---
title: "Yonghui: The Last Piece of JD.com's Puzzle?"
description: "JD.com has made fresh food a top priority, integrating businesses like 7FRESH and Jingxi Pinpin into a new innovation retail unit. To strengthen its fresh supply chain, JD.com may consider acquiring or taking control of Yonghui Superstores, which has a highly efficient fresh supply chain."
author: "董二千"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
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published: "2023-08-29"
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# Yonghui: The Last Piece of JD.com's Puzzle?

> JD.com has made fresh food a top priority, integrating businesses like 7FRESH and Jingxi Pinpin into a new innovation retail unit. To strengthen its fresh supply chain, JD.com may consider acquiring or taking control of Yonghui Superstores, which has a highly efficient fresh supply chain.

> "'More, faster, better, and cheaper' is JD.com's unremitting pursuit, and serving more users is the direction of JD.com's efforts. In the coming period, we will focus on 'cheaper' and 'more', reaching a broad base of incremental users in lower-tier markets through low prices."
Xu Ran acted immediately. Shortly after, JD.com integrated 7FRESH, Jingxi Pinpin, and its front-warehouse businesses to establish the Innovation Retail Division, which is on par with JD Retail and reports directly to Xu Ran. It focuses on same-city retail and lower-tier markets, aiming to deeply explore the integration and innovation of online and offline retail. It is clear that **among JD.com's many group-level businesses, the fresh food category has become a top priority.** Fresh food is one of the most important components of the local life market and has long been contested by major internet giants. For example, Meituan began investing heavily in fresh food as early as 2017. Guo Wanhuai, head of Meituan Select, once said at an internal meeting, "For Meituan Select, the company will continue to invest until victory." In recent years, Meituan has aggressively entered the community group buying business, positioning itself as "higher-quality fresh groceries," hoping to drive sales of other categories through high-frequency repurchases of fresh groceries. Now, although the development of community group buying has not met expectations, through the construction and control of the fresh supply chain, Meituan is highly likely to establish a foothold in physical e-commerce. JD.com has also chosen to focus its same-city retail business on fresh food. Niu Yinghua, JD.com's vice president and head of JD Super's omni-channel business, said: "Consumer demand for fresh food remains strong, and the short-chain model of same-city retail is more suitable for the fresh category. Therefore, fresh ice delivery will be our core development category and the most important category JD Super wants to build."
**Timing and Destiny**
> JD.com's pursuit of the fresh food business has a long history.
As early as 2015, JD.com invested 4.6 billion yuan in Yonghui Superstores for a 10% stake, and the two sides began cooperation in the fresh food field. According to a report by the self-media "Zhu Si Ma Ji," Liu Qiangdong's thinking at the time was:
> Since Yonghui does well in the fresh category, let them help us with this category online and offline. After all, there was no JD Fresh channel at the time. Based on this cooperation point, the two sides quickly reached an intention.
However, by the time the agreement was completed, JD.com had also formed its own fresh team and spun off the fresh business unit from the consumer goods business unit, making it JD.com's sixth major business unit. This shows JD.com's emphasis on fresh food, but it also led to unclear responsibilities between the two sides, such as whether JD.com's own team should handle online fresh sales, which triggered the subsequent crisis. During the operation of the fresh category, JD.com quickly discovered that **the loss from online fresh sales far exceeded the profits it could obtain. The solution was either to do store O2O or add a cold chain front warehouse outside the warehouse link.** JD.com chose a more comprehensive approach. On one hand, JD.com and Yonghui began cooperating on O2O, with Yonghui joining the JD Daojia platform, but the two sides did not deeply share procurement, user, or order data. On the other hand, JD.com built its own fresh cold chain team and distributed commercial freezers on a large scale at delivery stations nationwide to complete the "last mile" setup. Due to the incomplete cold chain logistics infrastructure, JD.com's fresh e-commerce business model has never been fully realized, and the path of selling fresh food online through traditional logistics did not work. It is worth mentioning that around the same time, 1号店 also tried a B2C model for fresh frozen goods in bulk, but was forced to abandon it due to inadequate infrastructure. The store O2O model faced even greater challenges. Compared to the high standards for channels in fresh e-commerce, JD Daojia's warehousing and logistics were hardly professional. More critically, a stronger competitor had already emerged. **While JD.com and Yonghui were still in negotiations, Hou Yi, then at JD.com, proposed to senior management the opening of offline stores, which was the prototype of Hema. However, because JD.com was eager to win the fresh category at the time, the plan was temporarily shelved, and Hou Yi later moved to Alibaba.** The emergence of Hema and the half-hour delivery model threatened JD.com's long-recognized core competitiveness in logistics. It wasn't until 2018 that JD.com opened two 7FRESH stores on a trial basis in Beijing. During this period, Hema enjoyed a two-year golden period of development.
**Efficiency Competition**
> The effort and investment in fresh food is an unavoidable topic for JD.com.
Perhaps influenced by Hema, Liu Qiangdong paid more attention to the fresh business. When 7FRESH was established, Liu Qiangdong said: **"The model and operation of fresh e-commerce are completely different from traditional e-commerce. It involves business model innovation and must be led by the top decision-maker, operating independently to succeed."** Wang Xiaosong, then head of 7FRESH, publicly stated that they would open 1,000 7FRESH stores nationwide within five years. However, against the backdrop of Hema's aggressive expansion, it is uncertain whether 7FRESH missed the golden period of development. Five years later, 7FRESH still has only a few dozen stores nationwide. In addition, JD.com's efforts in local life and lower-tier markets have also faced considerable challenges. When community group buying exploded, JD.com invested heavily in Jingxi Pinpin and changed its reporting line from Xu Lei to Liu Qiangdong, but soon after, the development of Jingxi Pinpin was put on an emergency pause. Now, it has been renamed JD Pinpin, but it has not expanded on a large scale. Whether it is 7FRESH or JD Pinpin, the effort and investment in fresh food are unavoidable topics. Moreover, at present, almost all types of fresh e-commerce companies that relied on "burning money" to expand, including Hema, have either gone bankrupt or are facing considerable trouble. The key to the next stage will inevitably be a competition of efficiency. And the key to improving efficiency in fresh food is undoubtedly supply chain optimization. Backed by Alibaba, which has deep pockets, Hema's choice is to make heavy investments in the fresh logistics supply chain, building a national logistics backbone network. With Hema's seven supply chain centers in the northwest, southwest, central China, and east China gradually coming online, it may build the largest fresh full-temperature logistics system among domestic retail enterprises. In addition, its supply chain has gone down to the source of production, with nearly 600 direct procurement bases and 180 "Hema villages" nationwide, basically achieving the integration of "production, supply, and sales" from source base to Hema village to Hema origin warehouse to Hema sales warehouse to Hema stores. But all of this requires a lot of capital, and what is even harder to bear is the cost of time. It took Hema eight years to get to this point, and it is unknown how much longer it will need to continue investing. It is also unknown what disruptive technologies or competitors may emerge in the coming years. For an ordinary enterprise, this would already be a precarious situation.
**Puzzle Opportunity**
> Acquisition or controlling stake will inevitably become a serious option for JD.com.
Whether to acquire Yonghui is still undecided, but this may be the best solution to JD.com's fresh food problem. For JD.com, Yonghui's fresh supply chain is something it can directly obtain through acquisition. As early as 2018, at the Chongqing Internet + Digital Economy Summit, Liu Qiangdong publicly stated: "There is a common misconception that as long as you have traffic on the internet, you can make money, you can do e-commerce, you can do retail. That's not true. Without a supply chain, it won't work." He commented on Yonghui: "Walmart and Carrefour have better store locations in China than Yonghui and many other retailers, but why can't they outperform Yonghui? Because **only Yonghui has built an efficient fresh supply chain that can compete with street vendors, with lower prices and still make a profit.**" For example, Yonghui also has more than 600 direct procurement bases nationwide. Its subsidiary, Caishixian, has established 38 large fresh central factories/warehouses in Beijing, Shanghai, Guangzhou, Shenzhen, Fujian, Zhejiang, Jiangxi, Hainan, Sichuan, Chongqing, Guizhou, Hebei, Henan, Anhui, Hubei, and other regions. Yonghui founder Zhang Xuansong also publicly asserted: "Internet companies are constantly developing fresh supply chains, but **fresh food requires time to accumulate. We have 18 years of experience with thousands of buyers, and it is difficult to catch up with capital.**" Although the two sides have cooperated since 2015, their cooperation model has remained superficial. It wasn't until 2019 that 7FRESH and Yonghui went to Thailand together for overseas direct procurement, marking the first deep cooperation at the supply chain level. For JD.com, this level of cooperation is far from enough, and acquisition or controlling stake will inevitably become a serious option. For Yonghui, although the value of its supply chain is enormous, traditional offline supermarkets are quietly declining. According to data from the China Chain Store & Franchise Association, Yonghui's store count has been declining since its peak of 1,440 stores in 2019, and revenue has also declined for three consecutive years. At the same time, it faces considerable working capital pressure, with a debt-to-asset ratio exceeding 85%. Especially in recent years, Yonghui's multiple transformations, including Yonghui Super Species, Yonghui mini stores, and Yonghui warehouse stores, have had little effect. Bringing in external forces, or even having the founder choose to let go at this time, is indeed a consideration.
#### **Final Thoughts**
JD.com's layout in the fresh food business is quite forward-looking, avoiding Alibaba's traditional advantage in apparel and entering the high-frequency consumption scenario that Alibaba lacks through the fresh category, thereby driving sales of JD.com's traditional low-frequency products like 3C. The existence of the "JD-Yonghui Alliance" did indeed put pressure on Alibaba. Unfortunately, due to various reasons, this strategy was ultimately not implemented. According to media reports, after Hou Yi successfully ran the Hema model, Liu Qiangdong criticized senior executives at an internal meeting for not using people well. But in the emerging lower-tier markets and same-city retail, JD.com, like all internet companies, has considerable room for growth, and the investment or acquisition of Yonghui may be the most direct and effective move for JD.com to enter this field.


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