---
title: "Hou Yi's Personal Account: Reflections on Hema"
description: "Hema's new retail has been running for over three years, and today I share some insights. In the past year, many online articles claimed that Hou Yi led everyone into a pit, so my topic today is 'The Battle to Fill the Pit in 2019'. Last year, many startups tried new retail and then withdrew. Even a top physical retailer's Hema-like concept has fully exited Shanghai. Many internet and startup companies have tried various 'Hema-like' models, and basically all have left the market. Including..."
author: "侯毅"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
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published: "2019-05-02"
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# Hou Yi's Personal Account: Reflections on Hema

> Hema's new retail has been running for over three years, and today I share some insights. In the past year, many online articles claimed that Hou Yi led everyone into a pit, so my topic today is 'The Battle to Fill the Pit in 2019'. Last year, many startups tried new retail and then withdrew. Even a top physical retailer's Hema-like concept has fully exited Shanghai. Many internet and startup companies have tried various 'Hema-like' models, and basically all have left the market. Including...

Hema's new retail has been running for over three years, and today I share some insights. In the past year, many online articles claimed that Hou Yi led everyone into a pit, so my topic today is 'The Battle to Fill the Pit in 2019'.
Last year, many startups tried new retail and then withdrew. Even a top physical retailer's Hema-like concept has fully exited Shanghai. Many internet and startup companies have tried various 'Hema-like' models, and basically all have left the market. Many retailers learned from Hema, bought big seafood, and set up dining tables, but this year it seems no one is talking about it anymore.
Today, let's return to the essence of retail: **What exactly is new retail? Why are there so many pits to fill?** If you can't fill these pits, you have to exit the market.
What breakthroughs has new retail made over traditional retail? Has it succeeded? This needs to be tested by practice.
**Reflections on Hema**
**First, are packaged foods competitive?**
Selling fully packaged food is common in developed countries, but not yet widespread in China's supermarket industry. Apart from premium supermarkets, Hema was the first to introduce fully packaged food. There was much controversy then, and still is today, because packaging significantly increases costs.
For example, packaging like this adds losses from weighing and packaging, plus the cost of materials, increasing costs by about 10 percentage points. Once vegetables are packaged, the price roughly doubles, or even more (if the vegetables are cheap).
Do consumers like these packaged goods? Can they afford them?
**In core cities, among younger groups with higher time demands, they prefer packaged food for cleanliness and convenience, and are willing to pay extra. But in many communities and suburbs, packaged food faces some limitations.**
So today, we are still thinking about whether we must use packaged food.
**Second, is big seafood still attractive?**
When Hema opened its first store, I said we were lucky to find a path of differentiation from other supermarkets and hypermarkets, because no one else was selling live seafood. Hema learned from Taiwan's Shang Yin Aquatic Products and brought that model to the supermarket. We persisted and made big seafood work.
In fact, consumers are fickle; they get tired of many things. So today, Hema's big seafood is still sold, but it's no longer a main product. People need live seafood they use daily, like the swimming crabs from earlier, the crayfish coming soon, or the hairy crabs from before. Ultimately, people need live seafood that has become a long-term consumption habit.
So, if you think putting a few big seafood items will bring the whole market, that's hard. Because the market changes. Hema is also keeping up with the times; although big seafood is still sold, it's not as sought after as in past years. If you still sell big seafood in new retail today, it will basically be effective for a month, and after that, people will say it's not tasty.
**Third, is innovation sufficient?**
Countless people are learning from Hema's dining—the linkage between dining and supermarkets. Dining has become standard in new retail, and I think everyone has had mixed experiences.
For Hema, how does the value of dining as a standard feature manifest? Is its floor efficiency the most scientific? We are reflecting on this today.
We found that dining works well in city centers because many people come for lunch, but in communities, from Monday to Friday, lunch business is scarce. So we are reflecting: **In which types of commercial areas should we have high-configuration dining, and in which should we have low-configuration dining?**
For us, refined operations require considering these things, otherwise, you'll fall into the new retail pit.
**Fourth, can online logistics costs be covered?**
I think many traditional retailers have tried online sales. Some supermarkets have integrated numerous apps: home delivery apps, Meituan, Ele.me... After integrating all, they find some sales, but the costs of picking, packing, and delivery far exceed the gross profit, so it looks good but isn't practical.
Can online become a profitable path for retail in the future? For most retailers, this is a huge challenge. What's the core? It's whether the gross profit per order can exceed logistics costs.
Gross profit per order is determined by average order value and gross margin. Hypermarkets have gross margins of 18-20% and average orders around 50 yuan. If you want online success, with a gross margin of only 20%, your average order must be at least 80-100 yuan to truly profit, or you need a 25% gross margin. Is a 25% gross margin still a hypermarket? Absolutely not; that's a premium supermarket.
If you're still a hypermarket and can achieve 25% gross margin, unless you have different prices online and offline. **If you have the same price and want to do online, then the hypermarket must transform, improve quality, and raise gross margins.**
If you stay at the hypermarket level, you'll never make money online. That's our insight.
**Fifth, is Hema Fresh the best business model?**
We were once proud to replicate Hema's model nationwide, ensuring it was copied without deviation, so Beijing Hema, Shanghai Hema, and Chengdu Hema were almost identical.
After opening over 100 stores in 19 cities last year, we found that if Hema Shanghai, Beijing, and Chengdu were the same, there would be big problems.
Because fresh produce is highly regional and closely related to local consumption habits. If you copy directly, the so-called new retail will only be popular for about three months. Because people haven't seen new retail before, 'Oh, Hema is here,' so business is great initially, with many driving over, like Beijing's first store causing traffic jams for three months, with queues to enter the parking lot taking two hours.
But if by now Beijing stores are doing well, there must be other reasons; you need to see what they're doing. They focus on what products are needed in Beijing, adjust the product structure significantly, and sales have grown substantially, with monthly growth of over 20%.
So, today's new retail is definitely not one version, **and today's Hema Fresh is definitely not just one product structure; it must adapt to local conditions and return to the fundamentals of retail.** There's a basic theory called **positioning theory**, **which means configuring according to different cities and commercial areas, matching local consumers' income levels and consumption habits.**
After three years of Hema, I believe the battle to fill the pit is about returning to the essence of retail, positioning theory, category planning, pricing strategy, and precision marketing. These theories, whether for e-commerce, offline, or new retail, are the starting point.
**What is the essence of new retail?**
There are many pits to fill, and as Alibaba, we have the responsibility to overcome difficulties and fill them.
Another question: does new retail have value?
Personally, I think **new retail replacing traditional retail is a trend that cannot be reversed.**
I once thought we could change traditional retail enterprises, but today it seems a carriage can't become a car. From top-level design, technology, and consumer perspectives, reconstructing a new retail industry is the future. So let me explain the essence of new retail.
**First, sales efficiency in new retail.**
Everyone has shopped on their phones; its convenience is far higher than in-store shopping. To find a product, you just search, making sales efficiency highest. Here, we think there are several key points.
One is multiple online channels. I heard Carrefour say they will be on all apps, so their inventory can be sold across multiple channels. Hema is the same; soon, Hema will be on Taobao, Tmall Supermarket, Ele.me, and even Alipay. **Through multiple online channels, we reach consumers at different touchpoints.**
**Second, digital precision marketing.**
You need to know who to sell your products to, how to sell, and what they can accept. **With precise digital marketing, Hema can proudly say we've far surpassed traditional retail.**
We know which products sell well and to whom. For example, we launched a soy milk product; originally 250ml sold for 2.5 yuan, then we made a 750ml family pack for 10.8 yuan. From day one, it's been in short supply, sold out daily.
Why can we launch products consumers need? Because we understand what they want; no one made family packs of soy milk before, only single-serve.
We made family packs, with no additives, non-GMO, and higher concentration. Now soy milk is getting thinner, but we're making it thicker, with high gross margins and consumer approval. Then we benchmark it against milk: milk costs 20 yuan, soy milk 10 yuan—isn't that cheap? Very cheap. It's not compared to original soy milk.
**Third, all-time customer connection.**
Whether community buying, sharing buying, or group buying, you need to connect with customers at any time, which brings revolutionary changes to retail efficiency. You can reach all customers instantly.
We had a product go viral overnight across China. Why? We used the latest video streaming and Douyin, a modern tool. Through big V's and fan groups, it spread across China in a day or two, becoming a hit overnight.
In the post-80s and post-90s groups, spreading valuable products that exceed consumer expectations via the internet is very fast; a brand might be born in just a day or two. Using internet tools and new methods to connect with consumers creates huge commercial value.
First, store operation efficiency
We've achieved full digital operations in stores. Each employee has a PDI handheld terminal, completely different from before. We've developed DingTalk features on it; all daily management tasks, document distribution, meetings, communication, are all handled here.
For example, if I see something needing approval, I immediately take a photo on the PDI and upload it to a leader or start a group chat to discuss. Or if a document is issued, everyone provides feedback and uploads photos. Every night, fresh produce shelves are checked for hygiene; how? Everyone takes photos and uploads. With such digital terminals, you'll find store efficiency is very high.
Second, store digitalization
With advanced digital operations management, all store scheduling is automated, all replenishment is automated, and discounts are automatically applied based on inventory.
All tasks that previously required supervisors or store managers are now handled by computer scheduling, including remote image tracking. With digitalization and the internet, these efficiencies are far higher than traditional retail.
Stores truly achieve multi-tasking per person, so labor efficiency is much higher. When employees are free, the PDI automatically schedules them for other tasks, with piece-rate wages.
After these store transformations, you'll see a true 'small front-end, large middle platform' management. Everything that can be done by computer is done in the middle platform; people just hold the handheld terminal and follow instructions.
This model is currently the most popular; we call it the US Marine Corps operation mode. Marines fight outside; a few can fight hundreds or thousands because they have massive support—a phone call brings missiles, drones, and planes to support them.
Hema's AI-based store management system is basically complete. New retail essentially changes store operation efficiency.
Third, supply chain efficiency
Hema's most successful achievement is the first conceptual difference from traditional retail.
We used to extend shelf life to sell for more days. So strawberries were white and green at the back; melons were unripe due to long transport. Today, Hema does the opposite: we want products harvested at peak ripeness and sold in stores.
So Hema was the first to have melons from Xinjiang and fruits from Henan air-freighted, with prices roughly double the original land transport. But our products are fully ripe: mangoes can be peeled, bananas aren't force-ripened, and pineapples are harvested when golden. These products truly impress consumers, and they're basically sold within a day.
Many ask, what if they don't sell? To ensure quality, Hema has redesigned the entire supply chain from source picking, packaging, transport, to store sales, ensuring the shortest chain.
Additionally, we've designed channels to sell these products the next day. For example, fruits can still be eaten the next day; we can make banana pastries or banana bread.
**After reconstructing this industry chain, products have gained great consumer recognition. This is the reconstruction of supply chain efficiency in the new retail era.**
Hema has achieved a fully digital chain from source to consumer; our agriculture is order-based.
**How do we do it?**
Shanghai's greens are grown in Chongming, a pollution-free area. We tell farmers daily how much we need, and they plan 30 days ahead. We estimate quantities for Monday through Friday, with a 50% increase on Friday, double on Saturday, and possibly 75% more on Sunday.
So the planting plan matches the purchasing plan; they plant according to our plan and harvest everything. Through this chain, total costs drop significantly, and farmers earn more because prices are higher than wholesale. They also handle packaging, cleaning, and cold chain, earning extra income from logistics and processing services, doubling their income.
**When this order-based agriculture is fully promoted, we find this business is fully competitive. Consumers recognize quality, not price.**
We've also achieved 7x24-hour 30-minute delivery, a new retail industry standard proposed by Hema. The 30-minute delivery makes people's lives more convenient.
Our fresh produce is all under a purchasing system; we require buyers to find products to sell, not sit in offices waiting for suppliers. Because purchases are buyout, you must be diligent to find good products. If it's consignment, would you have motivation? You'd sell whatever gives you benefits. Today, Hema requires full buyout.
These are all technologies, tools, and methods; **at the core, it's a change in Hema's trading system.**
We started talking about this last year and are practicing it this year: **we require full buyout; consignment must also be bought out. Only through buyout can you get the best quality and best value products.**
We've developed a big-data anti-corruption system. If you take bribes, you're compromised; you'll help suppliers, like giving them the best displays, not returning defective goods, not clearing out poor sellers, accepting low margins, not imposing fines—a whole set of corrupt behaviors. We've digitized these behaviors; the system scans weekly, like a health check. After the check, we have red, yellow, and green lights. Green is normal; yellow means we call you in for a talk about why certain indicators are poor; red triggers an internal audit.
After implementing this, you'll find it's easy to catch corruption. Because corruption requires action; if you don't act, can you sleep with their money? The only way is not to take benefits.
With big data and our anti-corruption model, we find corruption is quite difficult at Hema. A one-off might go unnoticed, but long-term, data will reveal problems.
In China's retail, whether new or old, if the trading mechanism doesn't change, exiting the market is inevitable, regardless of human will. Because only companies providing good products survive. So **Hema's core is the buyer system. Truly making products good is the key to new retail success.** Whether you can fill the pit is crucial.
**Hema's tiered operation system**
I've talked about our business philosophy and new retail; now let's talk about how Hema fills the pit.
After Hema Fresh launched, many online comments asked why Hema opens in Shanghai and Beijing. That's right, but can we open in rural areas or third- and fourth-tier cities? Not in the past, but that doesn't mean we can't in the future.
Hema's mission is to provide the best agricultural products to all consumers, not just those in first-tier cities. **Last year, Hema made many attempts; we proposed a tiered operation system, which means developing different store versions for different commercial areas and income levels, based on retail positioning theory.**
Hema Market opens next week; you can come see it—a store different from Hema Fresh.
Hema Fresh mainly targets core urban areas and CBDs, and has proven quite successful. Several old Shanghai stores are million-yuan stores, with floor efficiency far higher than traditional retail.
Hema Market aims to go to communities and more down-to-earth places. So we've introduced some bulk items: bulk vegetables, bulk pork, bulk eggs and poultry. We want these products to be more grounded and eliminate packaging costs.
In Hema Market, we've removed dining. Many don't believe it, because dining is Hema's most attractive feature. Why remove it? Because we found dining has low floor efficiency in community stores.
We removed dining but created a new category: fresh-made, on-site sales. There are many made-to-order items: white-cut chicken, braised dishes, egg dumplings, noodles, etc. We've brought in Shanghai favorites with that 'fire' feel, including a bun shop selling big steamed buns for 1 yuan each. These are what people truly want. We've introduced many fresh-made items in market stores to let people eat fresher, like mom's cooking. We hope to explore beneficial models for future retail and community stores, like fresh-made tofu, tofu skin, and noodles.
Hema mini store: we opened one in Shanghai with great results—about 80,000 yuan on weekdays and 120,000-130,000 on weekends, in a 500-square-meter store. This store also significantly changed the supermarket structure. First, we expanded live and iced seafood. Second, we introduced fresh-made categories.
**In such stores, we basically abandon standard products and add bulk vegetable counters.** We found consumers prefer this because it focuses on daily meals. Today, making standard products again, I think, has no market. Because internet orders arrive by afternoon, beating you; you can't compete with standard products.
Hema mini stores have entered many towns and counties with populations of 20,000-30,000 or 50,000-60,000, where Hema Market can't go. There are hundreds of towns; we hope to enter them this way, and we're validating this model.
Hema F2, the most controversial, we call it a convenience store. Some say it's not a convenience store but a dining place, but it has convenience store functions, targeting office areas, solving breakfast, lunch, and afternoon tea. This store has also succeeded, with great business; you can check it out.
Hema Station: we hope to combine some functions of front warehouses with Hema functions to create a new format. This year, we've built Hema Stations in places Hema stores can't cover or haven't covered yet.
Because Hema Fresh's biggest problem is speed—opening stores one by one and waiting for suitable locations. For us, full city coverage takes too long. So this year, we built Hema Stations; two are open in Shanghai, running for a month with great business, about 1,000 orders a day.
This year, Hema Station will achieve full coverage in Shanghai and Beijing. Hema never engages in price wars, but for formats like Hema Station, we'll invest heavily in marketing in Shanghai and Beijing this year to quickly capture the market, because it's highly competitive. Since we're here, let's fight together.
Today's Hema is not just Hema Fresh; it's a full series entering various cities, different commercial areas, and different formats, catering to different consumer groups. The essence of all this, we believe, is two things: **one is precisely researching product configuration based on local consumer and commercial area characteristics; the other is using technology to improve overall retail efficiency.** And because of these two changes, we believe this is the future trend of China's retail industry.
There's a self-pickup cabinet at Hema F2's entrance. Why? We found consumers wait long for breakfast, so we let them order in the subway and pick up at the cabinet by scanning. 50% of consumers don't come in to browse; they scan and go.
**Studying consumer behavior, you'll find consumers value time above all.** So stores like this have excellent floor efficiency. It's composed of three parts: in-store pickup (grab and go, due to morning rush), in-store purchases, and online orders for dining. **You'll find this business structure has fundamentally changed: part in-store, part grab-and-go, part online.** Sales now come from three parts; in-store is simplified with phones, making transaction efficiency more than double, so per-store output increases significantly.
For breakfast and lunch, queues are the issue; if you solve queuing, business improves dramatically. So for such stores, we use technology to iterate; we've made a self-service noodle machine, 28 yuan a bowl, with eight toppings to choose. This machine sells 150 bowls at lunch, with no staff needed.
When you design professional categories for a specific scenario, you'll find our system is tastier than convenience stores, more efficient, and more efficient than dining, with faster delivery and higher standardization.
Of course, combining these two cross-industry elements creates a new business; I'll open a second store soon.
Of course, these are our unique advantages because we develop systems; without systems, it's hard to do.
To date, I believe Hema Fresh is basically successful, but in some suburban stores or third-tier cities, we still face huge challenges; we need to iterate and hope to enter these cities with formats like Hema Market, making products more grounded and meeting consumer needs.
This year, Hema is still in a sprint; we need to maintain the rapid growth of our large stores, continuing last year's several-hundred-percent growth.
Source: Yibang Power Business School (ID: EbrunFeng)
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