---
title: "Hema's Transformation: Discord Among Stakeholders"
description: "Hema has been embroiled in controversy for months due to its discount-oriented transformation, facing backlash from brands and suppliers over price cuts and SKU reductions. Despite criticism, Hema remains committed to the change, aiming for 500 Hema Outlets by 2024 and a 1 trillion yuan retail market in the next decade."
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published: "2024-01-19"
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# Hema's Transformation: Discord Among Stakeholders

> Hema has been embroiled in controversy for months due to its discount-oriented transformation, facing backlash from brands and suppliers over price cuts and SKU reductions. Despite criticism, Hema remains committed to the change, aiming for 500 Hema Outlets by 2024 and a 1 trillion yuan retail market in the next decade.

Da Jun

Due to its discount-oriented transformation, Hema has been in turmoil for months: In October 2023, Hema announced the launch of its discount transformation. That same month, Hou Yi revealed that Hema was "sentenced to death" and "blocked across the internet" by some brand owners due to price cuts. On November 3, Wang Yumeng, founder of Chabiubiu, publicly criticized Hema for pushing low prices and forcing brands to cover the difference. Nineteen days later, on November 22, Hema held its 2023 New Retail-Supply Conference, where companies like Yunling Fresh, New Hope, Classy Kiss, and Jinmailang reached strategic cooperation agreements totaling nearly 10 billion yuan with Hema. On December 13, Hema's app stopped accepting new X Membership sign-ups and renewals, sparking market discussion. Three days later, on December 16, Wang Xiaolu announced it would stop cooperating with Hema's system. Fifteen days later, on December 31, Hou Yi revealed that Hema Outlets would fully launch nationwide, with plans to open 500 Hema Outlet stores in 2024. Hema's discount transformation is caught in a multi-party tug-of-war.

"After Hema unilaterally adjusted prices, we faced accountability from various channels, including supermarkets and convenience stores positioned as mid-to-high-end like Hema. They believed Hema's low-price strategy was instigated by the brand owners. Because the low-price strategy compressed the gross margin space for brand owners and suppliers, even leading to negative gross margins, while Hema maintained normal gross margins, with losses borne by brand owners and suppliers," a food industry insider expressed their awkward situation to the author. Recently, regarding Hema's discount transformation, we spoke with several brand owners and suppliers who have or had cooperative relationships with Hema, attempting to reconstruct the game behind this "Hema discount storm" from multiple perspectives. We also sought verification from Hema on relevant content, but as of press time, we had not received a response from Hema.

## **When the "Streamlining" Axe**
## **Fell on Chabiubiu**

Despite receiving warnings, Wang Yumeng was still caught off guard when Hema actually launched its discount transformation. In 2018, Wang Yumeng founded Chabiubiu. It is understood that Chabiubiu focuses on whole-leaf tea, with main product lines including private reserve whole-leaf tea, selected tea series, and special blended fruit teas. In its early days, Chabiubiu entered the market through mid-to-high-end channels such as imported supermarkets, five-star hotels, high-end restaurants, and boutique coffee shops, and has won awards such as Tmall's Best New Brand and Tencent's Top 100 Supernova Brands.

Image source: Chabiubiu WeChat mini-program

Image source: Commercial Observer

In this WeChat Moments post, Hou Yi's views on brands, prices, and monopoly, though strongly worded, were also a response to Wang Yumeng's questioning of product price perception. Before this, the game between brands and channels had been hidden beneath the surface—until Wang Xiaolu publicly released its "Notice," bringing this contest, full of "consumers" but without consumer participation, completely to light. In December 2023, Wang Xiaolu's official WeChat account published the "Notice on the Company's Cessation of Cooperation with Hema System." The notice stated: From that day forward, the company would stop cooperating with Hema's system, and all current cooperative distributors/dealers were prohibited from supplying Hema's system; any violation would be handled strictly according to the cross-regional sales policy.

Image source: Professional Retail Network

To some extent, this was a necessary move for Wang Xiaolu in response to Hema's transformation. Before "going tough," Wang Xiaolu had stopped supplying to Hi-Tech Go for similar reasons. Both "supply cutoffs" share a common background: **Wang Xiaolu is undergoing a management campaign targeting price stability and cross-regional sales by offline distributors.** Price stability refers to the product's price system. Improper price management often leads to chaotic sales channels, multiple prices for the same product at different sales terminals, and consumer doubts about product prices. Wang Xiaolu's founder, Wang Xiong, calls stable pricing the "first lifeline" of FMCG and the "top leader's project," and distributor cross-regional sales have a direct causal relationship with "price collapse." Distributor cross-regional sales refer to distributors selling in unauthorized channels. On one hand, this leads to unstable market prices and more intense price wars among sales channels; on the other hand, since cross-regional channels typically offer lower prices, normal sales channels may see reduced orders due to declining sales and weakened relationships with the brand. **Under chaotic pricing, brands face inefficient channels and marketing systems, harming overall interests.** Conversely, stable pricing reflects a brand's channel control capability and is the foundation for stable profit sharing with distributors and a stable distributor system, playing a decisive role in long-term offline expansion and intensive cultivation. Wang Xiong first discovered distributor cross-regional sales in June 2021, exactly one year after Wang Xiaolu went offline. In July of the same year, Wang Xiong immediately began a series of adjustments: cutting chaotic promotional policies, stabilizing ex-factory prices, replacing some distributors, establishing a price committee to strictly control pricing, and introducing external supervision mechanisms. However, Wang Xiaolu's distributor cross-regional sales and price chaos issues were not fully resolved.

Wang Xiaolu x Calabash Brothers co-branded Tiger Skin Chicken Feet
Image source: Wang Xiaolu

At the 2023 Channel Partner Conference, Wang Xiong apologized to distributors who suffered losses, saying, "Everyone describes our company's pricing as 'collapsed.' Whether online channels or offline wholesale markets, pricing is already very chaotic, and I've even been researching the pricing for 210g and bulk products recently." This time, Hema reduced the price of Wang Xiaolu's 210g Tiger Skin Chicken Feet from the official price of 29.9 yuan to 19.9 yuan, undoubtedly bringing Wang Xiaolu's pricing instability back into the spotlight. Wang Xiaolu is not the only brand whose pricing has been disrupted by Hema's transformation. According to Hou Yi, Mengniu's Telunsu also stopped supplying Hema and "blocked Hema across the internet" due to Hema's price cuts and disruption of the brand's "monopoly pricing." Wang Xiaolu's "Notice on Cessation of Cooperation with Hema System" was deleted shortly after publication, but the "Notice on Cessation of Supply to Hi-Tech Go System" remains. In response, a Wang Xiaolu representative told the media, "The suspension of cooperation with Hema is a phased action based on pricing management and maintaining market order. **Currently, we are actively promoting a new cooperation model with Hema that complies with the pricing management system."**

## **Embracing Discounts**
## **Fu Bi Xing Chooses to Proactively Cut Prices**

Hema's axe against brands seems inevitable. In November 2023, Hou Yi explained the necessity of Hema's discount transformation at the New Retail-Supply Conference, mainly in three points:

> 1. Enterprises adopting a discount operation model have higher efficiency in the supply chain, stronger innovation in products, and higher cost-performance in value. 2. Physical retail enterprises lack price competitiveness and are at a disadvantage in low-price competition with e-commerce. Hema Outlets have already verified that when physical stores have price competitiveness, they attract more traffic, operate more efficiently, and have lower operating costs. 3. The exit of other offline formats provides locations and opportunities for Hema's discount stores.

Translated, this means: **Discounting is a major trend with many benefits, already proven feasible in some places, and facing e-commerce's ultimate cost-performance, Hema must change.** In fact, this is not Hema's first step toward discounting. Hou Yi described the capabilities Hema has developed and tasks it must complete at different stages. In the 1.0 era, Hema developed service capabilities, brand capabilities, and innovative product differentiation. This corresponds to the 2.0 era, where Hema must address price competition by building vertical supply chains for products to cut unnecessary costs, strengthen product and brand capabilities, and become a truly omnichannel sales company. The relationship between this transformation and brand owners and suppliers is that Hema needs both as the main participants, cooperating with Hema in price competition, vertical supply chain construction, cost reduction, and product innovation.

Fu Bi Xing Liquor did not resist this transformation. Fu Bi Xing Liquor is one of Hema's suppliers for private-label liquor products. In this round of transformation, the number of SKUs cooperating with Hema was cut by over 60%. Founder Yang Zhe does not shy away from discussing this; he told us that Hema's SKU streamlining is not necessarily all bad for him. Yang Zhe believes that Hema's organizational and commercial adjustments are forcing suppliers to restructure and develop rapidly, enabling both parties to enter a new cooperative state, which actually places higher demands on suppliers' capabilities. Price cuts and SKU reductions mean the mature, stable system faces turbulence. But based on longer-term considerations, Fu Bi Xing Liquor is willing to accept the challenge from Hema's transformation. "Today, we must cater to the trend of rational consumption and greater concentration. The market doesn't need as many 'novel and unique' products as before, but rather basic items that satisfy self-pleasing needs. Making more certain products is also one of our strategic directions this year. **For basic items, prices must be pushed to the extreme; otherwise, there's no competitiveness," Yang Zhe said. "Novel and unique" refers to products with a certain creativity that solve specific needs but have a small audience and a relatively high proportion of impulse purchases. The background for such products is usually that merchants create a blank market in a vertical niche to avoid competition. Yang Zhe told the author that from 2021 to the first half of 2022, Fu Bi Xing developed a total of 583 SKUs, almost one new SKU per day. Yang Zhe added that to ensure small-batch, quick-return production for "novel and unique" products, the company had to build a flexible supply chain, leading to high variable costs and operational risks. High costs and expenses constrained the company's pricing strategy, resulting in product prices higher than the industry average. In August 2023, Yang Zhe decided to shrink the business line, shifting production to basic items like white beer, rice dew, and plum wine, and cutting some operational, warehousing, and personnel costs, thereby lowering product gross margins to maintain the company's core price competitiveness.

Fu Bi Xing Liquor production line
Image source: Fu Bi Xing Liquor official WeChat account

After that, he began visiting customers frequently every month to understand the latest market prices and proactively lowered supply prices to retailers. "The low-price wave stems from low-price inventory clearance at the supply end," a widely circulated view that Yang Zhe does not fully endorse. He believes **inventory clearance is only a short-term market behavior; the greater force behind the low-price wave comes from two long-term behaviors.** **One is subjective changes at the supply end.** China, once the world's factory, has enormous production capacity. In recent years, export-oriented enterprises have begun to focus on the domestic market and increase investment, intensifying competition in the mid- and upstream of the industry chain. **The other is objective changes at the consumption end.** After China's GDP per capita exceeded $10,000, consumption shifted from satisfying needs for pleasing others, personalization, and diversity to satisfying stronger commonalities, like concentric circles of self-pleasing and rational needs. The combination of multiple changes forms the foundation for this round of Hema's supply chain reform. "No enterprise can define what profit each link in the industry chain should enjoy; it is determined by supply and demand. **When supply is excessive, corporate gross margins become as thin as paper. If companies want high gross margins, they need innovation, using innovative products to lead new demand," Yang Zhe said. In October 2023, as Hema began price cuts, Fu Bi Xing proactively lowered supply prices for all products, with gross margins for similar products of SKUs cooperating with Hema falling by over 30%.

## **"Tough Guy" Hema, Firm in Transformation**

Similar to Wang Yumeng, in August 2023, with the official launch of Hema's "Move the Mountain" price, brand owner Chen Yang began to feel a vague unease. Many brands were "passively" drawn into Hema's "Move the Mountain" price. However, as the campaign progressed, Chen Yang discovered that Hema began high-intensity web scraping for price comparisons, including against Pinduoduo. "If any channel had a lower price, Hema would directly adjust its price to match." When Hema asked for a product cost analysis table, Chen Yang's unease turned into resistance. **"Hema wanted very detailed cost analysis, including formulas, raw material prices, packaging costs, and OEM costs, directly touching our protection of core brand assets."** Chen Yang's unease has not ended to this day. The "Move the Mountain" price campaign, which began last August, eventually evolved into Hema's discount model, and brands shifted from short-term participation to regular participation. Hou Yi summarized Hema's discount model with three keywords: **Low Price, Low Cost Operation, but Unique.** Ideally, all three will work together to truly achieve demand creation and efficiency upgrades, allowing Hema to operate healthily under low gross margins. Yang Zhe once calculated: Assuming same-store sales do not grow, if Hema compresses SKUs from 5,000 to 2,500, then Hema would need to double procurement per SKU. If the overall market demand is weak and sales are poor, Hema's increased procurement is friendly to factories. According to data revealed by Hou Yi, after implementing the "753" price system in Hema Outlets—where KA products are priced at 70% of hypermarkets, private-label products at 50%, and near-expiry products at 30%—**sales per square meter are about 10 times that of hypermarkets.** Wang Yumeng believes Hema's significant price cuts are extremely detrimental to brand owners. After Hema demanded a 50% reduction in both sales and supply prices, companies face unified price control across similar channels, disrupting the original sales system. After **companies readjust their unified pricing, the profit space is insufficient to support brand-distributor cooperation, even affecting the brand's cost structure.** Facing various doubts, criticisms, and opposition, Hema does not seem to be stopping. Currently, Hema has removed about 64% of SKUs and planned an ideal category structure of "wide categories, narrow depth." Internally, corresponding adjustments have been made, establishing a "Finished Goods Department" centered on factories and a "Fresh Products Department" centered on bases. The Finished Goods Department adopts a vertical supply chain, focusing on "customized ODM (Original Design Manufacturer), OEM (Original Equipment Manufacturer), and joint investment in factory construction" models to reduce circulation links and minimize costs; the Fresh Products Department addresses Hema's core production area issues and seasonal supply issues. In terms of specific cooperation forms, Zhang Yu, procurement director of Hema Fresh's Finished Goods Department, stated that all OEM products will be co-created with strategic suppliers, jointly developed and promoted with production enterprises, and ODM customized products will be made with brand enterprises. "Without touching the price system of brand owners' large-circulation products, we have already formed ODM cooperation with many brand enterprises." **Under the premise of abandoning traditional procurement models, Hema attempts to reconstruct new retail-supply relationships with KA suppliers, jointly developing the market and the future.** Currently, companies like Yunling Fresh, New Hope, Classy Kiss, and Jinmailang have reached strategic cooperation agreements totaling nearly 10 billion yuan with Hema. At the same time, Hema Outlets have started nationwide expansion, planning to open 500 stores in 2024. According to Hou Yi, Hema Outlets are currently positioned for ordinary people, solving daily meal needs, following a route of basic quality assurance and price competitiveness. Hou Yi expects Hema Outlets to expand at a rate of 1,000–2,000 stores per year in the future, as a true discount store, breaking through price floors. Hema Fresh and Hema X Membership Stores remain positioned for middle-class and above consumers, following a route of good products at reasonable prices. The difference is that Hema Fresh solves daily meal problems, while Hema X Membership Stores solve daily life problems. Additionally, both are expanding mainly in provincial capitals and first-tier cities. Notably, to accelerate the full promotion of discounting, the Hema app stopped accepting new X Membership sign-ups and renewals in December last year. The comprehensive offline price cuts and the cancellation or change of specific member benefits have sparked confusion and controversy among paid members. The current discounting, like the X Membership strategy at the time, is being firmly implemented.

Image source: Hema official WeChat account

The "Hema X Membership" plan was first piloted in Shanghai in April 2018. During its accelerated promotion in 2021, Hou Yi explicitly stated that the membership store model would be used to "create Hema's second growth curve." Cai Ronghong, then general manager of Hema X Membership Store Division, was also confident about the plan: "As long as we persist and form advantages, it will become another core competitiveness that differentiates us from competitors." Before this round of membership strategy adjustment, Hema Fresh store staff generally bore promotion KPIs, and store guides often wore cards guiding customers to sign up for X Membership, using red envelopes and other discounts to recommend membership. According to public data, the first Hema X Membership Store in Shanghai Pudong achieved profitability two months after opening, with an average transaction value exceeding 1,000 yuan and daily peak revenue exceeding 10 million yuan. To date, Hema X Membership Stores have reached 10, with a membership scale of 3 million, accounting for 5% of total registered members, and annual membership fees contributing 588 million yuan in revenue to Hema. Chen Yang also expressed incomprehension at Hema's transformation actions. What he saw was a large number of brand products being removed, leaving large gaps on shelves. **Hema had to source from wholesale markets to fill shelves, but still sold at discounted prices, leading to resistance from brand owners, including major brands.** "As brand owners and suppliers, we have always positioned Hema as a mid-to-high-end channel. Since Hema also needs mid-to-high-end brands, why make things so unpleasant?" The discount transformation is still advancing, and Hou Yi expects Hema to achieve a 1 trillion yuan retail market in the next decade.

(Chen Yang is a pseudonym in this article)

**PS**: **From March 14-16, 2024, the 9th China FMCG Innovation Conference, the 2nd China FMCG Hard Discount Conference, and the 2nd China FMCG Distributor Conference will be grandly held in Chengdu!** This conference will focus on the theme of **"Supply Chain Revolution"**, with 3 days, 1 main forum, and over ten sub-forums and closed-door exchange sessions. We will gather with thousands of FMCG brand owners, distributors, retail transformers, and industry service providers from across the country in Chengdu to discuss the challenges and opportunities, changes, and ways out in the era of supply chain revolution. In this era of supply chain revolution, a new business era will be born. We hope every participant will still have a place in this wave, and we believe this will be a worthwhile meeting!

**🔺Scan for ticket inquiries🔺**


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