---
title: "Hema Prepares for Hong Kong IPO, Opening a New Chapter"
description: "Hema has spent eight years proving that 'new retail' is not a false proposition, and it is anticipated whether it can successfully fire the first shot of independent listing after Alibaba's split. According to previous reports from Bloomberg, Hema has begun preparations for a Hong Kong IPO and has selected CICC and Morgan Stanley to arrange the listing next year."
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published: "2023-05-19"
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# Hema Prepares for Hong Kong IPO, Opening a New Chapter

> Hema has spent eight years proving that 'new retail' is not a false proposition, and it is anticipated whether it can successfully fire the first shot of independent listing after Alibaba's split. According to previous reports from Bloomberg, Hema has begun preparations for a Hong Kong IPO and has selected CICC and Morgan Stanley to arrange the listing next year.

## Hema has spent eight years proving that 'new retail' is not a false proposition, and it is anticipated whether it can successfully fire the first shot of independent listing after Alibaba's split.
According to previous reports from Bloomberg, Hema has begun preparations for a Hong Kong IPO and has selected CICC and Morgan Stanley to arrange the listing next year.
Image source: Bloomberg
**In response, Hema did not directly comment, only stating: "We have no further comments on market rumors for now."**
Both internal Alibaba group news and Hema's recent moves have, to some extent, signaled that Hema is actively preparing for its listing.
In March this year, Alibaba launched the "1+6+N" organizational reform, splitting its business into six major business groups and several innovative business companies, with each group and company having the possibility of independent financing and IPO.
Hema CEO Hou Yi believes that with Hema's current scale and brand influence, it already has the conditions for listing. "I think listing is just a process; my dream is for Hema to achieve 1 trillion yuan in sales."
**Profitability is a key indicator for a company's listing. After exploring in the unknown for seven years, Hema finally crossed the "profit line."**
Hou Yi first mentioned in a letter to all employees at the beginning of the year that Hema's main business format, "Hema Fresh," had achieved profitability, and then in April shared the good news that Hema had achieved overall profitability for two consecutive quarters in Q4 of last year and Q1 of this year.
Hema, which had been independent and responsible for its own profits and losses since 2021 and had to "tighten its belt" to reduce costs and increase efficiency, has now turned profitable and immediately entered a mode of accelerated expansion. First, it restarted the expansion of community supermarket Hema Mini stores to fill areas not yet covered by Hema Fresh large stores; second, it plans to launch a new business format positioned as a premium supermarket, "Freshippo Best," in the second half of the year.
**These measures all demonstrate Hema's ambition for expansion, as well as the confidence and confidence brought by profitability.**
Regarding new retail, Hou Yi's view is: "New retail is not a money-burning model, but a model that can achieve sustainable profitability."
As Alibaba's benchmark business for new retail, Hema's profit turnaround has validated the first half of Hou Yi's vision. Whether it can fully run a sustainable profit model is Hema's next focus and also the cornerstone for its successful IPO.
**On the path of innovation, running without stopping** Looking back at Hema's past, it is clear that it has never stopped its "running" pace. **As the proposer of the "new retail" concept, Ma Yun has regarded Hema as an experimental sample of new retail since its inception, and it has also laid a theoretical foundation for many later explorers of new retail.** At the 2016 Alibaba Cloud Computing Conference, Ma Yun first explained the future trend of new retail: "The pure e-commerce era will soon end, and the combination of online and offline with modern logistics will give birth to new retail." In the same year, the first Hema Fresh store opened in Shanghai. It is no coincidence that e-commerce giants went all in on new retail; around 2016 was a critical period when the People's Daily discussed that China's economy would show a long-term L-shaped trend in the future. Image source: Sohu Finance. An L-shaped economy means that the stage of barbaric growth is coming to an end, growth in various industries is slowing, and the next step is to find answers in the existing stock. The prediction of future economic trends is one of the reasons Alibaba extended its reach into traditional retail industries with low efficiency and profit margins. **The more inefficient the industry, the more likely it is to become a "value depression" with greater potential through the integration and innovation of internet links.** As a pioneer of "new retail" with a high-tech halo, Hema attracted much attention in its early days, especially the scenes of hanging chains transporting goods in stores and consumers using machines for self-checkout, which satisfied people's imagination of technology-driven consumption. Hema's technological advantages are not just the "simple" visible parts in the store; the real technological strength of Alibaba's involvement in retail is reflected in the backend that the public cannot see. Image source: Internet. The long-standing dilemma for traditional retailers is that even with millions of registered members, they cannot accurately convert member data, and customers' offline consumption cannot be "digitized" in real time, making it difficult to accurately depict user behavior profiles. This results in a seemingly large membership base but a stagnant pool of hard data. Furthermore, traditional retailers are driven by procurement decisions, but after products are placed on shelves, they often face the dilemma of poor sales. Without pre-research data to support judgments about what consumers like and what they are likely to buy, procurement is prone to misjudgment, leading to problems such as unsold goods and inventory backlog. Hema's first-mover advantage lies in the software and hardware strengths Alibaba has accumulated in e-commerce. **With the user profiles of nearly 800 million monthly active Taobao users, massive data, and mature online marketing methods, Hema has resource support that other traditional retail and new retail enterprises find hard to match, naturally winning at the starting line.** But its early popularity also came with doubts such as "tech gimmick more than retail essence" and "new retail is a money-burning model." With no predecessors to pave the way, Hema had to cross the river by feeling the stones. As Hou Yi said in an open letter, 2016-2018 was the stage of Hema's "running desperately," completing the digitalization of online and offline integration for new retail, building a self-operated delivery service system and a nationwide supply chain and logistics layout, and completing in three years the "digitalization" construction that traditional retail would need 20 years to achieve. Image source: Ruizhe Insights. As Hou Yi said: "Innovation is Hema's lifeline." From internal project initiation in 2015 to now, Hema has been running on the new retail path, not repeating old models, not imitating, but exploring from scratch. Therefore, these seven years of innovation are equivalent to accumulating valuable experience that surpasses the incremental innovations of many retail brands over decades.
**Returning to the essence of retail**
**Hema's "three handles"** Although it carries internet genes and has traffic operation capabilities based on physical stores, **traffic and technology are ultimately tools. From the essence, the core of new retail is still retail.**
Especially in the special fresh food track, continuous losses have made many players realize that the foothold for sustainable development must return to profitability. Fresh food has extremely high consumption frequency and also comes with a lot of loss, especially for companies like Hema that focus on high-quality fresh food, where product loss is usually several percentage points higher than ordinary retail stores. This has been a challenge Hema has faced in terms of profitability. **After completing the initial construction of "running desperately," Hema entered the "running to survive" stage, which is to explore the core competitiveness of new retail, focusing on product strength and operational systems.** **First, build strong product strength.** As Hou Yi said, product strength is the only core competitiveness in today's retail industry. Without good products, everything else is zeros after the one. Hema optimized its product structure, adjusted its procurement department, and established a core moat mainly based on private brands. This year, it even upgraded private brands, prepared dishes, and the large import department to first-level departments. Data shows that Hema's private brand SKUs reach over 1,200, with more than ten "Hema brands" with sales exceeding 100 million yuan. Private brands account for 35%, and this proportion will increase to 50% in the future. Image: Hema private brands. **The increase in the proportion of private brand sales not only helps improve Hema's overall gross margin but also provides differentiated value in terms of products for the target customer group.** On social platforms like Xiaohongshu, searching for "Hema must-buy" yields over 30,000 notes. It is not difficult to find that among all Hema private brand categories, prepared dishes, flavored fresh milk, bakery, fresh food, and other short-shelf-life refrigerated products are its most popular advantageous categories. Image source: Xiaohongshu. In addition, Hema has made many breakthroughs in building product strength: first, quickly "reverse customizing" products based on market preferences, using an average of 45 days for new products and as fast as 30 days for series products to catch trends and lead trends; second, reshaping the "new supply-retail" relationship, canceling entry fees, and jointly developing good products with suppliers; third, further opening up product strength, developing online sales and wholesale business, allowing Hema's competitive private brand products to go beyond Hema, making Hema's supply chain company another development channel for Hema. **Second, build a mature operation and marketing system, and leverage other Alibaba ecosystems to complete commercialization exploration.** In addition to private brands, Hema also actively collaborates with other brands to create buzz, pioneering the model of being the first launch site for internet-famous brands. For example, partnering with Beyond Meat to have its first China launch at Hema Fresh, and cross-border collaborations with sports brand PUMA and the game Hearthstone have generated significant buzz. Alibaba's vast ecosystem provides Hema with a natural traffic engine. In 2020, Hema partnered with Alibaba's entertainment content variety show "Street Dance of China," jointly launching the Hema team towel roll, which achieved the top sales in the bakery category on the first day. Image source: Internet. **Third, continuously strengthen supply chain capabilities.** The reason Hema can provide users with nearly perfect shopping experiences both online and offline is inseparable from its deep cultivation in all aspects of the supply chain. Compared to traditional fresh food supply chain systems, Hema uses direct sourcing from production areas and a warehouse-store integration model to reduce links in the chain, lower circulation costs, and effectively improve operational efficiency. Image source: China Merchants Securities research report. **Short-shelf-life refrigerated products, which have the highest requirements for logistics and delivery timeliness, especially rely on Hema's multi-temperature supply chain system built with billions of yuan.**
According to "Retail Business Finance," Hema has currently established six supply chain logistics centers with ambient and frozen warehouses, and the future plan is to build eight. Once completed, Hema may become the only retail enterprise in China with an integrated supply chain capability covering multiple temperature zones (ambient, frozen, refrigerated), live fresh food, and more nationwide. Hema continues to refine its delivery system and officially announced the expansion of its delivery range on March 30 this year. The delivery range has been expanded from the previous 3 kilometers with delivery in as fast as 30 minutes to 5 kilometers with delivery in as fast as 1 hour, bringing shopping convenience and benefits to more consumers farther from Hema stores. Image: Hema zone expansion. Through the three handles of high-quality products, a mature marketing system, and a strong supply chain system, Hema has shaped its core brand competitiveness, thereby distancing itself from other platforms like Yonghui Super Species and JD 7FRESH.
**Now, after running, Hema has begun to reap the fruits of profitability, exploring a gradually clear development path for new retail, as well as the feasibility and plasticity of the new retail model.** **Seizing opportunities, the "three all" solution** There is no amazing secret to success in any retail business; it is the accumulation of small details and innovations. Hema's development has not been smooth sailing. In the fourth year after opening, Hema Fresh experienced its first store closure. After announcing self-responsibility for profits and losses in 2021, Hema also experienced one or two years of contraction and adjustment due to internal and external factors. However, compared to other retail enterprises, Hema's store closure rate is not high, and after reducing costs and increasing efficiency, it achieved a year-on-year sales growth of over 25% for Hema Fresh in 2022. Image: Internet. On the other hand, compared to the single business format development model of other new retail enterprises, **Hema's exploration of "multi-format parallel" also increases the possibility of profitability.** Image source: CITIC Securities research report. Among them, **Hema Fresh + Hema Cloud Super, and Hema X Membership constitute Hema's "upward" development strategy**, mainly targeting urban middle-class consumers, meeting their needs for more product differentiation. Unlike urban middle-class consumers, especially middle-aged and elderly groups who need to buy groceries, they are more price-sensitive, and due to generational gaps, their consumption habits are completely different. They naturally have resistance to the finely processed products popular among young people at Hema, requiring more time and process education. So Hema also began to "go downward," and Hema successively launched various formats such as Hema Outlet, Hema NB, and Hema Mini to make up for the narrow positioning of Hema's customer base, **"going downward" to reach a larger number and wider range of lower-tier markets.** Image source: Ruizhe Insights. In this year's strategic layout, Hema will focus on and target high-end consumers with the **premium supermarket Freshippo Best**, and for B-end customers, the **self-service wholesale warehouse mall FOD** (Food Operation Delivery). The parallel development of multiple formats, comprehensively covering different customer groups, not only helps Hema maximize the product potential of the upstream supply chain but also cope with uncertainties brought by rapidly changing markets. In recent years, comprehensive hypermarkets have faced a development winter, struggling with losses and store closures. It is visible that the consumer base of previous hypermarkets is being diverted to segmented formats such as Hema Fresh, Sam's Club, and community discount stores. Hou Yi frankly stated on his social media: "Traditional hypermarkets are completely withdrawing from core cities, giving Hema a generational opportunity for low-cost and rapid store expansion. This is also the fastest year for store expansion since Hema's establishment eight years ago. This year, Hema's store opening speed will far exceed the past. Opportunities are for those who are prepared..." Image: Hou Yi. Alibaba e-commerce has never relied on "lowest price" as an advantage, just as Taobao changed its slogan to "So fun to browse!" And Hema, as a new retail format, provides not only more competitive products but also strives to create a better shopping experience for consumers. **In addition to "all formats," Hema's ambition is to impact "all categories" and "all channels."** "All categories" means Hema is trying to expand from fresh food to full-category operations. Hema Cloud Super has already achieved nationwide ordering services for frozen fresh food, rice, flour, oil, grains, snacks, beverages, flowers, green plants, beauty and daily chemicals, home appliances, and Hema's private brand MAX series. "All channels" means letting Hema go beyond "Hema," allowing Hema's advantageous private brand products to achieve full network channel coverage. **The "three all" strategy of all formats, all categories, and all channels collectively constitutes Hema's strategic approach to achieving the goal of "1 trillion yuan in sales, serving 1 billion consumers."** There is nothing new in retail; what Hema does is, in addition to creating value through internet methods, explore the potential value behind new retail. "Retail Business Finance" believes that as a **technology-driven food company integrating R&D, production, and sales**, Hema's greatest charm lies not in "channels" but in product development and exploration of global good products. This is why Hema has a considerable number of personnel; a simple supermarket format or internet company would not need to allocate so many human resources. Now, Hema has spent eight years proving that "new retail" is not a false proposition. What is next to look forward to is whether Hema can successfully fire the first shot of independent listing after Alibaba's split.


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