---
title: "What's Wrong with Hema?"
description: "In March 2019, two speeches stirred the stagnant new retail sector, both centered on Hema, the most important benchmark case. One was Hema CEO Hou Yi's admission at a forum that the company's \"pit-filling battle\" had led peers into a trap; the other was Alibaba CEO Zhang Yong's internal message at a Hema management meeting: \"Hema must sprint to survive, and run longer.\""
author: "天行健"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2019-04-01"
language: "en"
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original_source: "https://mp.weixin.qq.com/s/JKN-oq0YUZ5uVtwoe41RHg"
translation: "https://xinjignxiao.com/zh/articles/%E7%9B%92%E9%A9%AC%E6%80%8E%E4%B9%88%E4%BA%86-9f78cb87.md"
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---

# What's Wrong with Hema?

> In March 2019, two speeches stirred the stagnant new retail sector, both centered on Hema, the most important benchmark case. One was Hema CEO Hou Yi's admission at a forum that the company's "pit-filling battle" had led peers into a trap; the other was Alibaba CEO Zhang Yong's internal message at a Hema management meeting: "Hema must sprint to survive, and run longer."

In March 2019, two speeches appeared in succession, stirring some waves in the stagnant new retail sector. Not for any other reason, but because the name "Hema" is indeed the most important benchmark case in new retail. Moreover, besides Hema, followers have stopped sprinting.

Hema's situation has become more delicate.

One is Hema CEO Hou Yi's speech at a recent forum: **The Battle of Filling Pits, admitting that new retail peers have been led into a trap.**

The other is Alibaba CEO's internal speech at a Hema management meeting: **Hema must sprint to survive, run a bit longer.**

It makes retail professionals sigh: Hema, what's wrong with you?

Attending this Hema internal business meeting were Xiaoyaozi Zhang Yong (Alibaba CEO), Jiang Fang (Alibaba employee #13, Senior VP of Human Resources), and Judy Tong Wenhong (Alibaba employee #113, Chief People Officer). The simultaneous presence of these three at a business meeting of an Alibaba-affiliated company is extremely rare.

Meituan's Wang Huiwen once remarked publicly in 2018, "Among all new economy companies, only Alibaba's organizational capability passes the test; companies including Meituan do not." "I truly admire Alibaba; it can support so many businesses today without chaos."

With so many business segments in Alibaba, the only possibility for these three bigwigs to appear simultaneously (Tong Wenhong via video) is that Hema has problems—big problems. And they must be related to organizational strength and corporate culture, Alibaba's core values.

Indeed, Xiaoyaozi's internal speech at Hema did not discuss strategy or operations; it was entirely about organization and corporate culture. The content is worth a look for all operators concerned with Alibaba's organizational strength.

The following bold text is the key points of Xiaoyaozi's original speech as reported by media, which may be over-interpreted; these are just personal thoughts from a new retail practitioner's perspective.

**01 "Rotten Strawberry Award"**

Alibaba's annual Organization Department meeting includes an award ceremony, with awards divided into Red Strawberry Award and Rotten Strawberry Award. The Red Strawberry Award is given to teams that make outstanding contributions to customer service; the Rotten Strawberry Award, as the name implies, is a critical "award" mainly given to teams with poor customer service.

**"Old Cai this year at the Organization Department meeting, facing more than 500 core management team members from the whole group, received the Rotten Strawberry Award. I insisted this award go to Hema; this is an attitude."**

Alibaba's core values are **"Customer first, employees second, shareholders third."**

What happened at Hema in 2018 that made Xiaoyaozi give this award to Hema?

In November, the carrot "label gate"; in December, "expired imported coconut milk"; at year-end, Hema was exposed twice in one month for food safety issues. However, without wearing colored glasses, as a chain retail format, customer complaints, professional anti-counterfeiting, and operational management loopholes are inevitable. Even on JD and Taobao, which product doesn't have a large number of negative reviews?

The ultimate reason for insisting on giving Hema this "award" is unknown; perhaps it's a spur of frustration, but in any case, it reflects Alibaba's "customer first" value.

**02 "Flower Names"**

Every Alibaba employee chooses a unique flower name, which objectively serves to downplay hierarchy and aid memory. It is also a mark of each Alibaba person's career. In daily work, only flower names are allowed to be used.

**"I have a request: from now on, in Hema, don't call anyone 'boss'; don't call anyone 'boss' at all. Call them by their flower name; if there's no flower name, use their real name or English name. Also, don't call them 'big boss' (laoda). It's not easy to turn a boss into a big boss; keep 'big boss' in your heart, don't say it out loud."**

Who is "Old Cai"? Many people may not know, even veterans in the retail industry have no impression. "Old Cai" is the flower name of Hema CEO Hou Yi. The reason for this flower name is that Hou Yi often jokes that he is a "vegetable seller."

Everyone has chosen flower names, but colleagues still habitually call each other "boss" or "big boss," which is probably unacceptable in Alibaba's organizational culture.

The flower name corporate culture is very interesting; it's a name you give yourself. Many Alibaba people never know the real names of their colleagues. This represents that despite the personalized flower names, it's actually a form of de-personalization with strong corporate cultural attributes.

Here I think of a professional manager, one of the most important contributors to Alibaba's listing, then CEO of Alibaba B2B business, Wei Zhe. He joined Alibaba in 2006 and led Alibaba's B2B business to sprint to listing. In July 2008, Jack Ma left B2B cadres after an expanded Organization Department meeting and held a meeting. In the book "Alibaba Flavor," this special meeting is described; although Wei Zhe saw it as a special criticism session, the subordinates' speeches were similar: **"Wei Zhe doesn't value products, doesn't value customer experience, doesn't act with mission and values, only cares about profits and numbers..."**

After an 8-hour meeting, Jack Ma didn't set the tone, only said "let's see." After that, Wei Zhe remained elite, but no longer wore suits every day, and no longer asked subordinates to call him "President Wei," but "David" or "A Gan." Later, he gave himself a formal flower name, "Driver." From about 2009, Wei Zhe no longer called Jack Ma "President Ma" but "Big Boss."

**03 "A General's Success Costs a Thousand Bones"**

This is a line from Tang Dynasty poet Cao Song's "Jihai Year." In modern interpretation, it means a general's success is achieved at the cost of thousands of lives. Many young friends heard this line from a famous Hong Kong movie.

**I strongly disagree with the saying "A general's success costs a thousand bones." One person cannot do everything alone; it relies on an organization. Conversely, everyone in the organization should grow from the process. We absolutely must not become "a general's success, with skeletons everywhere."**

In this speech, Xiaoyaozi spent a lot of time elaborating on team organization, learning, job rotation, cross-industry innovation, etc., emphasizing that people are not tools, and that organization is collective strength rather than individual achievement.

As Alibaba's new retail benchmark project, Hema must not fail. But it is precisely Hema, which has been sprinting recklessly for four years, that has problems in organizational strength. The most critical project has problems in the most critical "soft power."

All reports of Hema's entrepreneurial story depict such a beginning: Hou Yi returned to Shanghai wanting to do a heavy model of online-offline integrated fresh supermarket, hit it off with Xiaoyaozi, and then met once or twice a month for half a year, eventually achieving Hema Fresh. In 2017, Jack Ma and Zhang Yong appeared together at Hema's Jinqiao store, officially announcing that Hema was a new model that Alibaba had explored for two years in new retail.

It can be seen that Hema is a project personally supported and incubated by Xiaoyaozi, and its strategic importance and emotional attachment are beyond doubt.

Therefore, they care even more about Hema's organizational strength, whether Hema has Alibaba genes and Alibaba people.

**04 "Sprint to Survive"**

In 2018, Hema's slogan was "sprint recklessly," planning to complete 100 stores in 2018 and open 500 stores in 2019.

**"Regarding new models, make bold assumptions, verify carefully, and only after the model is proven effective should you rapidly replicate. The Hema team is not easy; sprinting to survive is still sprinting. I hope everyone runs well, runs solidly, and runs long. Running long is the most critical."**

After four years of reckless sprinting, how fast is Hema running? What does the deep-pocketed Alibaba think?

130 stores, total sales not disclosed, average daily sales per store not disclosed.

"Seven mature Hema Fresh stores operating for over 1.5 years have average daily sales exceeding 800,000 yuan per store, average sales per square meter (average operating area 4,000 sqm) exceeding 50,000 yuan (operating efficiency 2-3 times that of similar hypermarkets), and online sales accounting for over 60% (far ahead in the industry)."

As of July 31, 2018, Hema Fresh had opened 64 stores in 14 cities nationwide.

The above comes from Hou Yi's sharing at Alibaba's 2018 investor conference.

In fact, in July 2017, Hema had already announced that 7 stores achieved scale profitability.

In October 2018, 20 new stores were added, bringing the total to 80.

In March 2019, Xiaoyaozi said at a Hema management meeting that 130 stores had been opened.

In four years, they opened 130 fresh supermarkets, while also incubating Hema Mini, Hema F2, Hema Station, Hema Market, and other formats to match different consumption areas and scenarios.

Four years later, Hema Fresh no longer insists on the same standard for each store, but wants to be more down-to-earth and learn from local enterprises.

> **VS Store Opening Speed:**

Let's look at Yonghui Superstores' 2018 store opening speed: 160 new stores opened in the year (excluding Yonghui Life stores), including 114 supermarkets and 46 Super Species. By the end of 2018, Yonghui had 690 large stores of both formats, 73 Super Species, and 400 Yonghui Life stores.

In 2018, "Fresh Legend," which focuses on community fresh supermarkets, opened 100 stores nationwide in four years.

In 2018, "Yipin Fresh," also from Hefei, received Tencent's Series B investment, reportedly having opened 400 stores nationwide.

So, in terms of opening fresh supermarkets, new retail companies have backed down, but traditional retail gene companies are not slow at all.

> **VS Front Warehouse Flash Delivery:**

Another core of Hema is using stores as front warehouses, acquiring customers offline at low cost, and providing free delivery within 3 kilometers. This part accounts for over 50% of store sales. It can be said to be the most important form of online-offline integration. Hema's model has been empowered to Alibaba-affiliated stores like RT-Mart, connecting systems and using Taobao's Taoxianda as an entry point for LBS instant delivery.

In 2018, on the fresh front warehouse flash delivery track, Hema faced a series of strong competitors: besides Tencent-affiliated Miss Fresh, Shanghai's Dingdong Maicai, Fuzhou's PUPU Supermarket, and Meituan's Meituan Maicai, all sprinting recklessly driven by capital.

In the market where Hema tries to go down, there are also a large number of entrepreneurs running community group buying platforms, also using front warehouses, selling vegetables via WeChat groups and self-pickup models, with lower customer acquisition and fulfillment costs.

In contrast, Hema's battle lines and business formats have already stretched long enough.

> **• Hema Standard Store:** Focus on supermarket + dining + store flash delivery to home. First-tier mature stores have been verified successful. 100+ stores nationwide.
>
> **• Hema MINI:** Smaller area, enlarged seafood section, introduced fresh-made categories. Future entry into counties and towns. 1 store testing in Shanghai.
>
> **• Hema F2:** Office building convenience store, few standard products, focus on dining, with self-pickup cabinets. 1 store testing in Shanghai.
>
> **• Hema Market:** Focus on community fresh supermarket, bulk packaging, no dining, focus on cost performance. 1 store testing in Shanghai.
>
> **• Hema Station:** Front warehouse flash delivery business. 2 stations testing in Shanghai.
>
> **• Hema Xiao Ma:** Cooperative brand between Hema and RT-Mart, community fresh supermarket, with Taoxianda delivery. 20+ nationwide.
>
> **• Hema Delivery:** Professional delivery service spun off from Hema's flash delivery business, venturing into catering services.
>
> **• Hema Supply Chain:** Daily Fresh, Emperor Fresh, etc., using investment and other means to control upstream bases.
>
> **• Hema R&D:** Information systems and retail AI hardware.

In such a reckless sprint, problems will only increase. The organizational structure will become more complex. On the offline retail battlefield unfamiliar to Alibaba, a group of cross-industry elites "suddenly jumped on Hema's chariot, and their life trajectories converged on Hema. In just four years, Hema has experienced things that retail may not have experienced in decades. How to integrate people from all over, with different ideas and insights, and different people, and how to build organizational strength? This must be a top-priority project. Whether it's the headquarters functional lines or branches, if everyone doesn't pay attention, this thing can't be done at all."

Alibaba particularly emphasizes that talent combination should have wild ideas combined with the ability to work hard on the ground. Alibaba's new retail strategy has indeed given Hou Yi a huge stage to perform. It allows his various ideas to be tried, which is indeed a dream start for a retail person.

**From reckless sprint to sprint to survive, only Hema people know the taste best.**

As the retail benchmark in Alibaba's business system, Hema's success is not hard to foresee. But the premise must be to live long enough.

**-END-**


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