Nearly a month has passed since Hema announced a 20% price cut on selected offline products. If the opening of Hema Fresh Outlets was a trial, this move marks Hema's strategic entry into the hard discount sector. This year's hard discount market is fiercely competitive, and Hema is not alone. On October 10, Yonghui Superstores announced the launch of 'authentic discount stores' in its nationwide outlets, adding discount sections to its online app and mini-program, offering surprise discounts on food and daily necessities. When brands positioned as high-end join the hard discount fray, terms like 'delicate poverty' and 'tightwad economy' come back into the spotlight. This contradiction, like falling from a pedestal, always sparks high public attention. The news heat will gradually cool, but the impact persists. Why is Hema joining the price war? How is the consumer experience? What opportunities and challenges lie ahead?
Hema's price cuts: mixed consumer reviews?
Consumer reactions to Hema's price cuts are sharply divided. Take consumer Xiaohua, for example. Living in Jinan, Xiaohua is a loyal fan of Hema Fresh, shopping there 2-3 times a week. Since Jinan has no membership stores, she never enjoyed member prices. Upon hearing the news of the price cuts, she immediately shared it with friends and posted a shopping guide on Xiaohongshu. "Hema's quality has always been good. The sudden price cut was a pleasant surprise. Today I bought more than usual," Xiaohua said. On October 22, New Distribution visited a Hema Fresh store in Beijing and observed many 'temporarily out of stock' tags on shelves, especially in the popular beverage section. "Out of stock. Once restocked, the tags will be changed," a Hema staff member said regarding the price tags. It was clear business was booming, even a bit chaotic.
However, not all consumers are as delighted as Xiaohua or making additional purchases. Some membership cardholders found that offline exclusive prices and member discounts do not stack, and the member discount price is not as cheap as the offline exclusive price. When trying to cancel their cards, they were told refunds are not supported. The store displays reminder signs everywhere. I compared prices of some items and found that, overall, member discount prices are indeed not as cheap as offline exclusive prices. The somewhat controversial pricing has left many membership cardholders dissatisfied.
In response to consumer dissatisfaction, Hema staff said the price difference between online and offline is mainly to guide customers to physical stores. It is still in a trial phase, and if there are too many complaints, changes may follow. Consumers are not buying this vague explanation, and criticism is growing. It remains to be seen how Hema will adjust. However, Hema's intention to 'guide customers to stores' has room to be realized. I interviewed several consumers aged 25-30, who all said, "We've always liked Hema's shopping environment. With lower offline prices, we'll definitely visit stores more often."
Why 'very cheap'?
"Compared to supermarkets like RT-Mart, Hema's products are pricier but the quality has always been good," said consumer Xiaohua. In many consumers' minds, Hema's price and quality are linked, offering value for money.
However, as the economy slows and consumption weakens, discount formats are emerging. According to the National Bureau of Statistics, total retail sales of consumer goods in 2022 were 43.9733 trillion yuan, down 0.2% from the previous year. Beyond the NBS report, Bain & Company and Kantar Worldpanel's 'China Shopper Report 2022, Volume 1' provides more detail. The study shows that under the uncertainty caused by the pandemic, consumers have become more cautious and price-sensitive, and volatility will become the new normal.
Many discount stores sprouted against the backdrop of tightening consumer wallets, such as Zhekouniu and Haotesmai. Hema also began preparing in this context, opening its first 'outlet store' in October 2021, adopting a soft discount model with clearance sales, targeting lower-tier markets. By 2022, Hema began clearly focusing on the discount model, shifting outlet stores toward a hard discount format. According to data released by Hema CMO Zhao Jiayu, Hema Outlet and Neighborhood grew by 555% in 2022. The success of Hema Outlet confirmed the feasibility of Hema's transition to hard discount. Until this year, Hema fully embraced hard discounting, which seems sudden but is also expected.
"So far, Hema is profitable. But after the Spring Festival this year, we clearly felt the consumption environment change under economic pressure, and the issue of 'Hema's high prices' began to surface. If we don't change today and stay in our comfort zone, consumers will leave in the future. So, short-term pain is better than long-term pain. Only by repairing the roof on sunny days can you avoid getting wet on rainy days," Hema founder and CEO Hou Yi said in a media interview. Hou Yi's remarks represent Hema's awakening and determination. Hema's store base gives it an advantage in transitioning to discount stores, with some media even suggesting that 'Hema could become China's ALDI.'
Does the low-price battle have a future?
Everything has a chance of success and failure. In my view, for Hema, breaking out of its comfort zone is not easy. Strategic transformation means there's no turning back; if it fails, it will be hard to recover.
Future opportunities and challenges coexist, and the specific development will take time to assess. But compared to other traditional supermarkets, Hema's attempt at the hard discount segment is relatively thorough. Most traditional supermarkets only scratch the surface of discount stores, or lack the courage to fully innovate. For example, many traditional supermarkets open discount sections but fail to optimize their supply chains. While low prices can attract traffic, they don't improve efficiency and may harm existing interests. Hard discounting is essentially about supply chain optimization and efficiency improvement, with low prices being the final result.
While preparing for the hard discount transition, Hema has been continuously optimizing its supply chain. On one hand, it's optimizing supply chains for non-private-label products, both domestic and international. For overseas products, Hema bypasses suppliers and imports directly from origin. For local supply chains, Hema has built a vertical supply chain system without middlemen. As of May this year, Hema had built 185 Hema villages nationwide, supplying over 300 Hema Fresh stores. On the other hand, it's building private labels. Hard discount stores often cannot avoid the path of private labels.
Hema CEO Hou Yi stated in 2019 that within three years, private label sales would account for over 50% of total revenue. According to the latest data released by Hema in October 2022, private label sales accounted for about 35%. When New Distribution visited a Hema Outlet in Shanghai, we noticed an interesting display: basically every major brand had Hema's private label, Hema NB, placed next to it, increasing the likelihood of consumers buying Hema NB. While private labels can control profits and maintain low prices, quality is also crucial. If quality isn't maintained, consumers won't buy. Browsing platforms like Xiaohongshu and Weibo, I saw many consumers questioning Hema's quality. Hema's future development, besides optimizing hard conditions like supply chain, also depends on whether it can stay true to its original intent and maintain quality, which is one of the key factors determining victory or defeat. Apart from its own factors, the hard discount path Hema is on has already attracted many traditional supermarkets, including Yonghui, Jiajiayue, and Renrenle, all of whom have entered the fray. Intense competition is inevitable, and the answer to 'whether it can survive the cycle and win' will take time to reveal.