Click to read the original article for details In the two months since the first store test in Shanghai in May, Hema Neighbor has released franchise information in multiple locations, and more strategic layouts are gradually emerging. On July 17, Hou Yi, president of Hema Business Group, sent an internal letter officially establishing the Hema NB Business Unit to create an "affordable version" of Hema's service area, initially entering 10 cities including Shanghai, Beijing, Guangzhou, Wuhan, and Xi'an. Internally, Hema defines this as a "livelihood project," aiming to meet the one-stop shopping needs of more consumers for three daily meals through Hema Neighbor. From the internal letter, three characteristics of Hema Neighbor can be derived: First, livelihood project + affordability: Hema Neighbor's pricing is lower than Hema Fresh, and by using a pre-order + self-pickup model that sacrifices convenience, it offers price concessions. Second, it serves target users in first- and second-tier cities that Hema Fresh large stores cannot easily reach. The general profile is consumers with sufficient spending power but living in residential areas with lower household density or overall consumption power that cannot support larger Hema store formats, such as areas outside the 5th Ring Road in Beijing and suburban areas. Third, it continues to focus on one-stop shopping for three daily meals, meaning fresh food remains the largest category for Hema Neighbor. It can be seen that although often linked, Hema Neighbor and community group buying are essentially unrelated. Whether in target audience or main categories, they are far apart. The only similarity is that both revolve around the community as the retail unit. NB stands for Neighbor Business; the launch of Hema Neighbor is an important move by Hema to enter community e-commerce. In terms of model, Hema Neighbor is more like the first-generation community e-commerce platform Dailuobo, also using "order online, pick up offline; order today, pick up tomorrow." At that time, the direct reasons for Dailuobo's bankruptcy were mainly two: single orders could not cover costs, and capital turnover could not keep up. Now, Hema Neighbor applies Hema's existing supply chain, brand influence, and technical capabilities to the Dailuobo model, exploring new subdivisions of community-level retail formats without financial pressure. Hou Yi stated that during the trial run of more than two months, Hema Neighbor has verified the replicability and sustainability of the new model. Supplement to Large Stores Currently, all opened Hema Neighbor stores are self-operated, equipped with refrigerators, water tanks, and other facilities, typically staffed by 2-3 employees. After users place orders on the Hema APP, they can pick up at the store after 8:00 the next day. Essentially, this store format is not a new model, nor even an optimization of existing models. It is more like a compromise between Hema and customers, trying to find a middle ground between cost-effectiveness and experience. The smaller the store, the more refined operations are needed. This old retail saying implies that the uncertainty behind small consumption units makes cost losses difficult to control. Hema Neighbor is an even smaller store model following Hema Fresh, Hema MINI, and Hema x Membership Store. For Hema, smaller store formats can more precisely establish stable household purchasing relationships with consumers in segmented units; at the same time, smaller stores have more location options and can cover more consumers. Small stores can also shorten the physical distance to consumers, which is also a means to increase Hema brand awareness and attract natural traffic. Therefore, Hema has always tried to make stores smaller. Hema Neighbor's fulfillment and delivery have reached the smallest unit at the community level. To make stores smaller and effectively control costs, Hema has to sacrifice some user experience by using a community group buying-style fulfillment sequence of transaction first, then delivery, reducing operational losses to zero. This next-day self-pickup model, while cost-controllable, also reduces consumers' purchase desire. In response, Hema further gives up some profit to encourage consumers to buy. In this way, Hema Neighbor and customers continue to pull back and forth, trying to find an acceptable middle ground. Hema's ideal state is that Hema Neighbor can form stable centralized purchasing with the residential communities it covers. As long as the daily revenue of a single store covering its community is raised above the fixed rent, utilities, and personnel costs, Hema Neighbor can achieve single-store profitability. Currently, Hema Neighbor's main way to increase order numbers is still through its supply chain and products. The first category remains fresh food, which has the highest purchase frequency in household consumption. Besides vegetables and fruits, live aquatic products and seafood are one of Hema Neighbor's key promotional points; Hema's private-label products are also available at Hema Neighbor. Hema Neighbor needs these high-frequency fresh products to increase its penetration in household purchasing, thereby leveraging its essential advantage of one-stop shopping for three daily meals. We don't know how high the group's expectations are for Hema Neighbor, but judging from the publicly announced city expansion plans, the pilot in Shanghai and Beijing has basically met expectations. Hou Yi himself also clearly stated in the internal letter that the Hema NB business has verified the replicability and sustainability of the new model during the trial run of more than two months. Not Yet Independent Stepping outside Hema's business layout, in fact, the daily "vegetable basket" business in first- and second-tier cities has already entered intense competition. Hema Neighbor's current target group is still people with certain spending power in first- and second-tier cities, but the problem is that these people usually choose instant delivery services with much better shopping experiences. Besides Dingdong Maicai and Miss Fresh, which offer free delivery on the first order, there are also JD Daojia and Meituan, which are connected to major supermarkets and can provide one-stop shopping services. These instant delivery platforms can deliver in as fast as half an hour, and at most 2 hours, providing a much better shopping experience in terms of timeliness than Hema Neighbor. Existing Hema Neighbor stations in Beijing are all covered by Dingdong Maicai or Miss Fresh. In terms of price, Hema Neighbor also has no advantage. Taking its tomatoes, cucumbers, and other short-shelf-life fruits and vegetables, as well as live fish, as examples, Hema Neighbor's prices are almost the same as Dingdong Maicai's. (Left: Hema Neighbor; Right: Dingdong Maicai) So with a difference of one or two yuan, how many consumers would choose next-day self-pickup? Moreover, the purchase of ingredients for three daily meals is not very planned; often you haven't decided what to eat for dinner at noon, so how can you plan what to eat the next day a day in advance? In this case, what household penetration rate can Hema Neighbor achieve in the communities it covers? It remains unknown. The fresh food business in first- and second-tier cities is highly competitive, but Hema Neighbor can currently only expand in first- and second-tier cities where Hema large stores already exist. Hema Neighbor relies on the supply chain advantages that Hema has built over the years, reaching directly to the production end. Therefore, in the next few years, it cannot independently expand to third- and fourth-tier cities or county-town markets. The Hema Neighbor mini-program page states that "franchising will open soon," indicating that after the current self-operated model pilot proves replicable, Hema Neighbor may use franchising as the main expansion model in the future. But the Hema Neighbor model does not fit the traditional sense of franchising. In general franchise stores, the store manager and staff can complete a full retail loop of customer acquisition, transaction, and after-sales through their own efforts. In other words, the store manager can increase revenue and performance through initiative. However, Hema Neighbor's current order sources mainly rely on the Hema APP. Judging from the current opened stores, Hema Neighbor selects locations based on the standard of pickup points, with low requirements for store location, and the signage is inconspicuous. This means that the store itself has limited customer acquisition ability, and in the short term, it still relies on traffic from the APP. As a result, the significance of franchisees is not that great. What Hema Neighbor may need more is cooperation at the property level. But the currently exposed Hema Neighbor franchise application page still shows the ordinary small store owner franchise model. It can be seen that Hema Neighbor cannot yet walk independently at this stage and can only serve as a supplement to the business in areas where Hema large stores are located. Its current sustainability and replicability are a preliminary success within Hema's overall layout. But in any case, Hema Neighbor is an attempt by Hema to do household consumption business in first- and second-tier cities using the same fulfillment sequence as community group buying. Whether it ultimately succeeds or not, it is an exploration of centralized household purchasing. In fact, the drawbacks of community group buying's previous tactics in lower-tier cities have gradually become apparent. Consumers in lower-tier cities are extremely price-sensitive and have more free time. The only reason they choose community group buying is low prices. This led to a direct halving of order volumes for multiple community group buying platforms after C-end subsidies were banned. In lower-tier cities, community group buying is likely to persist in the form of promotional single-product sales, but penetration rates will find it hard to rise further, let alone become the main channel for daily household consumption. Hou Yi has never agreed with the model of most community group buying platforms that rely on burning money and subsidies to aggressively acquire territory, but he is still unwilling to give up on community e-commerce. This may be why, after Hema Marketplace was taken over by Alibaba's MMC, Hema Neighbor emerged as another attempt. As Hou Yi once said, "What everyone sees today is definitely not the final model of (community group buying). Many people occupy a certain transaction form of community group buying, but these are not worth mentioning." Source: Future Consumption APP (ID: lslb168) PS: From August 24-26, 2021, the 2021 (4th) China FMCG Conference hosted by New Distribution will be held in Shanghai. Centered on "Industry Frontier Hub" + "Practical Exploration New Cases" + "Industry Connection New Growth", with 100+ guest speakers and 10 thematic forums, it will bring an ideological feast on industry trends for FMCG practitioners! Confirmed heavyweight guests so far include: **1. Tao Shiqian, founder of Jiangxiaobai; **2. Yao Xuhong, general manager of Meiyijia Holdings Co., Ltd.; **3. Bi Chaojiao, general manager of China Resources Snow Breweries (China) Marketing Center; **4. Yang Hongbin, vice president of Junlebao Dairy Group; **5. Jin Yanze, chief data officer of Uni-President Group; **6. Guo Xulin, assistant to the president of Hema Fresh; **7. Li Zhihong, senior vice president and director of Xibei Catering; .... 3000+ industry audience, 1500+ first-line brand executives, 1000+ new e-commerce platforms & regional leading distributors, 3 full days. The latest industry trends, changes, models, and business you want to know are all here! Are you "watching" me?