---
title: "Hema's Self-Rescue: Is a Fresh Food \"Dollar Store\" Leading the Way?"
description: "As Hema Fresh stores close in multiple cities, a new format, Hema Outlets, is opening stores against the trend. However, industry experience suggests that discount stores relying solely on low prices cannot survive; they must transcend price wars. Hema Outlets faces challenges in supply chain scale and food safety management."
author: "陈重山"
publisher: "New Distribution"
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published: "2022-05-26"
language: "en"
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# Hema's Self-Rescue: Is a Fresh Food "Dollar Store" Leading the Way?

> As Hema Fresh stores close in multiple cities, a new format, Hema Outlets, is opening stores against the trend. However, industry experience suggests that discount stores relying solely on low prices cannot survive; they must transcend price wars. Hema Outlets faces challenges in supply chain scale and food safety management.

_**"The discount stores that ultimately survive are those that transcend price wars."**_

As Hema Fresh stores close in multiple cities simultaneously, the counter-trend opening of a new format, "Hema Fresh Outlets" (hereinafter referred to as Hema Outlets), is quite conspicuous.

Since the beginning of this year, Hema Fresh has not only closed stores in Nanjing, Qingdao, Chengdu, Guangzhou, and other places, but its community group buying project, Hema Neighborhood, also suddenly withdrew from many cities in early April. But it was at this juncture that on March 31, the first Hema Outlets store in Changsha, which focuses on discounted fresh products, opened. That same month, the first Chongqing store also opened.

In the previous months, Hema Outlets opened its first stores in Xi'an, Qingdao, Chengdu, Beijing, Shanghai, and other cities. Among them, the Shanghai store, converted from a Hema Mini store in October last year, was the first store of this "fresh food outlet."

Hema Outlets is positioned as a quality discount store. "Prices are basically less than half of those in surrounding fresh food supermarkets," Hema CEO Hou Yi told the media shortly after the Shanghai store opened.

What is this new format that is expanding against the trend? Snow Leopard Finance recently visited Hema Outlets' first Beijing store—Qunfangyuan Store.

(Photo of Hema Outlets Beijing's first store, Qunfangyuan Store, taken by Snow Leopard Finance)

**Vegetables and minced meat for 1 yuan**

As the first store in Beijing, Hema Outlets Qunfangyuan Store is located in Tongzhou District, outside the Fifth Ring Road. It is two to three kilometers away from the largest nearby shopping center, "Roosevelt," and is in a remote location, surrounded by five or six residential communities with many residents.

The exterior of the Hema Outlets fresh food store is simple, with an interior of about 300 square meters. On the wall, it prominently reads: "The outlet of the fresh food world, good quality, low prices." The shelves are filled with various vegetables, fruits, and even flowers, beer, beverages, and other items, but mainly fresh vegetables, with about two to three hundred SKUs (minimum stock keeping units).

Even at 4 p.m. on a weekday, the store is still crowded. A security guard told Snow Leopard Finance that many people rush in as soon as the doors open at 8 a.m. every day, "There is never a time when it's not crowded."

(Photo: Crowded store at 4 p.m. on a weekday, taken by Snow Leopard Finance)

Although Hou Yi said that "Hema Outlets' prices are basically less than half of those in surrounding fresh food supermarkets," this Beijing store offers even deeper discounts, with prices mostly at 30% to 50% off, or even as low as 10% of the original price. According to a rough count by Snow Leopard Finance, in this Qunfangyuan store, there are more than 20 types of boxed vegetables priced at just over 1 yuan, and a 120-gram box of minced pork is only 1.4 yuan, making it a veritable fresh food "dollar store."

(Photo: A box of minced pork for 1.4 yuan, taken by Snow Leopard Finance)

It is worth noting that Hema Outlets marks in the store that the products here are all "day-fresh" series products from Hema, sold at a reduced price the next day, i.e., "next-day fresh," sourced from Hema Fresh, Hema Mini stores, and other channels. This next-day reduced-price sales aligns with CEO Hou Yi's statement that it is "mainly to help Hema Fresh in the same city reduce losses from stores and processing centers."

During the visit, Snow Leopard Finance saw only three staff members: one cashier and two stock clerks. To save labor, Hema Outlets mainly uses self-checkout, with only one manual cash register.

(Photo: Long checkout line, taken by Snow Leopard Finance)

However, according to Snow Leopard Finance's observation, not all products here are low-priced. Some products with longer shelf life, such as beverages and condiments, are more expensive or on par with regular supermarket prices. For example, a 500ml bottle of cola costs 3.8 yuan, and a bottle of Niulanshan aged liquor costs 15.9 yuan.

This arrangement can use low-priced items to attract customers to higher-priced items. However, these higher-priced items are placed in corners and attract few buyers.

In addition to the situation at the Beijing store, according to "diaries" and comments on the Xiaohongshu app, customers' impressions of Hema Outlets stores across various regions are basically focused on "cheap," "good to buy," as well as "crowded" and "long queues."

**Low prices alone cannot sustain a discount store**

Hema Outlets is not the first fresh food discount store in China.

Yipin Fresh Food (hereinafter referred to as Yipin), which focuses on fresh food discounts, has already achieved profitability; Fresh Food Legend, which benchmarks against the famous German quality discount store Aldi, claims to have iterated to its seventh-generation store since its founding in 2017.

But the experience of peers is that for a fresh food discount store to have core competitiveness, it absolutely cannot rely solely on low prices.

Yipin claims to have "moved the farmers' market to the entrance of the community." According to a report by Chongqing Daily, Yipin's products are more than 20% cheaper than those in large supermarkets. However, the key to Yipin's competitiveness is not a price war.

Yipin's most distinctive feature is the adoption of a "partnership system" in both front-end stores and back-end supply chain.

At the front end, the establishment of each store involves not only headquarters investment but also the store team investing their own money as shareholders. Employees' salaries are low, and their income comes from profit sharing, thereby stimulating their initiative and enthusiasm. Store managers can even independently decide on purchasing and sales based on community conditions.

The front-end partnership system results in: if a store has no profit, partners find it difficult to sustain operations, so they are more proactive in controlling store costs and more focused on sales innovation tailored to local conditions. Yipin also requires that new stores must become profitable within three months to ensure the overall stable profitability of Yipin.

The back-end supply chain partnership system brings a cooperation model of "sharing risks and profits." With the cooperation of supply chain partners, the "vertical supply chain" model becomes more effective. For example, after overall procurement at upstream production areas and "contracting entire hills," partners will proactively reduce costs and take measures to ensure low procurement prices.

Hema, which was once accustomed to burning money, must now achieve rapid profitability under Alibaba's "business responsibility system" of self-financing.

On the first day of 2022, Hou Yi stated in an internal letter to Hema that this year's goal is "comprehensive profitability." It is against this backdrop that Hema Outlets has entered the fresh food discount store track.

Hema Outlets claims to be the "outlet of the fresh food world," but China's outlet stores have long been polarized: many early outlet stores that used discounts to attract customers have closed in large numbers. Those that are doing well have not won through price wars but have become destinations for citizens' "micro-vacation" consumption.

Whether it is the original outlet stores or Yipin in the fresh food sector, those that ultimately survive are masters who transcend price wars.

**Hema Outlets still has two hurdles to overcome**

The first hurdle for Hema Outlets is having a sufficient scale of low-cost supply.

Currently, Hema Outlets' products come from Hema Fresh's near-expiry fresh products and losses. Because they are "surplus goods," they can achieve ultra-high cost performance. However, surplus goods are limited in quantity and supply is unstable. To replicate on a large scale, the supply chain needs to be transformed and upgraded.

Although Hema has gone down to production areas and built 550 direct procurement bases and 136 Hema villages nationwide, transforming a supply chain focused on freshness into one focused on "cost performance" is not easy. Hema Fresh's procurement system at the source focuses more on quality, while Hema Outlets requires extremely high cost performance. Whether the supply chain transformation can be completed at the original production areas and whether high-cost-performance fresh goods that meet discount store requirements can be procured on a large scale is a new challenge.

Based on Yipin's experience, to maximize cost reduction, it is necessary to adopt a unified procurement model at the production area, buying all products regardless of appearance, first ensuring cost performance, and then during sorting, products with good appearance are used for retail, while those with poorer appearance are diverted to B2B channels for wholesale, making money through two channels.

Hema Outlets belongs to the retail channel and needs agricultural products with good appearance, so it needs to conduct selective procurement at the production area, but this procurement model is far less cost-effective than unified procurement. If the unified procurement model is adopted, not only would sorting procedures need to be added, but Hema may also need to build new B2B channels.

The second hurdle comes from food safety management.

Food safety is the lifeline of the fresh food industry. Currently, Hema Outlets sells "next-day fresh," i.e., near-expiry fresh products.

Near-expiry fresh products have more complex storage conditions than pre-packaged foods, requiring higher standards for store food safety management and greater investment. However, with high investment and a focus on low prices, a paradox arises, objectively posing challenges to food safety management.

In addition, industry management of near-expiry fresh products also faces difficulties. Fresh products are different from general pre-packaged foods; even within the shelf life marked by the store, improper storage can cause spoilage.

Tianyancha shows that even Hema's other formats were publicly penalized by local authorities for food safety issues no fewer than 15 times in January and February of this year, with cumulative fines exceeding 750,000 yuan. And the current Hema Outlets products come from near-expiry fresh products from Hema Fresh's other formats.

Currently, Hema has been established for more than six years. Although it has burned money to create retail formats such as Hema Fresh, Hema X Membership Store, and Hema Neighborhood, it is still far from profitability. Now facing the pressure of "comprehensive profitability," Hema has closed stores in multiple cities. Even Hema Neighborhood, which Hou Yi called "the most important strategy for the next ten years," began withdrawing from Beijing, Wuhan, Chengdu, and Xi'an in April.

Against this backdrop, Hema Outlets, a new format developing "against the trend" amid the wave of store closures, is being pinned with new hopes.

But if it is merely positioned as "helping Hema Fresh reduce losses from stores and processing centers," how large can Hema Outlets scale? Can Hema, which mainly targets the mid-to-high-end market, truly value the relatively low-end near-expiry fresh food business? That remains a question.

Source: Snow Leopard Finance (ID: xuebaocaijingshe)

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