Click to read the original article for details. The future of Hema is hard to define. One of Jack Ma's most quoted sayings is: "Many people fail because they don't see new things coming, then they look down on them, then they don't understand them, and finally they miss the opportunity." After the birth of Alibaba's new venture, Hema Fresh, the industry still has various "don't understand" reactions. But onlookers, worried about "missing the opportunity," have been imitating it and speculating about Hema's operations based on their own business data: Is Hema a success or a failure? 01 Unusual Numbers Since opening its first store in January 2016, Hema has expanded to 64 stores across 14 cities in China, serving about 10 million consumers. Hou Yi, Vice President of Alibaba Group and CEO of Hema, disclosed at Alibaba's investor conference yesterday that as of July 2018, the seven mature Hema stores operating for more than 1.5 years had an average daily sales per store exceeding 800,000 yuan; with an average operating area of 4,000 square meters, the sales per square meter exceeded 50,000 yuan, more than three times that of similar hypermarkets; online sales accounted for over 60%; pure online member spending was slightly higher than pure offline members; members who shopped both online and offline spent an average of 575 yuan per month. These numbers lead the entire industry by a wide margin. The seven stores operating for more than 1.5 years are among the first batch, having gone through varying periods of adjustment and trial and error. As the model matures, the time for new Hema stores to achieve profitability has significantly shortened; the store opened in Guangzhou achieved profitability in its first month. With plans to increase to 100 stores by the end of the year, Hema is entering a period of comprehensive scale profitability. How did Hema achieve such impressive numbers? On the surface, the new retail represented by Hema seems to be just a combination of online and offline. In reality, it is a complex system integrating front-end and back-end, from supply chain to consumers, all intricately connected with big data. Shouldering the responsibility of transforming traditional retail, Hema's top-level design from its inception was well thought out: "The restaurant business is good; can this business model be applied to stores? Can we sell fresh produce better than supermarkets and hypermarkets? Even better than wet markets? These were the questions Hema considered on day one to determine if it could be number one." To be number one, Hema needed to offer a user experience superior to traditional retail. Traditional retail provides general, indiscriminate service where consumers passively accept products; in contrast, on-demand precision services driven by big data are considered more capable of delivering an ultimate user experience. Based on this, Hema's new retail is built on a data foundation: by using data to understand consumer demand, it reversely drives precise supply and circulation efficiency in procurement, central kitchens, processing centers, and delivery, ultimately achieving the smart logistics experience of free delivery within 30 minutes in a 3-kilometer radius. This is an operating system that subverts traditional retail. Hou Yi revealed that the system's operational efficiency was benchmarked against the highest global retail standards from the outset. This gives Hema the confidence to offer consumers higher cost-performance and more cutting-edge products. An industry insider who has observed Hema over time found that its product structure is constantly optimized dynamically, with new products being launched faster than competitors. This is also why the Hema APP, which syncs with offline stores, has stronger user stickiness. Some consumers say they check the Hema APP almost every day because there are always surprises: "How does Hema have such good things?!" Offline consumers who visit the stores often make impulsive purchases because the fresh produce SKU selection is richer than in hypermarkets, resulting in higher average transaction values offline than online. A noteworthy detail is that Hema's digitalization has also reduced spoilage. Fresh supermarkets always face the curse of high spoilage rates, which can be as high as 30%, significantly dragging down profit margins. With big data analysis, Hema stores supply on demand, effectively reducing the accumulation of fresh products. Even if there is occasional overstock, they can quickly push a discount message to customers identified as interested based on backend big data, often resolving the issue within minutes. Details determine success or failure. Over more than two years, under a sound top-level design, every detail of Hema differs from traditional retail, ultimately winning over consumers and making it a successful model of new retail. 02 Enabler "If something is good for business and no one else is doing it, then I'll do it" has always been Alibaba's style. Several experiences have proven that after each revolutionary exploration in the commercial field, Alibaba has mostly turned it into commercial infrastructure, serving and nourishing the entire business ecosystem. Alipay is one example, Cainiao Network is another, Alibaba Cloud is another, and Hema Fresh is also following this path. Alibaba CEO Daniel Zhang once said at an internal meeting: "No one has done new retail before; Alibaba should try it first. We will take on the trial and error ourselves, and empower partners with successful experiences and products." Hema, having succeeded, is already attempting to export its model. When Alibaba acquired RT-Mart in November last year, its founder Huang Mingduan was seen by the industry as a loser: "He won against all competitors but lost to the times." Now, Huang Mingduan is expressing gratitude for this era—Alibaba has brought infinite possibilities to RT-Mart: "We are working with Alibaba to shape a new retail era." Actions began in March this year. Huang Mingduan originally planned to complete the digital transformation of RT-Mart in two years, "but the stores couldn't wait; every store wanted to join quickly, so we transformed 100 stores in just three months." At this "Alibaba speed," by November, nearly 400 RT-Mart stores nationwide will have completed transformation. From the consumer's perspective, RT-Mart's changes happened almost overnight. The most obvious change is that the fresh produce area has been integrated with Hema's hanging chain system. This means Hema's logistics order-taking capability has been grafted onto RT-Mart, and it provides a traffic entry point through mobile Taobao. Consumers within 3 kilometers of RT-Mart can enjoy one-hour delivery service through the mobile Taobao APP. Not long ago, an investor discussing cooperation with Huang Mingduan was skeptical about RT-Mart's one-hour delivery, so Huang suggested an on-the-spot test: "With a tap on the phone, while we were still talking, the items arrived, still hot." Besides efficient delivery, another obvious change at RT-Mart is the large-scale introduction of Tmall Supermarket's popular products and the addition of smart shopping areas. This effectively compensates for RT-Mart's previous lack of young customers, who are precisely the supporters of new retail. Alibaba's powerful assistance has exceeded Huang Mingduan's expectations: "We originally expected 500 orders (daily online orders) to be enough, but now many stores have reached 2,000 orders." In fact, the first store to complete transformation, Shanghai Zhabei store, has reached a peak daily order volume of 5,000, with overall sales per square meter increasing by 30%. A senior RT-Mart executive with years of experience also marveled: Under the traditional model, whether it's improving efficiency, product differentiation, or supply chain optimization, it's hard to change quickly. "Alibaba's new retail has put traditional supermarkets directly on the fast track." The cooperation between the two goes far beyond this. For example, RT-Mart will also shoulder the responsibility of large-scale replication of Hema Fresh in the three northeastern provinces, Hainan, and other regions. The first Hema store in Haikou is about to officially open. A new format born from their union, targeting fourth- and fifth-tier cities and residential communities—Hema Mini—also recently landed in Suzhou. In the future, the two will also develop an operating model suitable for hypermarkets based on Hema Fresh, making it a model for RT-Mart's new retail. In Huang Mingduan's view, "this has infinite possibilities." "Infinite possibilities" also include the future boundaries of Hema. Currently, Hema is building a traffic axis around user experience. Around this axis, Hema can expand infinitely; hypermarkets, convenience stores, specialty stores, as well as pharmaceutical supermarkets and community services, could all become its new formats. When Hou Yi's goal of 1,000 stores becomes a reality, Hema's service capability will cover approximately 360 million people. By then, Hema will become the one-stop comprehensive service super platform closest to consumers, with a scale that is rare globally. The emergence of the Hema model has also attracted attention from international peers. In response to requests from many global enterprises, Hema has launched a retail system output solution that includes both hardware and software. A few days later, at Alibaba's 2018 Apsara Conference, this solution will be officially released. At this point, Hema has become a veritable new retail infrastructure service provider. 03 Without Change, There Is No Future Since the birth of retail more than 140 years ago, it has experienced three traditional transformations—department stores, chain stores, and super stores—and has flourished. It wasn't until the emergence of e-commerce, coupled with the impact of slowing economic growth, that the global traditional retail industry fell into trouble. But after several years of rapid growth, e-commerce has also seen its ceiling. "Change" has become the only way out for the retail industry. In previous transformations, the three elements of retail—people (consumers), goods (products), and place (scenarios)—have always followed the path of place-goods-people, meaning whatever the mall sells, consumers buy, and they can only passively accept. The result is low efficiency in the circulation of goods across society and poor consumer experience. The development of e-commerce upgraded commercial infrastructure and used big data technology to make a new retail revolution possible—whoever masters data masters consumer demand and thus captures the consumer experience. The new retail revolution led by Hema is precisely through digitalization, reversely driving the three elements to form a more scientific people-goods-place path, where consumer needs determine products, which in turn determine online or offline consumption scenarios, ultimately completing a deep transformation of the supply chain, achieving production on demand, and elevating the consumer experience. This is considered the most thorough transformation of traditional retail and a return to its essence, and it is also the secret behind Hema's explosive popularity. Compared to full-system digitalization, Hema's transformation of suppliers is arguably the most extensive in Chinese commercial history. Due to various constraints, China's retail industry lags behind developed countries by more than 10 years in supply chain, logistics systems, and penetration rates. Suppliers have to go through multiple links to get products close to consumers in terminal stores, which not only takes a long time but also involves exorbitant fees such as entry fees, listing fees, and promotional fees, driving up prices, and manufacturers also bear the risk of inventory backlog. Hema's buyer model involves discussions with suppliers: you produce the most popular products, I set the price and buy them, then sell them to consumers at high cost-performance. This breaks all constraints and achieves effective supply. Under this model, manufacturers, retailers, and consumers all win. "The endgame of actual retail is to build a complete system around whoever can achieve the greatest sales capability, whoever builds the greatest supply chain efficiency, and whoever gets the best products." A series of high-profile moves undoubtedly requires huge investment, data resources, and information technology support. Hema, backed by Alibaba, has an unreplicable inherent advantage, leaving followers far behind. The data disclosed by Hema this time is not only seen by the industry as a sign of its model's success but also as a milestone in the retail industry—after more than a hundred years of development, retail has finally seen its most thorough change. This makes Hema's exploration even more significant and meaningful as a milestone. Jack Ma once said: "Whether it's the unmanned retail stores we create or Hema Fresh, it doesn't mean Alibaba is preparing to seize a large share of the retail or fresh produce market, but rather to send a signal or some thoughts to the industry, prompting the retail industry to reflect on how to do better." The changes in just two years have made Jack Ma's expectations come true again. Under Hema's demonstration, traditional retail has sparked a wave of reflection and change, giving rise to new service providers that build a new retail ecosystem. Traditional retail, now with innovative thinking, will surely show its strengths in the new ecosystem and, together with Hema, walk a more efficient and accessible new retail path, becoming a powerful booster for supply-side reform and China's economic transformation and upgrading. This article is reprinted from Huashang Taolue (ID: hstl8888). Unauthorized reproduction is prohibited. For reprints, please contact Huashang Taolue for authorization. During the Autumn Sugar and Wine Fair on October 23-24, the "2018 China FMCG City Distribution Logistics Conference" hosted by New Distribution will be held. At that time, we will invite industry bigwigs, FMCG warehousing and distribution experts, and distributors who have transformed to unified warehousing and distribution platforms to discuss and answer questions about the future development trends of FMCG city distribution logistics and practical cases of distributor transformation to unified warehousing and distribution, hoping to bring you different inspiration and thinking! -END-