I feel that retail stores are becoming increasingly difficult to understand.
In the past, I could learn a lot from a store's layout, display, product mix, and operations. I could even analyze a company's product organization, product management, and supply chain management capabilities from the storefront information. I could gauge business performance from foot traffic. This was because, in the past, everything about a retail store was fully expressed within the store.
Now, stores are harder to read. Some companies are changing their store concepts; some have deeply integrated online and offline, shifting sales focus to the invisible online realm; some are altering their business and profit models, becoming more complex—they may appear to be retail stores, but their ultimate goal may not be retail profit.
This is like the recent skepticism and debate about the Hema model. From a traditional retail perspective, some aspects of Hema are hard to understand: the supermarket-plus-restaurant format, the abandonment of average transaction value, the self-operated delivery model, and fan operations. These all differ significantly from traditional retail logic.
After visiting Hema's Jinqiao store in mid-2016, I had doubts and wrote an article titled "Doubts about Mr. Hema." However, after a period of observation and study, including analysis of the current retail environment, the sharp decline in foot traffic, consumption changes, internet development, and overall FMCG industry issues, I have changed my view.
I believe the Hema model represents a reconstruction of retail. In the current environment, retail needs deep, systematic, and comprehensive model reconstruction in essence, form, and mode.
Why reconstruct?
Retail has entered a special period. The direct manifestations are declining foot traffic, falling performance, and store closures.
Facing such severe reality, we must comprehensively analyze what is causing the decline. Some companies first look at their own store operations, product organization, and marketing capabilities. "Sticking to the store, doing everything as before, yet foot traffic continues to decline—this is a common severe problem."
If we only analyze from within retail, it's hard to find the exact cause. The problems stem not only from retail itself but also from consumption changes, internet development, and the entire FMCG industry facing similar issues, with retail bearing the brunt.
Therefore, analysis of retail problems must go beyond retail's perspective and consider the broader context to find root causes.
Analyzing from the perspectives of consumption changes, common FMCG industry problems, and especially the internet's significant impact on society and consumers, and its future implications, retail transformation must be a reconstruction.
1. To change current retail problems, reconstruction is necessary.
So far, several years of declining performance for most retail enterprises have led to a severe retail situation. The most prominent issue is declining foot traffic.
According to traditional retail understanding, modern retail—department stores, hypermarkets, supermarkets, convenience stores—has matured over decades. Chinese retail enterprises have basically mature store operations, product organization, operations, and marketing techniques.
But why are performance and foot traffic still declining? The main reason is that current retail concepts and technologies cannot adapt to market changes and are seriously disconnected from consumer demand. Deep analysis of cases like Watsons reveals a self-centered, product-centered, sales-centered philosophy. This philosophy has been deeply embedded in retail operations. Currently, it seems unsuitable for market and consumption changes.
Therefore, to solve the current dilemma, retail must undergo model reconstruction.
2. To adapt to current consumption changes, reconstruction is necessary.
The main driver of this round of FMCG market changes is consumer change. Significant consumer changes have led to serious maladjustment for brands and retailers.
We must highly recognize and deeply analyze the significant impact of consumption changes on retail. All current retail problems should be attributed to consumption changes. However, many companies still have deviations in understanding and research on consumption changes, lacking sufficient awareness and attention.
Consumption changes should be understood from several aspects:
First, the impact of consumption upgrade. This is widely discussed. Consumption upgrade may bring more changes at the product level.
Second, and more importantly, we must deeply analyze the impact of internet society development on consumption changes. This is the most significant factor currently and will have greater impact in the future. It affects not only products but also consumption concepts and methods.
We must clearly see that future society will be highly internet-based. In an internet society, what changes is not just connection methods but social and human relations, which will ultimately change people's life concepts and lifestyles, including consumption.
Currently, these internet lifestyles and concepts are already prominent among young consumer groups. For example, they obtain life needs from the internet, using search as their most common tool; they rely heavily on the internet, which provides them with more eating, drinking, and entertainment scenarios, greatly satisfying their needs.
The internet has become an important lifestyle, and will become the mainstream. In the internet environment, people's desires, methods, concepts, and culture are changing.
This change is not just about quantity, quality, upgrade, or downgrade, but a fundamental change.
Therefore, retail must deeply study consumption demand changes in the internet environment, which may require changing and reconstructing retail concepts and models.
3. To adapt to internet environment development, reconstruction is necessary.
Currently, limiting the internet to a connection tool is too basic. The internet has changed not only consumption demand but also the retail operating environment.
First, the traditional trade area concept of three kilometers, five hundred meters, or one hundred meters is replaced by the internet's whole-domain concept. A store carries thousands or tens of thousands of SKUs, while the internet has countless products—Taobao alone has nearly ten million stores. Internet purchasing via mobile phone to home is vastly different from in-store shopping. The internet has changed the retail environment.
The biggest assumption for retail's better development was information asymmetry, which is being broken in the internet environment. Retail enterprises find it hard to maintain previous scale, product, and price advantages.
The internet has changed social relations, challenging traditional retail marketing models. Borrowing from Haier's Zhang Ruimin:
*Is there a way out for the entire home appliance industry? Definitely not. The only way is to shift from selling products to acquiring lifelong users, which is community economy.
*A company's main revenue is external, not internal—that is, the community. It depends on the community's size and the lifelong value of its members.
*What is community economy? It means the enterprise becomes community-centered, merging with users, where users are part of the enterprise.
The internet is changing not only the retail environment but also the management environment of chain enterprises, challenging traditional chain retail mechanisms.
Zhang Ruimin pointed out: The internet era subverts traditional management theories. First, the internet brings zero distance. Zero distance means Taylor's scientific management no longer works. It requires shifting from enterprise-centered to user-centered. User needs are personalized. Taylor's scientific management was mass production; now it must shift to mass customization.
Second, decentralization, no leaders. Who is the employee's leader? Not their superior, but the user. Employees and users must communicate directly. This subverts Max Weber's bureaucracy.
Third, distribution. All resources are not internal but global, subverting Fayol's general management theory. Why must it be internal? Why not attract global resources? As Don Tapscott and Anthony Williams wrote in Wikinomics, "The world is your R&D department."
Currently, the stratification, fragmentation, and personalization of consumption changes, and changes in employee concepts, are challenging the standardized, process-oriented, headquarters-centralized chain retail model.
The internet is profoundly changing society and corporate management environments. The biggest challenge is the breaking of information asymmetry, changing the relationship between stores and consumers, and between employees and enterprises. The chain operation mechanism based on centralized management urgently needs reform.
Facing such major environmental changes, retail enterprises must reconstruct to adapt.
4. Current FMCG industry trends indicate retail must reconstruct.
Current retail problems are not isolated; the entire FMCG industry is facing issues.
In this situation, many FMCG companies are seeking transformation. Since this transformation requires systematic and deep changes, the process is long and painful.
But several views are forming consensus:
-- "An enterprise cannot respond to all consumers with one product." This is the view of Tsingtao Brewery's Chairman Sun. In the future, manufacturers must meet the needs of consumption stratification, fragmentation, and personalization.
-- In the internet environment, the real market is not traditional channels or retail terminals, but consumers. If manufacturers want to control the market, they must directly face and connect with consumers.
-- Haier's Zhang Ruimin's view:
*Is there a way out for the entire home appliance industry? Definitely not. The only way is to shift from selling products to acquiring lifelong users, which is community economy.
*A company's main revenue is external, not internal—that is, the community. It depends on the community's size and the lifelong value of its members.
*What is community economy? It means the enterprise becomes community-centered, merging with users, where users are part of the enterprise.
Some enterprises are already seeking transformation:
Traditional category Taishan Beer's new model. It enters the niche craft beer category, self-builds logistics, channels, and fan marketing, completely changing traditional beer marketing.
Traditional underwear brand Nanjiren abandons offline channels and develops an online platform model, achieving fundamental transformation.
Overall, in the internet environment, brand manufacturers must establish channel and terminal models that directly face and connect with consumers. This is a necessary choice.
Therefore, the value of traditional retail is changing; terminal value is no longer dominant. I believe more brands will seek online channels and self-built channels in the future.
If brand manufacturers directly connect with consumers, what will retail do?
So in this environment, retail must reconstruct, or there is no way out.
What does the Hema model represent in terms of reconstruction?
Analysis of the Hema model should be from the perspectives of consumption changes, omni-channel development, the entire FMCG industry chain adjustment, and the potential reconstruction of retail business models in the internet environment.
Business Logic Reconstruction
Analyzing the Hema model should not be limited to its retail form; the key is its business logic. Business logic is the decisive factor.
How should retail business logic be viewed and shifted? If the focus remains on products, can sustainable operations be maintained? Based on traditional retail logic and current problems, can focusing on product and fresh food adjustments sustain operations?
Analyzing Hema's business logic, customer acquisition is its core throughout.
Traditional retail also focuses on foot traffic, but the means are product optimization, fresh food enhancement, and promotions.
In an environment of intensified competition, shifting shopping habits, more choices, and severe traffic loss, previous customer acquisition methods need to change.
Analyzing Hema's customer acquisition concept:
Based on precise target consumer positioning, it creates high-end, fashionable stores to quickly expand trade area influence; the supermarket+restaurant composite model doubles customer acquisition capability; store environment experience + product experience + dining experience + home delivery experience + fan interaction emotional experience meets multi-dimensional needs; online APP + Alipay payment + official account interaction captures accurate customer information, maintains links, strengthens interaction, gradually achieving fan marketing effects; gradually opening the online trading platform to achieve greater "one-stop" consumption online, "infinitely" expanding store space, and gradually mining "single-customer contribution"; on the basis of strengthening fan marketing, integrating more "eating, drinking, and entertainment" scenarios to achieve broader "retail."
Currently, researching new customer acquisition concepts is a topic that retail enterprises must pay special attention to. If they cannot effectively solve customer acquisition in the new environment, retail cannot thoroughly solve current problems.
Hema's customer acquisition concept deserves attention from retail enterprises.
In the current environment, how to acquire customers? How to acquire customers at the lowest cost? How to use the most effective means? How to use measures that directly impact customers? Hema is solving customer acquisition in its own way.
Omni-channel Layout:
In an internet society where the main consumer group's daily life is internet-based, omni-channel layout is an inevitable choice for retail.
Hou Yi said: Hema Fresh is new retail, not traditional retail, not O2O. Offline enterprises view APP from offline, so it's called omni-channel, where online is just a channel, so sales share of 10% is good; Hema views offline value from online, redefines store value, and defines the store's value in the e-commerce business model, so Hema's essence is e-commerce. First, I feel Hema's model is an omni-channel layout. The overall development thinking is clear: offline stores solve customer acquisition, with focus on online home delivery. Currently, online and offline each account for 50% of sales; I believe future sales contributions will mainly come from online.
My premise for future retail transformation is: future retail must be omni-channel, incremental market will come from online, and the only way out of the current dilemma is online.
Therefore, the main path for traditional retail to transform to new retail is whether it transforms to omni-channel. My analysis: retail transformation without omni-channel has no way out. In the future, the significant impact on retail will come from the mobile phone in the mobile internet environment.
Retail must lay out both online and offline. Online should allow quick and convenient search for your store and products; offline stores should meet both in-store consumption and good experience needs; retail stores must have both in-store and home delivery functions, with products reaching consumers timely and efficiently; online stores should meet the purchase needs of specific online consumer groups, not just the online version of offline products, but also open up larger consumption space and provide more choices.
Scenario Focus
Hema's model overcomes the traditional retail concept of product-centeredness and lack of deep customer attention, reconstructing a target consumer-centered and specific demand scenario-centered concept.
Hou Yi said: Who are our consumers? For Hema Fresh, 80% are post-80s and post-90s. They are internet natives. They are the generation that grew up in China after reform and opening up, more concerned about quality, less sensitive to price.
Hou Yi said: Hema Fresh is positioned based on scenarios, building product categories around the eating scenario. Our food category structure far exceeds other supermarkets, so in eating, Hema Fresh can definitely provide satisfactory service. Hema Fresh has made many semi-finished and finished products, and many heat-and-eat products, hoping to make the eating category more complete and rich.
Scenario focus is an important direction for new retail transformation.
In an environment where consumption stratification, personalization, and fragmentation are important trends, retail needs to change the traditional trade area concept and focus more on precise target consumer groups. Without consumer focus, retail stores cannot accurately acquire target customers.
In a competitive market with more choices, it is necessary to solve scenario focus, presenting more distinctive consumption scenarios to tap into specific consumer needs.
Future retail stores need to break the product-centered concept and shift to a scenario concept centered on accurately grasping consumers' actual life needs.
Experience First
In an environment of abundant products, with product and brand pull weakening, what attracts customers? Experience is an important choice.
In the current consumption environment, experience cannot stay at standardized service; it must advance with the times based on target consumer needs.
Analyzing Hema's model, it places great emphasis on experience, trying to make it a powerful customer acquisition tool.
Hema's experience key points: Quality, Efficiency.
Hema stores indeed bring new understanding of "quality" to consumers, whether it's the store's high-end feel, quality products, or focus on quality life; Hema's quality can touch consumers' purchase motivation.
Hema improves consumer efficiency from the consumer's perspective, with the core being the 30-minute home delivery model and the fresh life concept of eating one meal at a time, abandoning the traditional average transaction value theory.
Hema's model can basically meet the experience needs of target consumer groups.
Retail Value Reconstruction
In the current consumption environment, with abundant products and more choices, the 20-year-old "one-stop shopping, one-time purchase" concept is clearly unsuitable. Retail concepts need reconstruction.
Hou Yi said: Recently, many people compare Super Species to Hema, but they are two completely different species and tracks. Our benchmark is e-commerce; we have never considered Yonghui and other traditional retailers as competitors.
Hema's new retail values are: fresh every moment, what you think is what you get, one-stop shopping, making eating happy, making cooking entertainment.
Analyzing Hema's new retail values, they accurately grasp the needs of target consumer groups.
What I most admire about the Hema model is that it reconstructs new consumption values. Twenty years ago, modern retail's rapid development was largely due to reconstructing the "one-stop shopping, one-time purchase" value. In the current new retail transformation, it is very important to combine the current consumption environment and social needs to reconstruct new consumption values, which is very valuable for truly promoting retail transformation.
Consumption has changed. The traditional hypermarket concept of "one-stop shopping, one-time purchase" and the convenience store concept of "convenience, speed" can no longer meet current needs. New consumption values need to be reconstructed.
New consumption values are an important concept guiding retail transformation.
Every enterprise and format needs to combine its own reality to transform new consumption values that conform to current consumption changes.
Product Structure Reconstruction
A major difference in Hema stores is that the product structure is completely different from traditional hypermarkets, supermarkets, and convenience stores. This may be the biggest impression for many.
A question retail needs to consider: When manufacturers increase SKUs to respond to consumption stratification, fragmentation, and personalization, what should retail do? When manufacturers directly connect with consumers, what should retail do? When manufacturers transform to new B2B2C models, what should retail do? If more manufacturers adopt the Taishan Beer or Three Squirrels model, what should retail do?
In the overall FMCG model transformation environment, retail's value and connotation need redefinition, starting with product structure reconstruction.
Hema's model changes the traditional category combination principles of supermarkets and hypermarkets, reconstructing product structure to be shallower and flatter. Because Hema pursues not just providing simple products but a lifestyle concept, expecting more household tasks to be completed in the store, providing ready-to-eat finished and semi-finished products, it changes the traditional supermarket product structure.
Hema Fresh has made many semi-finished and finished products, and many heat-and-eat products, hoping to make the eating category more complete and rich, bringing huge gross margin space.
Hema Fresh packages all products in small portions, for eating today, finishing in one meal. It has abandoned the average transaction value theory [In private communication, Hou Yi emphasized abandoning this theory. Traditional retail concept: sales = foot traffic * average transaction value. Abandoning it means performance relies mainly on increasing foot traffic. Deep analysis shows a shift from self-centered to consumer-centered operations, a major concept change].
The integration of dining and supermarket subverts traditional catering and retail. Hou Yi believes: Dining is not only our experience center but also a traffic center, bringing consumer stickiness. Dining is the processing center in Hema Fresh, providing more semi-finished and finished products for online sales, enriching the online sales structure. Processing capability has caused a subversive change in the entire structure.
From Hema's product structure reconstruction, Hema is moving away from heavy dependence on manufacturers, possibly no longer relying on manufacturer policies or being controlled by them.
Product structure reconstruction is a question retail must consider. If it continues with previous category concepts, it will be difficult to succeed.
Retail Form Reconstruction
Hema's retail form is changing, with in-store and home delivery developing in parallel.
Hou Yi said: When you are at work, or suddenly have no time to buy groceries, you can order on Hema Fresh, or on the way home, and the goods will arrive home with you. The high integration of online and offline provides consumers with convenient purchase anytime, anywhere, all-weather, such as on rainy days, Hema Fresh's online sales are very hot.
Hema Fresh provides exactly the same products, quality, and prices online and offline. So new retail meets consumers' needs anytime, anywhere, in different scenarios, "what you think is what you get." So we believe making consumers' lives more convenient is Hema Fresh's mission.
Hou Yi said: Hema Fresh is not just store-to-consumer or consumer-to-store. We also use internet technology to expand Hema Fresh's categories. We have a B2C channel. Hema Fresh stores have limited space, so we hope to expand online. We also built a green channel to meet demand for rare products. You can buy a 5,000-yuan wild yellow croaker on Hema Fresh, which was previously unavailable in supermarkets.
We will launch various pre-sale products to meet various consumer needs. So Hema Fresh is positioned around eating; we will meet all your eating needs and provide all eating products, so one-stop service gives us huge product competitiveness.
Hou Yi said: Hema Fresh has three sales channels: offline, online, and fan interaction marketing. If we operate the three-kilometer fan base well, consumer loyalty will greatly increase, and future fan value will be more reflected.
Based on my years of retail experience, retail has indeed reached a critical period requiring reconstruction. The Hema model's new retail model has very important implications for retail enterprises' model reconstruction.
Of course, the Hema model is still in continuous practice and improvement. At the same time, I feel there are more areas for Hema to strengthen, such as scenario development potential, online integration space, and store operation details. I believe tomorrow's Hema will bring more inspiration.
Bao Yuezhong Column:
Special contributing writer for New Distribution Senior Economist Expert of the Ministry of Commerce's "Ten Thousand Villages and Thousand Towns Market Project" Adjunct Professor at Shandong Institute of Economics and Trade Renowned FMCG retail expert Bao Yuezhong New FMCG, New Retail Innovation Practice Studio