In 2018, when Hema opened in Wuhan, Hou Yi tasted a local specialty called "lotus root" and immediately decided to urgently procure it. The lotus root has a shelf life of only 72 hours. To bring fresh lotus root to Shanghai residents, Hema purchased during the day, air-freighted it to Shanghai at night, and put it on shelves the next morning. Theoretically, this batch could only be sold for 24 hours. In later media interviews, Hou Yi often cited this story as a symbol of Hema—from its inception, Hema was a standard product of consumption upgrade; early on within Alibaba, Hema was nicknamed "the second Tmall." Hema chose an extremely difficult starting point: fresh produce, a category that combines high loss rates, scattered origins, and strong immediate demand, posing a series of supply chain challenges. Even the community group buying model, considered a solution, failed to fundamentally solve the profitability problem of fresh e-commerce; instead, it took a roundabout approach by reducing SKUs, centralizing delivery, and increasing daily necessities. In the past few years, the grand consumption upgrade movement was seen by Hema as its biggest opportunity. Its initial goal was to start with core middle-class consumers in first-tier cities, driving comprehensive consumption upgrades both inside and outside the Fifth Ring Road, "to let the people across the country live a better life." This is an extremely difficult goal; before this, only housing prices had achieved it. In the understanding of Hema and many new consumer brands, consumption upgrade is not simply raising prices, but using higher prices to cover the costs of quality improvement. If costs can be continuously reduced through scale, then the effect of "high quality at low prices" can be achieved, as Sam's Club and Costco have done. This approach reflects Hema's various expansions and contractions from scale to business formats, as well as countless trials, adjustments, and reversals over eight years.
The Challenge of Expansion
In early 2016, Hema's first store opened in Shanghai's Jinqiao. In its first year, the Jinqiao store's total turnover was approximately 250 million yuan, with sales per square meter 3.7 times that of traditional hypermarkets. A year and a half later, Ma Yun, accompanied by Zhang Yong, appeared at the Jinqiao store to boost Hema's profile, and amidst Hou Yi and other executives, left a group photo of catching a king crab with bare hands. In 2017, Hema was phenomenal. Carrefour and Walmart sent delegations to visit, and consumers from Hebei drove specially to Beijing Hema to buy seafood. Riding the wave of new retail, Hema opened 13 stores in Beijing and Shanghai within a year. The only shortcoming was that the expansion was too slow. As a standard product of consumption upgrade, Hema focuses on mid-to-high-end selection and standardized fresh produce, with the king crab that Ma Yun caught and had cooked on the spot being a typical example. Therefore, the main format, Hema Fresh, is concentrated in core business districts of first-tier cities, with store areas generally around 3,000-5,000 square meters. This large-store + direct-operated model costs up to 30 million yuan just for store opening, and also requires building a delivery network capable of "30-minute delivery within 3 kilometers." Additionally, fresh produce is a highly regionalized consumer category; for each new city or business district, the product selection structure must be re-studied. In Hou Yi's words, Hema Fresh had to be done "store by store, and wait for suitable locations." In 2018, seeing JD.com launch 7FRESH supermarkets and engage in price wars offline, Hou Yi, who prided himself on iron will, led Hema to enter 19 cities at once, with the number of stores surging to over a hundred within a year. In Guiyang, Guizhou, Hema Fresh's star product, large seafood, was very popular. During the first Spring Festival after opening, Hema's first Guiyang store achieved daily sales of nearly 3 million yuan, ranking first among all stores nationwide. But during the accelerated expansion, Hema Fresh's weaknesses began to show. Hema Fresh focuses on instant delivery, but unlike Meituan, which "delivers for others," Hema "delivers for itself," making it more like Domino's. This brings a problem: to ensure delivery efficiency, delivery capacity must be configured according to peak standards, resulting in high costs. High operating costs need to be balanced by high average order values, and as the number of stores increases, delivery capacity must also increase—of course, this aligns with Hema's mid-to-high-end supermarket positioning. But in many second- and third-tier cities, Hema Fresh gradually realized a fact: although people can afford houses priced at 30,000 yuan per square meter, they may not necessarily afford fresh produce priced at 300 yuan. For example, Hema's signature large seafood, after consumers' novelty wore off, became a holiday-only consumption, "no one eats it on ordinary days." Hema's response was to swap cannons for bird guns, as Hou Yi said: "We found that the public may not like large seafood, so we change. Now we no longer mainly sell large seafood; we start selling crayfish, swimming crabs, and Shanghai hairy crabs." According to the plan at the time, Hema was supposed to open 13 Hema Fresh stores in Guiyang and 50 in Chengdu. Five years later, the numbers are 5 and 24, respectively. Facts have proven that the model of high-quality goods + instant delivery must rely on high average order values, and high average order values can only be digested by the purchasing power of first-tier cities. In 2019, Hema faced its first store closure after a year of rapid expansion, and Hou Yi himself received the "Rotten Strawberry Award" at the group's internal meeting at the beginning of the year. At Alibaba, this award is typically used to criticize business departments that fail to uphold the group's motto of "Customer First."
The Paradox of Price
After receiving the "Rotten Strawberry Award," Hou Yi declared in a public speech titled "The Battle to Fill the Pit": "(Can Hema) go to rural areas? Go to third- and fourth-tier cities? It wasn't possible before, but that doesn't mean it won't be possible in the future." Hema's solution was simple: if Hema Fresh can't open there, then switch to a different format. In 2019, although Hema paused opening new cities, it remained aggressive in expansion. In Hou Yi's words: "Open stores wherever possible, adjust while doing, change if it doesn't work, and review after changes." That year, Hema launched four new formats at once: F2 convenience stores, Hema Cai Shi (Hema Vegetable Market), Hema Mini, and Hema Xiaozhan (Hema Station). Despite different locations and customer positioning, these formats shared a common feature: smaller scale, lower investment, and more potential for rapid replication. After 2020, Hema, almost by enumeration, tried all the hot retail trends of the time. For urban suburbs and lower-tier markets, Hema successively attempted improved front warehouses, community group buying, and discount supermarkets, corresponding to Hema Xiaozhan, Hema Jishi, Hema Linli, and Hema Aolai four store types. But after three years, few of the new formats survived: Among the four small formats from 2019, only Hema Mini still has a few stores; among the attempts after 2020, Hema Linli contracted twice, retaining only Shanghai operations; Hema Aolai, which took over as the main expansion force, is still in the stage of figuring out its profit model. The lack of progress in sub-formats may have various reasons, but they all point to the same issue—persistently high supply chain costs. Hou Yi once personally led a team to study Costco, the industry benchmark, and exclaimed "I don't understand," because many products were cheaper than Hema's purchase prices, and "you can't say which category is good; every category is good." To some extent, Costco and Sam's Club are Hema's ideal form: using extreme supply chain efficiency to achieve true high quality at low prices. In Hema's vision, as Hema's scale expands, supply chain costs would be significantly compressed. But Hema encountered two problems when copying the homework: (1) Fresh produce supply chain management is more difficult, and economies of scale are weaker. Fresh produce combines high loss rates, low margins, and non-standardization. Take fruits, for example: bananas tend to blacken and rot in environments below 12°C; fresh lychees stored at 0°C change flavor; tomatoes, cucumbers, and bell peppers require 10°C. This doesn't even account for the more numerous SKUs of root vegetables and leafy greens. Combined with the high cost of instant delivery, fresh e-commerce struggles to achieve economies of scale. (2) Hema also went out of its way to increase the difficulty. Traditional supermarkets consider supply chain factors and purchase semi-processed products; but Hema waits until products are fully ripe before picking and entering stores, air-freighting Xinjiang watermelons and Hubei lotus roots to Beijing and Shanghai. Higher quality means higher costs and prices. Hema's air freight costs twice as much as ground transport, and it also has to guard against king crabs eating other colleagues in the fish tank—that's also loss. After Hema Fresh's initial success, it faced this paradox: Hema's exploration of various formats was actually all aimed at solving one problem: how to find a format that balances cost and quality, then rapidly expand to lower supply chain costs. As early as 2018, Hema proposed a "new supply-retail relationship," hoping to work with suppliers to eliminate intermediate links, shifting from a KA model to a vertical supply chain; but until 2021, the results were unsatisfactory. "On one hand, procurement was not resolute, unwilling to give up procurement fees; on the other hand, many people were unwilling to change the status quo." It's not that Hema didn't try hard; this is actually a problem that the entire fresh e-commerce industry has failed to solve. Even community group buying is a compromise solution: converting instant delivery to centralized delivery to reduce costs; streamlining fresh SKUs to lower supply chain costs; relying on prepared dishes and daily necessities to increase profit margins. Community group buying didn't solve the problem; it avoided the problem, ultimately turning fresh e-commerce into e-commerce that sells everything except fresh produce. Hema, however, went against the grain. Even when doing community group buying, Hema's SKUs were ten times more complex than peers, insisting on selling live fish and shrimp. The result, as Hou Yi said, is that Hema has still not solved the problem of "prices being too high."
Contradictory Positioning
In 2019, due to profitability and GMV growth not meeting expectations, Hema's department level was first promoted and then demoted within six months. By 2021, when Hema was re-upgraded to an independent business group, the group had begun implementing an operational responsibility system, and Hema was required to be self-financing and even independently listed. At this point, Hema had proactively contracted its front, internally clarifying three growth curves: Hema Fresh, Hema Linli, and X Membership Store. Besides the original Hema Fresh, Hema Linli was Hema's charge into lower-tier markets, once called by Hou Yi "the most important strategy for the next ten years"; X Membership Store represented another path—continuing to explore higher quality and average order values. This strategic shift corresponded to two backgrounds. At that time, the community group buying trend was at its peak. Against the backdrop of huge losses in front warehouses, community group buying, with its "pre-sale + self-pickup + next-day delivery" model, became the recognized optimal solution for fresh e-commerce. Major companies entered the fray, with battles raging; even within Alibaba, four teams were working on related projects. Hema Linli also launched and grew rapidly, entering ten cities and opening 400 stores in less than three months. During the same period, membership stores, where "just looking also costs money," were thriving. Metro launched a C-end membership store, FUDI planned to open 20 stores in three years, Carrefour vowed to convert 100 hypermarkets into membership stores in the same time, Yonghui developed a "zero membership fee" affordable warehouse format, and even the big brothers Sam's Club and Costco were busy opening stores. But the development of these two formats likely also failed to meet Hema's expectations. As mentioned earlier, Hema's community group buying was an atypical form: direct-operated with self-built storefronts, ten times the SKUs of peers, selling live fish and shrimp, and even installing water tanks in stores. This series of improvements and upgrades kept Hema Linli's costs high. In 2022, Hema Linli retreated to Shanghai, and Hema Aolai took over as the main force for lower-tier markets. The latter was initially a channel for Hema Fresh's clearance and surplus goods, but its expansion speed was thus limited. Hema Aolai subsequently transformed into hard discount, returning to the original problem: for standard products, there's Pinduoduo; for fresh produce, there are community chain fresh stores and community group buying. Hema's supply chain costs are not advantageous. The middle-class business is also harder than imagined. X Membership Store faced fierce competition from its inception, with Sam's Club and Costco capturing over 4.3 million paying members. Hema launched its "Move the Mountain" price campaign, with the helplessness of finding growth within existing stock. The supply chain remains Hema's short board. High-quality or exclusive suppliers are scarce resources in membership store competition, and the game of scale for low prices always favors the strong. The "choose one of two" incident in 2021 is an example. Carrefour and Hema both claimed that their suppliers stopped supplying due to Sam's Club's alleged requirement to "choose one," with some suppliers even buying back already-listed goods to empty the shelves. Hema's seemingly proactive contraction and focus still had a foundation of wavering and confusion. It still hadn't clearly chosen a strategic direction: whether to go all in on consumption upgrade or to lower its stance and firmly commit to lower-tier markets.
A Brief Window
In October of this year, Hema announced that its main format, Hema Fresh, would fully transform to hard discount, with all standard products cut by 20% offline. Overnight, slogans like "Everyday low prices, every item a hit" hung over storefronts, and just recently, Hema had opened a high-end store format, Premier, in Shanghai, dubbed the "luxury supermarket" by Xiaohongshu users. Hema finally figured out the answer, but by then, eight years had passed since its birth. 2018 was Hema's spirited era. Hou Yi told the media: "Today, the Chinese people have become prosperous, and our Engel coefficient is already quite low, so we are in a great era." At that time, no one would doubt Hou Yi's judgment. In 2019, outbound trips reached 155 million, with overseas spending of $133.8 billion; domestic consumers were also living in a beautiful new world, with shopping carts filled with Malaysian Musang King durian, Norwegian salmon, Peruvian green grapes, and Alaskan king crab. That year, Chinese people consumed 1 million tons of domestic cherries and 200,000 tons of imported cherries; the latter alone supported 500,000 jobs in Chile. In the grand consumption upgrade movement, Hema was just one of many believers. It's a long list: from Heytea and Naixue, once priced at 30 yuan per cup, to Haidilao, which reluctantly raised prices; from domestic beauty brands more expensive than overseas brands, to new consumer brands burning VC money in live-streaming rooms of top influencers, passing the buck. Until 2021, when Hou Yi reflected on the detours, he still believed that Hema's mistake was not persisting in consumption upgrade. However, when Mixue Ice City, priced at 5 yuan per cup, became popular nationwide, and fresh e-commerce sold prepared dishes under the banner of fresh produce, and low prices blew equally across the Fifth Ring Road and beyond, the market, with its emotionless cruelty, put an end to this movement, as written in "The Museum of Innocence": When we point out our happiest moments, we also know that they have passed and will not come again, so they bring us pain. At the end of 2022, Hema's Chief Merchandising Officer Zhao Jiayu mentioned at a supplier conference that more and more users are focusing on value for money, even the most novelty-seeking young people: "They are no longer willing to pay a premium to experience new things, but use low prices to try new products." Hema's repeated wavering is often not a decision error, but rather reflects a company's vulnerability in the face of drastic market changes. Objectively speaking, Hema has always tried to find a way for consumers to purchase high-quality goods and services at relatively reasonable prices. It's just that in an era of 10 billion subsidies and 9.9 yuan free shipping, its efforts and ideals are so out of place.