"Until today, the only membership store in China that shows a bit of promise is Hema's X Membership Store," said Wang Wei, founder of Fresh Legend. In Wang Wei's view, although membership stores come in various forms, their core remains products—that is, product development and product efficiency management. After nearly 18 months of deliberation and refinement, Hema is revealing its "ambition," feeling the new warm breeze of consumption recovery earlier in its membership store operations. Even amid the pandemic's significant impact on business this year, Hema X Membership Store's performance growth remains strong, with sales up 247% year-on-year and average transaction value up about 30% year-on-year. The impressive performance has also made Hema more optimistic about the potential of the membership store market. In the past month, Hema X Membership Store experienced a "mini wave" of openings, with two stores opening in Shanghai alone: the East Hongqiao store opened on November 25, and the Zhenru store opened online on December 15, with a physical opening scheduled after New Year's Day. In fiscal year 2024, Hema plans to open 5 to 10 new membership stores nationwide. Behind the rapid growth of Hema X Membership Store, not only does it bring product strength and consumer operations to the forefront of the industry, but it also strengthens the industry's confidence in the "consumption index" amid economic recovery. According to statistics bureau data, Q3 GDP reached 30.7627 trillion yuan, up 3.9% year-on-year. Compared with Q2, the economic recovery trend has further consolidated, with consumption contributing significantly. Returning to Hema, whether in sales or store openings, Hema X Membership Store has become one of the representative supermarkets in the recovery of domestic consumption indicators. It's time to tear off the fig leaf of "not consuming" and "not consuming at your store."
The "Consumption Index" of Hema X Membership Store Have you reduced your consumption in the past three years? On Weibo, the topic of consumption downgrade has been discussed 26,000 times; on Douban, the topic "Have you downgraded consumption today?" has 360,000 group members; and on the "refined" Xiaohongshu, a post titled "2022 Consumption Downgrade, Rational Consumption" has received over 100,000 likes and comments. Living a "tight life" seems to be the norm, and it is an indisputable fact that national consumer desire has entered a period of sluggishness to some extent. However, savvy housewives and white-collar workers have also found the secret to a better life in "fleece-pulling." Although Hema MAX bagels already come in three flavors, they still DIY various fresh ways to eat them; they combine large portions of meat and vegetables to create a weekly meal prep guide; and a 19.9 yuan mulled wine set brings the joy of a small-cost, beautiful life, full of ritual... In this context, Hema X Membership Store is no longer just a merchant or seller, but a life guide, a transmitter of beauty, and a helper for efficiency and savings. Hema's recently opened X Membership Store in Shanghai, the Zhenru store, is a typical case. "From products to services, the Zhenru store has made many new attempts," said Sun Shuo, general manager of Hema X Membership Store. First, in terms of selection, the Zhenru store covers an area of over 16,000 square meters, equivalent to 3-4 times the size of an ordinary Freshippo store (i.e., Hema Fresh), but the upgraded Hema X Membership Store has streamlined its product structure again, with 3,000 SKUs, only one-third of a Hema Fresh store, offering more extreme single-item selection efficiency and differentiated shopping experience. "In fact, consumers are not not consuming; it's just that the channels and products they consume have changed. We hope to let consumers know about more cost-effective products and then live a higher quality life," Sun Shuo told Ling Shou. Fewer SKUs is not simply cutting down; it is a more detailed and vertical adjustment of product structure and operations based on deep insight and analysis of consumers. Data shows that as of now, Hema has nearly 3 million paying users nationwide. In terms of membership scale, this achievement is second only to Sam's Club. However, compared with Sam's, which took more than 20 years to cultivate 4 million members in China, Hema's speed is astonishing. More importantly, as a rising star in the membership store sector, the average age of Hema X Membership Store members is 10 years younger than other membership stores. This means that as long as it continues to hold onto such users, Hema X Membership Store will have a more fashionable, stable, and sustainable potential purchasing power. At the same time, Alibaba's strong digital operation capabilities will also provide strong support for Hema X Membership Store in consumer trend insight and category planning. It is worth noting that the multi-channel shopping labels of the same consumer are a more three-dimensional and vivid purchasing power, and this is precisely what other membership stores lack. Understanding consumers better than they imagine may have created Jobs's famous quote: "People don't know what they want until you show it to them. That's why I never rely on market research. Our task is to read things that are not yet on the page." Therefore, stimulating consumption requires, on the one hand, enriching the "money bag"—when consumers have money, they are naturally willing to spend; on the other hand, by reconstructing new consumption scenarios and spaces, using new scenarios and gameplay to stimulate consumption desire, further driving consumption. This may be the reason why the Zhenru store has invested heavily in creating various exclusive spaces. In the store, Hema X Membership Store has for the first time moved a bakery factory directly into the membership store, which is a clear highlight. From kneading and fermenting to baking and coming out of the oven, consumers can see the entire process. The product range also spans Chinese and Western styles, including various Chinese-style pastries as well as garlic baguettes, pretzels, and other specialty Western pastries. It is worth noting that the store also plans to create a parent-child exclusive space of about 600 square meters, including a children's playground, toy area, mother-and-baby area, and e-sports area, providing a place for leisure and fun in addition to shopping. "People go to supermarkets not only to buy daily necessities but also to add leisure, entertainment, and other needs. This is evident in both online and offline shopping baskets, such as the popular flowers, bakery items, and organic products at X Membership Store," said a relevant person in charge of Hema X Membership Store. The renovated Hema X Membership Store, as a store with rich formats and diversified services, allows more consumers to have an "immersive" shopping experience. Through the reconstruction of people, goods, and scenes, different products and services continuously come into view. Whether consumers make a consumption decision or not, at least they are given more choices. When choices are transformed into concrete actions, real consumption behavior occurs. Coupled with the omni-channel model, Hema has built a more convenient and complete shopping channel for consumers, maximizing the satisfaction of different needs and improving shopping efficiency and experience.
Product Strength Is Always the Core Purchasing may be an impulse, but nowadays it is more of a "comparative economics." Therefore, it is not enough to create new consumption scenarios; it is also necessary to broaden consumers' incremental consumption space. Obviously, products are the weights on the comparison scale. From trying new products to repurchasing, and then to the ultimate goal of membership stores—renewing year after year—Hema needs to continuously deepen its product strength, build a moat with private brands, and maintain continuous innovation and transformation of products. For the retail industry, core products are the core competitiveness. In membership stores, the core of operations amplifies the role of products, using products as carriers to strengthen membership value. Serving members with products that are more cost-effective and better meet their needs not only reduces members' decision-making costs but also lowers purchase costs and improves shopping experience. This may also explain why most membership stores have no more than 5,000 SKUs, which is a streamlined selection compared with hypermarkets with tens of thousands of items. In the newly opened Zhenru store of Hema X Membership Store, only 3,000 SKUs are arranged, while a higher new product rate is used to "date customers, keeping freshness always present." Ling Shou learned that on average, more than 300 new products are launched in the store each month, with a new product rate of 12% and a product replacement rate of 7%. "Although some single items sell well, we hope to have more single items to bring members the small blessings of a beautiful life. Only by forcing ourselves to grow can we achieve sustained growth," Sun Shuo said. However, behind product strength is not only deep insight into consumers but also a strong test of supply chain building. If the initial Hema relied on fresh seafood series to win consumer attention and established its core competitiveness with fresh products and product structure, then today's Hema, with a strong supply chain spanning three to four dozen countries globally, has become a leader among domestic supermarkets and is a necessary guarantee for Hema's X membership services. Taking the Spring Festival exclusive gift box as an example, Hema X Membership Store chooses to customize overseas, including categories such as coffee and cocoa powder gift boxes from the UK, chocolate gift boxes, etc. Ferrero's exclusive new products launched in the Chinese market will also be sold in membership stores. In addition to snacks, Hema's fresh products remain as strong as ever. The Hema X Membership Store's grain-fed 150-day pure black Angus beef, which has been deeply loved and praised by members, has a high meat yield, good marbling, and firm texture. "To give members a better experience, Hema only selects the 67% of the whole cow that sells well," a Hema representative told Ling Shou. In building product strength, Hema has never spared any expense. Hema has built a ranch in the United States exclusively for Chinese consumers. The ranch supplies more than 200 cattle to Hema each month, directly supplying China through direct procurement, not only with better cost performance but also shorter shelf time. "Direct procurement cooperation saves 10% of the cost of intermediate links in import trade and 10% of transit trade time," Sun Shuo said. Beef is just a small microcosm of Hema's product strength. Hema CEO Hou Yi's "ambition" goes beyond this. Not long ago, Hou Yi visited Europe and made many new discoveries: "Many products have quality advantages and price competitiveness. For example, beer, drinking water, candy, chocolate, biscuits, prepared dishes, Western food, etc., can enter the Chinese market through Hema," he said. A case in point is Costa O'Dore, an Italian olive oil supplier with Chinese organic certification that first met Hema in 2021. Currently, its entire product line is on the shelves of more than 300 Hema Fresh stores nationwide. Hema has become its largest customer in China. In addition, Hema's private brand MAX organic olive oil, developed in cooperation with Costa O'Dore, will soon be launched at Hema's X Membership Store. It is reported that the price of this "Hema brand" product will be further reduced. Thai coconut water has had a similar experience. Five years ago, Hema first introduced Thai coconut water through direct procurement. To this day, it takes only five days for coconuts to go from the tree to Hema's warehouse. Not only has Hema achieved year-round sales of coconuts, but its subsequent private brand Hema MAX coconut water has become a hit product, deeply loved by members. In fact, looking at leading retail enterprises globally, they all use global procurement, using global resources for local markets, forming core competitiveness among competitors. Therefore, strengthening global procurement capabilities and continuously expanding categories are also Hema's development priorities in recent years. "Imports, non-food lines, and private brands are the three lines we will vigorously pursue next year," Sun Shuo said. On the surface, Hema is seeking high-quality brand cooperation globally, promoting the agency and sales of high-quality products, and introducing more good products to China through Hema. Behind this, it is conducive to optimizing market supply structure, improving supply quality, better meeting people's growing needs for a better life, promoting the return of overseas consumption, and driving the development of the upstream and downstream industrial chain of import trade. In another core category of membership stores—private brands—Hema X Membership Store has also made considerable achievements. As is well known, the share of private brands represents the R&D and focus capability of membership stores on core hot-selling products, and it is also a reflection of member insight and a guarantee of consumer stickiness. According to the "2022 China Private Brand Blue Ocean Strategy White Paper" (hereinafter referred to as the "White Paper") released by Daymon International, the proportion of consumers who know the concept of private brands increased from 74% in 2019 to 92% in 2021. Among all retailers' private brands, Hema ranks first with a 41% spontaneous mention rate and 93% brand awareness. Hema is also continuously increasing its efforts in private brand R&D. In Hema's newly opened membership stores, the proportion of private brand SKUs has increased from 25% last year to 40%, and the contribution of private brands to sales (sales share) has exceeded 30%. It is worth noting that currently, the sales share of private brand products in most domestic supermarkets is less than 5%. However, despite the good results, Hou Yi has greater expectations for Hema's private brands: "In most European companies, the proportion of private brands, whether in sales share or SKU count, exceeds 50%. China is just starting, and the gap is an opportunity." By seeking traffic from products and efficiency from the supply chain, Hema X Membership Store has provided consumers with new consumption methods and experiences while also bringing more possibilities and space for Hema. Perhaps Hou Yi's dream is becoming a reality. "Today, more and more people choose Hema, not because Hema's delivery is faster, but because Hema's product differentiation capability is getting stronger and stronger."
The Running Consumption "Chariot" In the era of "internal circulation," the running consumption chariot is not only an indispensable part of boosting the economy but also signifies a new round of opportunities in the consumer market. As a representative retail format of consumption upgrade, the value and development potential of membership stores are being verified. At Hema X Membership Store, the consumption chariot is no longer a cold number but vivid Christmas gift boxes, sweet new chocolates, fresh flowers and steaks arriving at the store, healthier organic camellia oil... Data shows that in fiscal year 2023, Hema's membership store format saw sales increase 247% year-on-year, with average monthly transaction value up more than 30% year-on-year. At the same time, X Membership Store has made great progress in improving efficiency and reducing costs, with Beijing and Shanghai entering a stage of long-term stable profitability. In the three years of the pandemic, the macro economic environment and industry difficulties have had a huge impact on public life, but Hema's membership store format still achieved good results, indirectly indicating that the market capacity behind it is large enough. Especially now, the industry is facing a reshuffle. The current state of China's chain retail market is still very low concentration. The hypermarket format is declining. The top three companies in the market have not yet reached 100 billion yuan. Compared with the consumer market measured in trillions, the growth space behind it is evident. Obviously, Hema will not miss such an opportunity. Although the current economic environment has led to continued tightening of public consumption, it does not mean that there is no pursuit of quality of life, nor does it mean that consumption will completely downgrade; it just removes some unnecessary consumption. On the contrary, in the membership store track, providing more good, cost-effective products to consumers is the way to be chosen. At the end of October this year, Hema President Hou Yi said at the supplier conference, "The future Hema will not only go upward and downward but also go outward. In the next 10 years, we will build a product system that can serve 1 billion consumers." Going upward, oriented by quality upgrade and differentiation; going downward, through supply chain reconstruction, bringing product prices down to half of hypermarkets; going outward, imported products from overseas are the differentiated competitive opportunity for domestic retail enterprises—Hema X Membership Store undertakes the strategic tasks of "going upward" and "going outward." In addition, Hema has also observed that the selection and introduction of sub-categories and specialty products require deeper research and analysis based on consumption trends. It is true that some sub-categories in the current consumer market are shrinking because as disposable income declines, some users reduce spending in certain categories and become more cautious about some products. But this phenomenon is not about not consuming or substituting downgrade; rather, it is about paying more attention to quality and cost-effectiveness within limited spending, and even increasing spending in some categories. For example, beef, especially high-quality imported grain-fed beef, is seeing rapid growth in consumer demand across the entire market (including Hema). Next, Hema will also make upgrades or downgrades based on different categories and changes in member needs. At the same time, in fiscal year 2024, Hema X Membership Store plans to open 5 to 10 new stores nationwide. Hema's accelerated moves not only mean that Hema's membership store format will enter a replication stage but also inject "stimulants" into the industry, demonstrating its confidence in the future economy and consumption. The three years of the pandemic have made consumers more inclined to rational consumption concepts, paying more attention to cost-effectiveness and functionality, which is beneficial to the overall development of membership stores. This has also made the membership store track full of players. However, Hema's advantages are also obvious. As a local retail enterprise, it has a better opportunity to create a membership store that belongs to the Chinese people. Now, all parts of the country are taking effective expansion of domestic demand as the top priority for stabilizing the economy, especially on the consumption side, by enriching consumption scenarios and promoting consumption upgrade, effectively promoting economic circulation and industrial linkage. For supermarket enterprises, to truly become giants, they must seize the historic opportunity of "internal circulation as the mainstay, building a dual circulation pattern," and then grow bigger and stronger. For Hema, the two newly opened membership stores have already signaled the intention to reconstruct the traditional retail model, becoming an enterprise that meets people's needs for a better life and drives regional economic development. The confidence comes from the development accumulation over the past few years, continuously building its global supply chain resources, emphasizing product quality and price competitiveness, and deepening understanding of membership stores and membership value, leading to higher efficiency. "We hope to roll up our sleeves and work quickly, bringing the best products from around the world to China to satisfy people's aspirations for a better life. We also actively introduce good formats and good business models to meet the needs of China's rapid market development," Hou Yi said. As Daymon Consulting wrote in its research report, the three years of the pandemic have made consumers more effortful in discovering fresh fun around them, hoping to find happiness and joy in daily life. The more down-to-earth Hema X Membership Store may be that small blessing in life, and confidence more precious than gold.