On October 31, the Hema New Retail Conference opened in Shanghai, where Hema CEO Hou Yi stated: "We must not only go upward and downward, but also go outward, building a product system that can serve 1 billion consumers in the next 10 years." From establishing Hema Villages to vigorously incubating and supporting private brands internally and externally in recent years, Hema has placed product strength at the core of its future development. Just over a month ago, Hema completed the upgrade of its organizational structure to "three verticals and three horizontals," but immediately after, its Hema Neighborhood business retreated from Hangzhou and Nanjing, leaving only Shanghai as its base. The downward expansion of Neighborhood was essentially declared a failure with this retreat, yet Hema's ambition for lower-tier markets has not been shelved; Hema Outlets has quietly filled the gap. In fact, even while Neighborhood was still operating, Outlets had already begun trial runs, and now it is being vigorously promoted as the new model favorite. 01 Lower-Tier Markets: Hema's Continuous Attempts Outlets, short for outlet stores, originated from clothing and footwear brands selling off-size, out-of-season, and old-style products at steep discounts to reduce inventory and losses. Hema Outlets follows a similar sales logic, but with products sourced from Hema Fresh and X Membership stores that are near expiry, short shelf-life, or easily damaged, alongside selected high-cost-performance items—quality products that may not look perfect. In the lower-tier market segment, Hema has adhered to the principle that "a good start is half the battle," focusing on store model development. Both Hema Neighborhood and now Hema Outlets have achieved impressive results in early trials. Over the years, Hema has experimented with various formats: Hema Mini in 2020, Hema Neighborhood in 2021, and Hema Outlets in 2022. Before that, besides Hema Fresh, it launched Hema Xiaozhan, Hema F2, Hema Caishi, and other forms to understand how to replicate success in lower-tier markets. This rapid iteration demonstrates Hema's determination to capture the lower-tier market, always keeping a Plan B ready. With the quiet retreat of Hema Neighborhood in October this year, Hema Outlets has officially taken up the banner for lower-tier market expansion, replacing Neighborhood as the main force for downward growth. In fact, aside from adopting the outlet sales model from the apparel industry, Hema Outlets has already identified a benchmark: German discount supermarket chain Aldi. Aldi ranks eighth among global retailers, with annual sales of $117 billion, positioning itself as a low-cost community supermarket offering high cost-performance through private brands, with over 10,000 stores worldwide. Hema Outlets follows a similar path to build its product strength. Hema boasts a 97% success rate in private brand development, with products typically reaching market readiness in 30-45 days. Zhao Jiayu, Hema's Chief Product Officer, stated at the 2022 Hema New Supply Conference that Hema's private brands now cover fresh produce, standard products, and 3R (ready-to-cook, ready-to-eat, ready-to-heat), accounting for 35% of sales. In addition to internal development, Hema actively collaborates with promising food, catering, and farm companies, empowering them to incubate new products and build brands through Hema stores, growing together with partners. 02 Outlets Strategy: Eyeing the Discount Business To date, Hema has opened over 50 Outlets stores nationwide, maintaining a pace of 3-4 new stores per month, with more than 10 in Shanghai. By the end of this year, Hema plans to open 100 discount stores in Shanghai. Outlets are positioned as supporting stores for Hema Fresh, transferring consumable and easily damaged goods. The plan is to have 5-6 Outlets around each Hema Fresh store to create a virtuous cycle of product turnover. Store sizes typically range from 300 to 400 square meters, employing a mix of soft and hard discounts, but primarily hard discounts—streamlining SKU categories and store operating costs to achieve vertical supply chains and ultra-high cost-performance, directly targeting customer needs. In the challenging economic environment, Hema needs middle and lower-tier markets to balance profits and losses. Especially after the sudden collapse of Daily Fresh this year, the tension among fresh e-commerce players, including Dingdong Maicai, has been heightened. On one hand, there is a trend toward cost reduction and efficiency; on the other, the fall of a former leader. Hema has decisively chosen profitability first, leading to the closure of Neighborhood and the promotion of Outlets. Hema CEO Hou Yi also stated at the New Supply Conference earlier this month: "Starting next year, Hema's discount brand 'Hema Outlets' will be the most important strategic project, with no exceptions." This decision is backed by data: according to Hema's recent conference, Hema Fresh channel business grew 25% year-on-year, Hema X Membership stores grew 247%, while Hema Outlets and Neighborhood channels grew an impressive 555%, with consumer purchase frequency at 4.5 times per month and paid members growing 50% year-on-year. Hema's initial mid-to-high-end positioning has solidified its brand image among consumers, associating Hema with high-priced, high-quality fresh produce. The emergence of Hema Outlets can be seen as a "sword" piercing this stereotype, allowing ordinary consumers to purchase quality goods at low prices. "High quality, low price, small profits but quick turnover" is the core of Hema Outlets' ability to achieve daily sales of 150,000 yuan and gross margins of about 15%. Additionally, this model has enabled Outlets to achieve sales per square meter over seven times that of similar stores. Hema has also developed private brands specifically for Outlets, with similar products priced at nearly half of supermarket prices. Furthermore, Outlets absorb damaged and near-expiry products from Hema Fresh and X Membership stores, effectively self-digesting these goods, fulfilling its role and benefiting many ordinary consumers, especially given the year-on-year rise in CPI, prompting people to live more frugally. 03 Brand Effect: Hema's Network Strategy In October this year, the first offshore "Hema Village" was established in Zhuanghe, Liaoning Province, with Zhuanghe seafood products reaching 300+ Hema stores across 27 cities nationwide, selling 40,000 jin (about 150,000 oysters) of oysters daily. The data from a single Hema Village is already impressive, and as of November this year, Hema has built 140 Hema Villages across 23 provinces, forming a crucial foundation for Hema's product strength. After establishing villages, Hema has also invested heavily in supply chains to deliver the freshest ingredients to consumers: Hema operates 5 supply chain hub centers, 8 supply chain operation centers, and hundreds of origin and distribution warehouses, with storage space exceeding 1 million square meters and 110 trunk routes, minimizing the time from farm to table. Today, Hema's brand effect is well-established, synonymous with quality, and the addition of Outlets adds "good prices" to that reputation, making these high-cost-performance products highly attractive to consumers. According to industry insiders' on-site visits, a new Hema Outlets store opened in Shanghai on September 30 achieved impressive first-day results: "Daily sales of 264,000 yuan, 3,435 transactions, no online sales, no promotions." Long queues often form outside its stores, with the main consumer group being household purchasing decision-makers. As Hema Outlets grows, a pyramid-shaped product sales system is taking shape, comprising Hema X Membership stores, Hema Fresh, and Hema Outlets. Each tier has distinct characteristics, from top to bottom, creating synergy in products and weaving a network of private brands and differentiated development, with high, middle, and low tiers complementing each other to build product strength. As Hou Yi stated: "Going upward, the model is mature and can be led by other colleagues; going downward is the super blue ocean market for the next decade, and it carries Hema's mission to serve 1 billion Chinese consumers." Source: Kaiman 4000 (ID: kaiman4000)