Click to read the original text for details Six years ago, with the halo of innovation, the retail circle welcomed internet-based transformation. Over the years, whether it was Dingdong Maicai and Miss Fresh with the front-warehouse model, or Meituan Select and Duoduo Maicai with the community group-buying model, they all knew well the game of burning money for scale and traffic. But years of losses and no signs of profit have begun to make the entire track reflect: where is the future of Chinese retail? Comparing with foreign giants that continue to be profitable, we can't help but find that low-priced, high-quality products are the king of sustained traffic attraction. When Chinese retail began to think about burning money for traffic with internet thinking, Costco and Sam's Club had already built high-quality supply systems globally, using ultimate products to win fans across the country. Now many Chinese retailers have begun to reflect and need to return retail to its essence. Not long ago, Hema spent 2 billion yuan to set up supply chain centers in Chengdu and Wuhan, which is the best proof. Hema founder Hou Yi even shouted the slogan "Build solid forts, fight tough battles," which is clearly contrary to the internet circle's methodology of "exchanging time for space." But at present, it seems that the study of retail cannot work by just playing with models, buying traffic, or exchanging time for space. The supply chain is a solid fort that must be built, and the tough battle of improving efficiency and reducing costs must be fought. 01 Seek efficiency from the supply chain In the era of crazy internet development, it seems that everything can be solved with internet thinking. Hema founder Hou Yi once said, "Alibaba's starting point for Hema is to be an e-commerce with physical stores, operating around traffic." But now he has turned around, starting to focus on offline site selection, building product strength, and improving product circulation efficiency. Hou Yi, who has been in the fresh food business for many years, understands that to improve the competitiveness of Hema's store products, relying solely on forcing upstream growers will take time. The only thing he can do is to solve many pain points in the circulation of fresh products through his old profession—the logistics system. Seeking efficiency from the supply chain has become Hema's first step in the new direction, and also a step to lay the foundation. At present, Hema's supply chain operation centers in Wuhan and Chengdu have been put into use. In the next 1-3 years, supply chain operation centers in East China, Northwest China, and other regions will also be put into use. By building eight supply chain operation centers across the country, Hema aims to achieve centralized procurement of goods and quickly distribute them to cities covered by each supply chain center, thereby improving efficiency and reducing costs. Building its own supply chain center, although troublesome, labor-intensive, and expensive, has very obvious effects. Taking Hema's Southwest Supply Chain Center as an example, agricultural products from the western region can be centrally procured and processed, and with the supply chain center as a hub, distributed to stores in various cities, reducing the number of circulation times and improving processing quality. Most importantly, the same products can be sold cheaper than others. 02 New retail is willing to fight tough battles Why is the supply chain center so good, but previous retail players were only busy testing models? The reason for this situation is that building a logistics system requires large investment, long time, and slow returns. In contrast, more companies are willing to choose asset-light logistics models with lower costs and risks, making limited modifications and optimizations to the original logistics system. Different choices are not caused by cognitive differences. With JD.com's success as a precedent, no one will doubt that building self-operated logistics and making heavy asset investments can help companies establish long-term competitive advantages. Moreover, there is still much room for improvement in the efficiency of fresh food logistics. In 2021, the market size of the entire fresh food retail industry reached 5.6 trillion yuan, and it is expected to reach 8.5 trillion yuan by 2026. However, according to the "China Logistics Statistical Yearbook," the proportion of fresh food circulation preservation in China is only 10%, about 40 percentage points lower than that of the US and Japan; the loss rate is about 25-30%, more than 20% higher than the US and Japan; the number of circulation links is generally more than 5, higher than the US and Japan; the proportion of fresh food logistics costs in total costs is 10% higher than that of developed countries. The key issue is not whether it should be done, but whether there is the ability to do it. For Hema, Hou Yi is the strategic determination to push it to redo logistics. He joined JD.com in 2009 and served as the chief logistics planner of JD Logistics, with a deep understanding of the value of an advanced logistics system. After taking the helm of Hema, Hou Yi has repeatedly emphasized that logistics is the most relied-upon infrastructure and capability for retail, and it is necessary to "invest heavily, build solid forts, and fight tough battles." No matter how strong the strategic determination is, it needs realistic foundations as support. On the one hand, Cainiao provides construction support for Hema's self-built supply chain operation centers. On the other hand, Hema's own supply and demand scale can support the operation of self-built supply chain operation centers. The latest data shows that at present, in the production link, Hema has signed more than 550 agricultural direct procurement bases, including more than 100 "Hema villages"; in the sales link, Hema has opened more than 300 stores, covering 27 cities across the country. On the consumer side, it has gathered a stable customer base, and accumulated enough methodology for managing source origins. The improvement of logistics efficiency is becoming a lever to drive the synergistic growth of value on both ends of retail. This also makes industry players begin to think about how to build a logistics and supply chain system to support rapid product iteration and updates, help fresh food retail lay out multiple business formats, and complete the improvement of overall operational efficiency. 03 Self-built supply chain is not a loss Liu Qiangdong once said in an interview with Qin Shuo that the essence of a business model is how to make money. Before investing in logistics, he did detailed calculations, and the result was that after self-building logistics, JD.com's costs would not rise, but would actually decrease compared to using third-party logistics. Self-built logistics helped JD.com reduce logistics costs while shortening inventory cycles, becoming a lever for JD.com to drive industry value enhancement. If you calculate the total account, Hema's attempt to build its own supply chain system has also brought it greater value. Logistics is not only a starting point for seeking internal process optimization and establishing efficiency advantages, but also a carrier for shaping differentiation in external competition and achieving refined innovation. From the consumer level, the most intuitive feeling is that the prices of fresh products are more reasonable and the quality has improved. Hema's "tree-ripened" series of fruits are picked at 80% ripeness and quickly distributed nationwide; the "daily fresh" series of meat, vegetables, eggs, and milk are produced the day before, arrive at stores in the early morning, and are sold only on that day. Fresh products are non-standard and perishable, which determines that they have greater difficulty in transportation and processing than other products. It is relatively easy to achieve the standards of "tree-ripened" and "daily fresh" in several stores in one city. But achieving this standard in 27 stores nationwide, without a logistics system that operates stably like a precision instrument, could very likely be a disaster of soaring costs. When the exploration of new business formats tends to stabilize, industry competition is difficult to gain advantages through price subsidies, and consumer demand levels are initially differentiated, under the premise of ensuring stability, it is increasingly necessary for enterprises to use one inventory to meet the needs of different business formats, thereby improving overall operational efficiency. Just like, Hami melons grown on the same piece of land may be sent separately to Hema's membership stores, fresh food stores, and neighborhood stores. On the way to the Wuhan Hema Supply Chain Center, Hema CEO Hou Yi wrote in his Moments: "With the successive operation of Hema's supply chain centers across the country, Hema's multi-format (upward: Hema X Membership Store, Hema Fresh; downward: Hema Neighborhood, Hema Outlet Store) will enter a period of rapid development. Hema firmly believes in China's bright future, and the low ebb of retail is the best opportunity for investment." Just as in the past, when relying on iteration ability to learn from peers, people can also construct a fairly reasonable logic for Hema's heavy investment in self-built logistics systems. But whether it can achieve success in the ideal state still needs the support of actual performance. When too many stories have become accidents, people have become more patient to wait for verification of actual results, continuing to cross the river by feeling the stones with Hema. Source: Narrow Broadcast (ID: exact-interaction) [Mondelez Greater China Sales Head Guo Zhihai] Pay tribute to channel partners, meet in Chengdu, August 31-September 2, 2022 (7th) China FMCG Channel Innovation Conference. -END-