---
title: "How Far Is Hema's Spring?"
description: "Hema, now eight years old, has experienced three rises and falls. Founded in 2015 with Alibaba's backing, it was seen as the 'next Taobao' and carried Jack Ma's expectations for new retail. Early Hema was a sought-after high-end destination, an 'aquarium you can eat'. Legends circulated of retirees fighting over a 'rare' Alaskan king crab, a Beijing mall manager witnessing doubled foot traffic after a Hema opened, and savvy agents adding 'Hema-zone housing' to property listings. But great dreams often carry a tragic hue. In May 2019, after opening over 100 stores, Hema closed its first store in Kunshan, sparking a bloody battle in fresh food e-commerce."
author: "关注创新经济的"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2023-10-03"
language: "en"
canonical: "https://xinjignxiao.com/en/articles/how-far-is-hema-s-spring-64adfa87/"
markdown: "https://xinjignxiao.com/en/articles/how-far-is-hema-s-spring-64adfa87.md"
original_source: "https://mp.weixin.qq.com/s/YEhCmLD5iN0eQ9POQtEWEQ"
translation: "https://xinjignxiao.com/zh/articles/%E7%9B%92%E9%A9%AC%E7%9A%84%E6%98%A5%E5%A4%A9-%E8%BF%98%E6%9C%89%E5%A4%9A%E8%BF%9C-64adfa87.md"
attribution: "New Distribution — https://xinjignxiao.com/en/articles/how-far-is-hema-s-spring-64adfa87/"
usage_policy: "https://xinjignxiao.com/ai-policy.txt"
---

# How Far Is Hema's Spring?

> Hema, now eight years old, has experienced three rises and falls. Founded in 2015 with Alibaba's backing, it was seen as the 'next Taobao' and carried Jack Ma's expectations for new retail. Early Hema was a sought-after high-end destination, an 'aquarium you can eat'. Legends circulated of retirees fighting over a 'rare' Alaskan king crab, a Beijing mall manager witnessing doubled foot traffic after a Hema opened, and savvy agents adding 'Hema-zone housing' to property listings. But great dreams often carry a tragic hue. In May 2019, after opening over 100 stores, Hema closed its first store in Kunshan, sparking a bloody battle in fresh food e-commerce.

Hema, now eight years old, has experienced three rises and falls.
In 2015, Hema was born with Alibaba's golden spoon, seen as the 'next Taobao', carrying Jack Ma's expectations for new retail. Early Hema was a sought-after high-end object, an 'aquarium you can eat'. Legends circulated that retired wealthy elderly people fought over a 'rare' Alaskan king crab, a Beijing mall manager witnessed how foot traffic doubled after a Hema opened, and the most astute agents added 'Hema-zone housing' to prominent spots in property listings. Even 'Country Garden and others' couldn't stay calm, rushing to cooperate and sign strategic agreements. But great dreams always have a tragic color. In May 2019, in Kunshan, after Hema Fresh opened over 100 stores, the first store closure occurred, followed by the bloody battle of fresh food e-commerce: front warehouses, fresh food supermarkets, community group buying... Various players, wrapped around Hema, rose and fell in the subsidy war, **today oversupply, tomorrow collapse, no winner.** Hema's second highlight was supplying Shanghai during lockdown. Employees traveled thousands of miles to Shanghai, increased staffing, residents queued on the app daily to grab groceries, and new cold storage facilities were built within days. In Alibaba's financial reports, Hema became the flagship. But after the difficult times passed, Hema did not retain the hurried crowds, and at the beginning of this year, there was another wave of store closures. The most recent time Hema stood in the spotlight was after Alibaba's 1-to-6+N restructuring, when it was reported to be queuing for an IPO. But again, not long after, according to foreign media, Hema shelved its IPO due to valuation not meeting expectations. Although the process is unknown, **the IPO shelving not only dashed Hema's 'blood transfusion' plans but also tore open the difficulties behind Hema.** Consumption is recovering, but the imagination of the fresh food industry is no longer what it was. Looking back at Hema's eight years, it is also the 'eight years of China's new retail' centered on fresh food. From the early front warehouses favored by the market, to the later store-warehouse integration, to the current 'Sam's Club-style' warehouse membership stores that have become the model, the ultimate format of new retail has never had a definitive answer. Unlike any other enterprise that stubbornly sticks to a single format, Hema has become a conglomerate in the industry. After eight years of struggle and three rises and falls, is Hema closer to its 'new retail' dream?
# **Expanding Hema, Hidden Reefs**
To understand Hema's development path over these eight years, one can glimpse it from the recent rapid expansion. As is well known, Hema is a store format exploration maniac. Its portfolio includes the main format Hema Fresh, the high-end market format Hema X Membership Store, the convenience store format Hema F2, community-oriented Hema MINI, Hema Neighbor, Hema Xiaozhan, and for lower-tier markets, Hema Outlets and Hema Market. This year, Hema has entered a new round of expansion strategy, reaching a peak of opening one store per day on average in September. Business Data Pie has compiled statistics on new store formats and found that Hema **has begun to replicate the profitable Hema Fresh on one hand, and on the other, rely on diversified formats to continuously expand its customer base.** According to statistics, 58% of newly expanded stores are still Hema's main format, Hema Fresh stores, but there is a shift from first-tier to second- and third-tier cities, with batch replication. According to public information, most new Hema Fresh stores are opening in relatively remote areas of first-tier cities, such as Shanghai's Songjiang District, core areas of second-tier cities, such as Changsha's Yuhua District, and even the first third-tier city store in the 'CBD' core section of Xianyang, Shaanxi. **Following closely in store count is Hema Outlets.** This format, which is completely contrary to Hema's former pursuit of high-end, has now been explicitly defined by Hema CEO Hou Yi as 'the most important strategic project of 2023', and no other. 9.9 yuan for 24 bottles of water, 1.9 yuan for 3 bananas, 3 yuan for a box of eggs—most items in Hema Outlets are around 50% off, and they don't need to be neatly arranged, perfectly matching consumers' current demand for cost-effectiveness. These low-priced items come partly from Hema Fresh's 'surplus stock' and also from limited supply chain products selected by Hema Neighbor. In terms of location, unlike Hema Fresh stores in core business districts with their own high-end brand effect, Outlet stores are more pragmatic, existing in towns with a permanent population of over 40,000, with first choices being vegetable markets, farmers' markets, commercial streets, old streets, community mall street shops, and large community entrances. The core change from high-end to down-market came from an attempt by Hema in 2021. At that time, Hema moved the excess loss products from the front warehouse Hema Neighbor to Outlet discount stores, and the frenzy of users attracted by the discounts made Hema see the potential of discount stores. **But looking back at Hema's eight-year history, it's clear that the strategy for key formats changes almost every year:**
> In 2019, Hema was still 'fixated' on Hema Fresh, exploring front warehouses and warehouse-store integration; in 2020, it took a different path, proposing the 'Double Hundred Strategy' to deploy 100 Hema MINI stores;
>
> In 2021, MINI stores were not progressing well, and Hema X Membership Stores and Outlet stores became new hopes;
>
> In 2022, Hema announced the integration of multiple formats including Hema Fresh, Hema X Membership Store, Hema Outlet, and Hema Neighbor; until 2023, it determined Outlet stores as the most important strategic goal of this year.
**Flipping back and forth seems to have become Hema's tradition. Even betting on Outlet stores does not necessarily represent Hema's future.** And the third-ranked new store format, Hema MINI, is similar to Outlet stores in area and location, seemingly with potential for cross-competition, but its SKU and sales model are not discount stores; rather, it's a 'down-market version of Hema Fresh' that fits surrounding neighborhoods and local conditions. Hema MINI stores are smaller than Hema Fresh and are mostly located at the midpoint between mid-to-high-end residential areas and ordinary communities, covering the daily essential consumption of mid-to-high-end populations. A consumer told Business Data Pie that the SKU structure and layout of Hema MINI stores vary greatly by region. **With various store formats, diverse populations, and both online and offline, Hema's ambition to 'have it all' is very ostentatious.** However, as multiple tentacles are deployed, hidden reefs beneath the surface are beginning to emerge. Several consumers told Business Data Pie: 'In the down-market, Hema is not as cheap as Meituan Maicai, and in high-end quality, it's not as good as Sam's Club or Walmart, leaving it in an awkward position of neither up nor down.' The 'high-end' label that Hema once stuck on itself is being washed away by the complexity of its formats. This raises the question: with continuous store openings, constant exploration of new formats with no logical connection between them, wanting both high-end membership stores and down-market Outlet stores, and changing the focus of store openings every year, what exactly does Hema want to do after its crazy expansion?
# **Hema's New Retail Ambition**
Looking only at the store structure is not enough to truly understand Hema. If you look at the company as a whole, you'll find that it's not just building 'places' offline; more importantly, it's about supply chain management. **The essence of the supply chain is connecting the demand side and the production side. And the change in new retail lies in reconstructing 'people, goods, and places' to achieve a dynamic balance between supply and demand.** First, on the demand side, the core reason Hema explores different formats is to replicate the refined operational thinking of the internet in offline retail, covering different populations through different formats, with different SKUs and supply chains.
  * Hema Fresh targets mid-to-high-end populations, represented by white-collar workers who order online and have delivery to home;
  * Hema Neighbor focuses on community self-pickup scenarios, with fewer SKUs and high frequency, mainly meeting the essential needs of surrounding community residents;
  * Hema Xiaozhan explores the front warehouse format, covering a radius of 3 kilometers;
  * Hema Market is positioned for suburban markets, mainly covering elderly people who buy groceries;
  * This year's main push, Hema Outlet, is essentially a discount store, with SKUs including surplus stock from Hema Fresh;
  * Hema X Membership Store, benchmarking Sam's Club, targets the main consumer group of family-based shoppers.
According to Business Data Pie, even the same store will 'drop' different discounts at different times based on the shopping times and habits of different age groups. Different formats cover different population scenarios, and refined operation is only a demand-side strategy, but more importantly, **coordinating with the supply chain management cycle, different formats meet the cycles of different stages of product flow.** Take an A-grade durian as an example: within the 7-day optimal tasting period, on the first day, it will be priced relatively high and prioritized for Hema X Membership Store; in the following six days, it can be discounted and transferred to Hema Fresh, Hema MINI, and Hema Outlet, allowing a single product to circulate within different Hema store formats, extending the selling period.
**To improve product circulation efficiency, in this process, Hema can participate in or even control all supply chain links.** First is direct sourcing from the source, ensuring the lowest price and freshest goods. Although since the emergence of fresh food e-commerce, all players claim 'direct sourcing from the source', in reality, many still rely on local large agents, distributors, or even traders. This is also because the prerequisite investment for direct sourcing is high, requiring self-built logistics, including warehousing and cold chain. In the logistics link, according to data from the China Federation of Logistics & Purchasing Cold Chain Committee, since August 2021, Hema's self-built logistics bases in Guangzhou Zengcheng, Wuhan Hannan, and Chengdu Qingbaijiang have been put into operation one after another. By the end of 2022, the under-construction bases in Shanghai Putuo, Shanghai Hangtou, and Hangzhou Yuhang will also be put into operation one after another. Other projects such as Xi'an Peidong, Changsha Yuhua, Nanjing Jiangning, and Beijing Shunyi will be completed and put into operation in 2023. The heavy-asset supply chain also brings competitive advantages. For example, for suppliers, Hema's cold chain selling point is to reduce supplier fulfillment costs and improve overall circulation efficiency. After suppliers move into Hema's self-built warehousing bases, Hema can provide them with semi-monthly/monthly sales forecasts, helping them prepare stock accurately and improve turnover. If we re-examine Hema's complex formats from the perspective of supply chain matching, we'll find that under the premise of making the supply chain heavy, **to grasp both supply and demand, the front end must develop different formats as carriers to fulfill the new retail dream that Jack Ma proposed back then.** So, Hema has now formed a circulation system based on cities, and after running successfully in first- and second-tier cities, it is gradually replicating to third- and fourth-tier cities. According to a rough count by Business Data Pie based on the number of Hema stores in various regions on public platforms, Shanghai currently has far more stores than other cities, with Beijing, Shanghai, and Shenzhen as the core battlefields.
Whether it's Fresh stores, MINI stores, or Outlet stores, Shanghai has become Hema's experimental base, also due to the synergy between different Hema store formats in the same region. For example, sharing the supply chain of farms around Shanghai. Membership stores, Fresh stores, and Outlet stores can directly purchase a batch of goods at a lower price, then distribute them to different stores based on quality. Matching the dispersed back-end supply chain with front-end stores requires a huge digital management system as the command center. From the very beginning, Hema built a complex supply chain and store management system integrating online and offline based on Alibaba Cloud's technology system, including logistics WMS, ERP and finance, store POS, logistics distribution, APP, membership, payment, and marketing, with complexity far exceeding traditional e-commerce and offline supermarket systems. This also planted a seed for Hema's subsequent digital supply chain construction.
# **Hema's Spring: High Risk, High Return**
In Hou Yi's view, discounting in the retail industry is the way to win competition. Discounting is not cheapening, not simply low prices; discounting is 'differentiated product competition, vertical supply chain, and extreme operating costs'. Achieving a dynamic balance among these three might be how Hema finds its spring. From the moment Hema was born, Jack Ma's expectation was to use a new supply-demand matching model to address the industry pain points of low circulation efficiency, high loss, and low gross margins in the fresh food industry chain. Traditional fresh food retail is a complex multi-level network, from the most upstream single producer—collector—distributor—trader—supermarket, layer by layer. Multiple links bring transportation losses, demand mismatch, and overall inefficiency. **Eliminating middlemen and directly connecting consumers with single producers is Hema's approach. Facing huge demand and dispersed upstream, this requires Hema to run out a mature economic model, find the collection and circulation formula with the highest returns and efficiency, and Hema's years of exploration are based on this.** However, the ideal is grand, but reality is harsh. This may also be the core reason Hema has experienced three rises and falls in just eight years. Wanting to do everything first faces the problem of costs not being covered. From the perspective of store opening costs, according to China Times data, the cost of opening a Hema Fresh store is about 30 million yuan, a Hema MINI store costs about 2 million yuan, and the low-end Hema Fresh Outlet store also requires about 1 million yuan. Since Hema has not disclosed the exact operating costs of single stores in its financial reports, we can only use this as a premise to roughly estimate the opening costs of the three formats: Hema Fresh, MINI, and Outlet, excluding the costs of stores that were opened and then closed, and other format costs. **300 Hema Fresh stores cost about 9 billion yuan, 60 Outlet stores cost about 60 million yuan, and 20 Hema MINI stores cost about 40 million yuan, totaling over 10 billion yuan, not including subsequent operating costs and depreciation.** While single-store costs are high, looking at the delivery link, according to LatePost, within a 3-kilometer delivery radius, Hema's fulfillment cost per order is about 8-10 yuan. With an average order value of about 90 yuan and a 25% gross margin, Hema's fulfillment cost per order accounts for almost half of the gross profit.
Therefore, Hema has also implemented a series of cost reduction and efficiency measures. To reduce fulfillment costs, the current main store format, Outlet stores, have not yet been connected to online delivery, and starting in March this year, pilot delivery times were extended to 1 hour in Zhengzhou and Changsha. Multiple measures show the pressure of fulfillment. Continuously seeking a single-store model that adapts to scale efficiency, Outlet stores are therefore highly anticipated, but as they go down-market, the costs of new formats, supply chains, and delivery, as well as trial-and-error costs, will increase. **On the supply chain side, the traditional fresh food retail industry has always been a multi-level distribution model, with losses and price differences at multiple links. Self-building the supply chain means either achieving direct sourcing and direct sales, or providing differentiated products to escape the price war.** **To balance the costs of self-built supply chains, Hema has adopted a strategy of promoting private labels and reverse customization to increase gross margins and moats.** For example, Hema has developed new strawberry varieties with upstream suppliers to extend the strawberry market period. According to a jam supplier, last year, multiple products were co-branded with Hema, and sales exploded. Public data shows that Hema's private label SKUs have reached over 1,200, with private label sales accounting for over 35%, even surpassing international retail giants Costco's 25% and Sam's Club's 30%. The successful experience of foreign brands like Sam's Club and Costco also shows that increasing the proportion of private labels can improve brand recognition and differentiation, and deeply bind with suppliers, strengthening control over the upstream supply chain. Overall, the persistently high investment costs are still testing the economic model and profitability tipping point of how supply chain and demand matching can work. High risk and long return cycles also mean high returns. Such challenges may also be the reason why the market has concerns and the valuation fell short of expectations. But we still look forward to Hema's future, not just the joys and sorrows of one company, but whether the new retail format that Hema represents can maximize supply chain efficiency and operational efficiency to completely transform the entire fresh food retail industry.
At the beginning of this year, Hou Yi said in an internal letter to all employees that 2022 was the mature period of Hema's new retail, and the main format Hema Fresh achieved profitability.
With this phased result, the spring of digital new retail may be delayed, but it will come sooner or later.


---

## Copyright and AI use

This article is sourced from New Distribution. Search, quotation, summarization, and model training are permitted, but every use must credit New Distribution and retain the canonical source URL.

Contact: zhaobo258@gmail.com · +86 158 5481 7671