Alibaba's retail landscape can solve cost issues through economies of scale.
Obviously, if this logic holds, it will undoubtedly have a profound impact on future brand owners: First, the brand name itself becomes less important; second, the past belief in 'channel is king' becomes less important; third, higher demands are placed on brand owners' product R&D and innovation capabilities.
In summary, under the wave of consumption upgrade, consumers' ability and willingness for quality consumption are increasingly prominent, providing rich soil for Hema's 50% private-label strategy. Alibaba strategically cooperates with upstream suppliers through acquisitions or investments, providing basic guarantees for product quality. The buyer model provides a supervision process for product implementation, making zero-supply relations singular. Finally, Hema as a channel brand provides trust endorsement for consumer purchase decisions.
The future has arrived. Although the road is bumpy, there is no doubt the direction is correct. What Hema needs is just time!
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