In the reshuffling of the retail industry, Alibaba's Hema has emerged as a dark horse. Undeniably, Hema is an excellent local representative against foreign retail giants. Even Walmart executives have mentioned in internal meetings that Hema is Sam's Club's only competitor in China. In late July this year, Hema launched its 'Move the Mountain' pricing action with a durian mille crepe cake, seen as a high-profile declaration of war against Sam's Club. ▲ Source: Hema App Indeed, real business warfare is this simple and unadorned. When businesses engage in price wars, consumers are delighted, but after the excitement, can Hema really win over Sam's Club users? And how many peripheral users has it attracted? It is reported that sales of the durian mille crepe cake in Shanghai alone once surged by 26 times. This battle must have had a significant impact on Hema, and now it has done something even bigger—firing a shot at its own members. Recently, many consumers have reported that they can no longer open or renew memberships on the Hema App. Subsequently, Hema officially confirmed this news, stating that due to business adjustments, starting from December 13, it will no longer support the opening or renewal of Hema X memberships. ▲ Source: Xiaohongshu netizens This means that Hema's paid membership business, launched in 2019, may come to an end by the end of 2023. Hema has a relatively rich business format, including X Membership Stores, Hema Fresh, and Hema Outlets, covering large, medium, and small segments. The paid membership model mentioned above mainly targets Hema Fresh and X Membership Stores, with adjustments particularly to the membership system for the former. Currently, X Membership Stores have closed the online renewal entrance but still support offline store membership applications, while Hema Fresh has stopped both online and offline new membership applications. From being spun off from Alibaba to pursue an independent IPO, then temporarily shelving the IPO, to now readjusting its membership business, every step shows Alibaba's high hopes for Hema and the heavy burden on Hema's shoulders. For a long time, everyone has taken it for granted to classify Hema as a disciple of Sam's Club, adopting the membership model, streamlining SKUs (stock keeping units), developing private brands, and targeting middle-class consumers... Indeed, these are their similarities, but Hema, at 8 years old, is still a child and has a long way to go to catch up with Uncle Sam, who has been in the retail industry for 40 years. First, it needs to find its own differentiated path. Canceling the membership model might be Hema's turning point. This stems from Hema's comprehensive discount transformation that began over two months ago, which is the advanced version of the 'Move the Mountain' pricing. At that time, we all thought Hema was launching a temporary attack on Sam's Club, and that prices would return to normal after a few days of promotions. Unexpectedly, Hema played big this time. It directly cut the 8,000 SKUs in Hema Fresh stores to 5,000 and reduced prices by 20% on major categories such as dairy products, instant foods, washing and care products, and frozen meat, poultry, and aquatic products. ▲ Source: Finance Story Club A full price reduction is absolutely beneficial to general consumers, but Hema members are speechless, feeling like fools for purchasing memberships at a minimum of 258 yuan. The 88% discount that members previously enjoyed on fixed dates has lost its value because now everyone can enjoy the 'offline exclusive price' at Hema Fresh stores without any threshold, which is even cheaper than the member price and not limited to specific days. According to public reports, Hema has accumulated 3 million paid members, accounting for 5% of total registered members, and annual membership fees contribute 588 million yuan to Hema's revenue. In this situation, halting the membership business not only loses hundreds of millions of yuan in net profit each year but also thoroughly offends its paid members and a group of suppliers who have been 'blacklisted' due to price disagreements. Hema's move of burning its boats makes all consumers members, leaving Sam's Club bewildered. One thing is certain: no matter what strange tactics are used, the underlying purpose is the same—to compete for more users and retain them as much as possible, that is, to expand the user base and increase repurchase rates. How to do it? By what means? Not just low prices, but quality-assured low prices. Hema Fresh founder and CEO Hou Yi once said: 'Making good products not expensive, bringing down the prices of the best and high-end products, that is the real skill.' To this end, the '753' price system has become Hema's main development direction in the future. That is, KA (key account) products are priced at 70% of market price, private brand products at 50%, and near-expiry products at 30%. 'Bringing down prices' is a resounding slogan, but in practice, it means significant losses for suppliers, which will inevitably lead to resistance and boycotts. Previously, some merchants have threatened to 'block Hema across the internet.' Hema has also taken this opportunity to eliminate merchants that could not agree on prices and actively increase the sales proportion of private brand products. And those suppliers willing to run this marathon with Hema have also been forced to unleash greater potential in product production and innovation during the painful period. For example, Cao Hui, chairman of Huzhou Tesila Beer Co., Ltd., which supplies craft beer to Hema, said, 'It has been really painful. The initial price of craft beer was 49 yuan for 650ml. Hema said it wanted to sell it at 19.9 yuan per liter. I said it was impossible, but now, after going through this journey, we have been able to achieve 13.9 yuan per liter.' ▲ Source: Hema App This forces suppliers to strengthen stricter management of raw materials, production, and other links, improve efficiency to save costs, and provide more competitive products. After three years of the pandemic, national consumption has become increasingly rational, and cost-effectiveness has become a common pursuit of all consumers. In this market environment, discounting has become the main theme of the retail industry. Either join the battlefield and compete, or be automatically optimized. From snack discount stores defeating high-end snack brands like Liangpin Shop and Three Squirrels, to Sam's Club, Hema, and Costco forcing out traditional supermarkets like Carrefour and Yonghui, the power of discounts is self-evident. Hema, which became famous for its fresh e-commerce label, now has another 'awkward' aspect. Online prices are generally higher than those in offline stores. For example, a 250ml can of Red Bull sells for 5.9 yuan online, but the offline exclusive price is 3.9 yuan; a box of 335g Li Ziqi luosifen (rice noodles) sells for 9.9 yuan offline, which is 2 yuan cheaper than online. ▲ Source: Zinc Finance Hou Yi's explanation is that online delivery costs are too high. In fact, looking at Hema's new store locations in the past year, it is clear that it has intentionally shifted its operational focus towards offline stores. The new Hema stores opened this year are concentrated in prime commercial areas with stronger consumption power, higher willingness to consume, and denser consumer populations, aiming to compete for more offline foot traffic. This can also be seen as a measure to avoid direct confrontation with Sam's Club and Costco. Looking back, Hema Fresh feels like a bit of a hybrid: a traditional hypermarket with streamlined SKUs, and an alternative warehouse membership store that focuses on small packages and does not require a ticket. Unlike Hema Fresh's consistent 'warehouse-store integration' model, Sam's Club has set up nearly 500 front warehouses nationwide, with JD.com's Dada responsible for same-city delivery. In major urban areas of many cities, Sam's Club has achieved 1-hour delivery to home. ▲ Source: JD Daojia Currently, Sam's Club front warehouses average 1,000 orders per day, with an average order value of 230 yuan. Based on this, annual GMV reaches 40 billion yuan. Almost every Sam's Club front warehouse can achieve profitability, with the key to success being the average order value far higher than peers, while Hema's online average order value may not exceed 100 yuan. In addition, Sam's Club's free delivery threshold for express delivery is 99 yuan, while Hema's free delivery threshold is no more than 50 yuan. So, this is why Hou Yi said that online costs are high and it is difficult to balance profit and loss. According to Internet Brand Officer, China's Sam's Club stores had revenue of about 66 billion yuan in 2022. Based on 42 stores (excluding the latest 3 newly opened), the average annual revenue per store is about 1.5 billion yuan. In comparison, during the same period, Hema Fresh had 300 stores with sales of 61 billion yuan, averaging over 200 million yuan per store. The gap of almost 8 times is indeed significant. For a long time, large packaging has been a major complaint about Sam's Club, but judging by the current momentum of Sam's Club's expansion and revenue growth, Chinese people are still very willing to join Sam's Club's membership camp in the absence of a better solution. Sam's Club also effectively reduces various costs through large packaging and incidentally obtains higher average order values. ▲ Source: Weibo netizens Over the years, Hema has repeatedly tried and adjusted its retail business model but has never found a mature model. Hema's 'Move the Mountain' action is more like a primary school student provoking the grandmaster Sam's Club. It has gained voice in public opinion, but the real competition in the business world has never been about fleeting topics and popularity; it is about product quality, price, and service that can withstand the test of time. Based on this, we still hope that more local discount supermarkets that are more suitable for Chinese family structures than Sam's Club can open nationwide. Enough said, it's 2024 in the blink of an eye, and we can only look forward to Pang Donglai with longing.