---
title: "Hema Exits Fuzhou: Strategic Retreat or Incompetence?"
description: "Perhaps the most competitive retail-to-home market in China is not in Beijing, Shanghai, Guangzhou, Shenzhen, or Hangzhou, but in Fuzhou. On May 6, news of Hema's temporary exit from the Fuzhou market stirred many nerves. Once upon a time, Hema's decision to open stores in Fuzhou was seen as a direct assault on Yonghui's stronghold, aiming to break through the defense line Yonghui had built in Fujian. Now, its defeat in Fuzhou is quite lamentable. The former triumphant march has become the beginning of cleaning up the mess."
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published: "2020-05-07"
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# Hema Exits Fuzhou: Strategic Retreat or Incompetence?

> Perhaps the most competitive retail-to-home market in China is not in Beijing, Shanghai, Guangzhou, Shenzhen, or Hangzhou, but in Fuzhou. On May 6, news of Hema's temporary exit from the Fuzhou market stirred many nerves. Once upon a time, Hema's decision to open stores in Fuzhou was seen as a direct assault on Yonghui's stronghold, aiming to break through the defense line Yonghui had built in Fujian. Now, its defeat in Fuzhou is quite lamentable. The former triumphant march has become the beginning of cleaning up the mess.

**Perhaps the most competitive retail-to-home market in China is not in Beijing, Shanghai, Guangzhou, Shenzhen, or Hangzhou, but in Fuzhou.**
On May 6, news of Hema's temporary exit from the Fuzhou market stirred many nerves. Once upon a time, Hema's decision to open stores in Fuzhou was seen as a direct assault on Yonghui's stronghold, aiming to break through the defense line Yonghui had built in Fujian. Now, its defeat in Fuzhou is quite lamentable. The former triumphant march has become the beginning of cleaning up the mess.
On May 5, Hema Fresh issued the "Fuzhou Hema Notice to Users" stating that it would adjust its business strategy in the Fuzhou area, and starting from May 7, it would suspend operations at the Fuzhou Hema Bona Plaza store and the Chatting International store. Counting the Fuxin store, which closed in March this year, all three Hema Fresh stores in Fuzhou have now closed.
On May 6, Hema Fresh's public relations department explained to the media that while Hema is rapidly opening stores, it is also building a fresh food supply chain system centered around Beijing, Shanghai, Wuhan, Xi'an, Chengdu, and Shenzhen, pursuing high-quality development and maintaining a healthy physique. "Fuzhou Hema is too far from the supply chain nodes, and for now cannot achieve product advantages. We are strategically exiting and will return once improvements are made."

**-01-**
**Fuzhou Lost Over 40 Million in Half a Year**
Despite early signs, Hema's exit still came as a surprise to some.
In March this year, when closing the Fuxin store, Hema Fresh had publicly stated that it had three new stores in Fuzhou in the signed and decoration stages, and that it would strive to open six new stores in 2020. That wish has clearly not been fulfilled.
Entering Fuzhou had cost Hema considerable financial and human resources.
Fuzhou Hema (Xinhe Technology) was originally a joint venture between New Huadu and Alibaba in 2017. Due to heavy losses, partner New Huadu wanted out and transferred its equity twice. Alibaba spent a total of 100 million yuan to buy back 50% of New Huadu's equity in two installments, achieving controlling interest and self-operation.
Behind New Huadu's exit was the difficulty of profitability under Hema Fresh's heavy operation model. In fact, since opening, Fuzhou Hema has been loss-making for two consecutive years. In 2018, Xinhe Technology achieved revenue of 140 million yuan and a net loss of 58.8339 million yuan; in the first half of 2019, Xinhe Technology achieved revenue of 112 million yuan and a net loss of 40.4443 million yuan.
In addition, Hema's leadership changes in Fuzhou were also frequent. The first person in charge of Fuzhou, Li Xichun, was formerly CEO of Bubugao Yunhou.com and is now General Manager of Alibaba Tmall Supermarket Strategic Cooperation. The second regional head, Chen Dongqing, was a capable aide to Hou Yi and head of Hema's Beijing region, and is now CEO of Yipin Fresh. The current Fuzhou regional head, She Xianping, was formerly Hema's Guangzhou regional procurement director.

**-02-**
**After Two Years of Fierce Battle, They Returned in Defeat**
After partner New Huadu left, now Hema Fresh itself is also exiting.
As an important "new retail" project for Alibaba, if it could preserve the revolutionary spark in Fuzhou, keeping a few stores would not hurt, as Hema has the strength for strategic losses. If it withdraws from the city, it shows that Hema is not willing to continue the fight.
But this is not surprising. Where there are openings, there are closings. Without hope of profitability, there is no need to keep stores open. If they can put aside face and close loss-making stores, it is actually quite commendable and encouraging. As Hou Yi said earlier, "Hema is running at breakneck speed, and there will definitely be cases of overexpansion. When that happens, we adjust." Hema has revealed that this year it will open 100 large stores and 100 small stores, and the "Double Hundred Plan" will serve more consumers.
Since opening its first store in Shanghai in January 2016, as of March this year, Hema Fresh has opened 220 stores nationwide. Why is it that it cannot crack the Fuzhou market?
Public data shows that Fujian has a rich retail landscape, and Yonghui Superstores, which ranks first in revenue among A-share supermarket companies, originated in Fuzhou. According to the "2018 Fujian Province Chain Industry Top 50" released by the Fujian Chain Operation Association, New Huadu ranks first in the comprehensive retail format. In addition, in segmented formats, Zhongmin Baihui, Wanjia, Yuansu Food, and Guan Supermarket all have advantages.
The reasons Hema wants to abandon Fuzhou are, on the one hand, fierce competition in the Fuzhou market, and on the other hand, the heavy operation model of Hema's large stores.
Despite bringing in New Huadu as a helper, Hema Fresh's supply chain is still difficult to strengthen.
The large front-warehouse model represented by Hema allows consumers to shop in-store and also have goods delivered home. The design of covering a three-kilometer radius for delivery creates a rigid delivery cost of 8-10 yuan. Therefore, Hema's mid-to-high-end boutique positioning is easily robbed of customer traffic by low-average-order models like Yonghui Home and Pupu.
The competition was doomed from the start. At its opening, Hema suffered its first setback due to supply chain issues.
In February 2018, when Hema opened in Fuzhou, Yonghui launched an exclusive clause against suppliers, forcing them to choose one or the other. That is, if suppliers supplied Yonghui, they were prohibited from supplying other retailers. This policy directly led to Hema's unfavorable start.
While competitors attacked fiercely, Hema Fresh was unable to improve its supply chain in Fuzhou.
Suppliers revealed that some suppliers pulled their goods from Hema's warehouse overnight, causing a shortage of some fresh products in Hema's Fuzhou area for 1-2 days at the beginning of operations. After that, Hema connected with New Huadu's supplier resources and worked on building its own supplier team, finally solving the product problem.
According to Fuzhou business insiders, after the epidemic, Pupu Supermarket's daily order volume in Fuzhou can reach 160,000-200,000 orders per day, while Yonghui Home's daily order volume in Fuzhou is 50,000-60,000 orders per day, and during the mid-April full-reduction promotion, the all-channel (Yonghui Superstores, mini, Yonghui Life Home) peak could reach 200,000 orders per day. In comparison, Hema Fuzhou has a low presence, with online orders per store only 1,900-2,200 per day.
The last straw was reportedly a set of research figures: Hema insiders told reporters that Pupu's user penetration in Fuzhou reached 70%, and Yonghui Life reached 50%. Alibaba experts judged that in a small market, with two platforms exceeding 50%, it would be difficult for Hema to break through.
Wang Guoping pointed out that Hema Fresh's supply chain capabilities in Fuzhou are suppressed, making it difficult to provide advantageous products to local consumers. Consumers' lack of acceptance further weakens its supply chain bargaining power. "Hema Fresh has fallen into a vicious cycle in Fuzhou. With scale not expanding, Hema Fresh's backend costs are difficult to absorb, and expenses are abnormally high. Exiting the Fuzhou market is a relatively better choice for Hema Fresh for now."

**-03-**
**Will There Be Another 'Fuzhou'?**
Despite choosing to exit Fuzhou, Hema Fresh has not stopped moving forward.
Hema told Times Finance that in the past month, Hema has opened nearly 10 stores in Beijing, Shanghai, Wuhan, Changsha, Hangzhou, and other places. As the challenges of the epidemic gradually ease, the pace of store openings will accelerate.
At the New Year strategy conference in March this year, Hema President Hou Yi revealed that by the end of 2020, Hema will open 100 new Hema Fresh large stores nationwide.
However, due to the large operating area and online delivery, Hema Fresh profitability is not easy. It was not until last September that Hema Fresh announced that "stores older than 12 months have turned positive adjusted EBIT," which was 33 months after its first store opened. Losses for new stores are inevitable. In May 2019, RT-Mart announced that Hainan Hema lost 9.72 million yuan in the three months since opening.
Against the backdrop of profitability difficulties, many new retail formats have also seen store closures and adjustments, including Yonghui Superstores' Super Species, New Huadu's Earth Harbor, Meituan's Xiaoxiang Fresh, and JD's 7Fresh. Hema Fresh also experienced its first store closure in November last year.
As for whether there will be another "Fuzhou," Wang Guoping told reporters that currently, many regions in China do not have a situation where one company dominates like Yonghui in Fuzhou, which leaves room for Hema Fresh to enter local markets. But if Hema cannot break through, suppliers will not keep giving opportunities. "You must achieve scale to have a voice. Without scale, you can be eliminated at any time."
In Wang Guoping's view, China's supply chains are mainly regional. Although Hema Fresh has been trying to build a national supply chain, progress has been slow, preventing it from expanding nationwide.
At the same time, Hema itself is constantly adjusting its formats. In addition to large stores, it has spawned multiple formats, including the shopping center Hema Li, the urban front-warehouse Hema Xiaozhan, the Hema mini mainly opened in suburbs and towns, and the community fresh supermarket Hema Caishi, which focuses on daily meals.
Among them, Hema mini is highly anticipated. After more than four months of operation, Hema mini announced it had achieved profitability. Hou Yi revealed that by the end of 2020, in addition to opening 100 Hema Fresh stores, it will also open 100 Hema mini stores in Shanghai.
Zhao Yue, senior analyst at Analysys e-commerce, pointed out to reporters that due to differences in city and transportation layouts, Hema's large stores have more opportunities in super-first-tier and first-tier cities, but it is difficult to penetrate users in lower-tier cities. "Hema continues to expand large stores because only by gaining sufficient front-end user advantages can the back-end supply chain advantages be highlighted. With the layout of large stores in first-tier cities basically complete, to continue penetrating downward, it will need to rely on community small stores to explore."

Source: Fast Moving Consumer Goods Elite Club (ID: FMCG-CLUB)
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