Hema feels like it's doing well again.

After founder Hou Yi retired for a month, Hema's previous series of business strategies were "halted".

In the Hema app, you can see the latest announcement about the X membership: "It is planned to resume the opening and renewal services for X Gold members/X Diamond members on April 24, and at the same time, the rights of the original members will be upgraded and adjusted."

We found that many of the products that used to participate in the "offline exclusive price" have returned to their original prices. Although this strategy is a core part of Hema's low-price brand, the offline price reduction does not have much persuasiveness for Hema's online consumers, but instead brings a "disbalanced" feeling to consumers.

In addition, the controversial free shipping threshold has been adjusted again. The single online free shipping threshold for Hema will be restored to 49 yuan, and less than that will be charged at 6 yuan per order. The previous free shipping standard in Beijing, Changsha, and Nanjing was raised to 99 yuan.

Hema is Alibaba's exploration of new retail business and also a high-quality fresh supermarket loved by the middle class. In the early days, Hema represented a high-quality lifestyle, and even the residential areas within its delivery range were sought after as "Hema districts."

However, since 2019, Hema has been continuously trying various business models. In addition to Hema Fresh, Hema Neighborhood, Hema Outlet, Hema MINI, and more than ten other formats have been successively launched, fearing to miss any trend.

In short, due to constantly changing strategies and changing course, Hema has not only offended new and old customers but also lost its initial brand tone, becoming a "unstable" discount store.

After experiencing a series of events such as price reduction, SKU streamlining, rumored acquisition, and the founder stepping down, Hema finally took specific actions, trying to show a new development trend. Could it be that Hema thinks it's back on track?

In fact, the fundamental reason why the former CEO of Hema, Hou Yi, implemented a discount strategy is the change in the macro consumption environment. The new retail business of Internet companies has emerged with the trend of consumption upgrading.

After several years of turmoil, everyone realized that consumption upgrading is just a superficial and false proposition. On the other hand, Pinduoduo, which has been focusing on sinking users since its inception, once surpassed Alibaba and JD.com in market value. In 2023, Pinduoduo's revenue reached 247.6 billion yuan, a year-on-year increase of 90%, and its average order value is much lower than that of JD.com and Taobao.

In the early days, Hema targeted the urban middle class, but its rapid expansion led to an insufficient middle-class population. In 2019, the number of Hema stores surged to over a hundred. That year, Hou Yi said, "This year is still a year of sprinting for Hema. We still need to make Hema's large stores at least one step ahead at the fastest speed."

However, with the expansion of Hema, operating costs also increased. In addition to high expenses such as labor and facilities, there were often a lot of fresh seafood and tropical fruits from afar in Hema stores that could not be sold in time.

After the change in consumer spending habits, Hema had to carry out a drastic discount reform, not only directly reducing prices but also reducing costs through extreme selection and compression of the supply chain. However, in this process, Alibaba's layout of new retail has also been continuously "failing."

New retail, in simple terms, is Alibaba's attempt to achieve a closed loop between online and offline scenarios through offline consumption places like Hema.

However, few internet companies have been able to do well in both online and offline. Alibaba's continuous support for Hema may be the closest to success. In 2019, Hou Yi said that new retail stands completely above all the giants.

However, the "giants" that Hema relies on are also in trouble. On one hand, Alibaba's main business has been under pressure in recent years, and its core territory is in danger. Taotian needs to deal with the expansion of Pinduoduo and Douyin e-commerce. On the other hand, Alibaba Cloud also faces competition from telecom cloud and Huawei Cloud.

Most importantly, the failure of new retail businesses including Hema. Obviously, Alibaba has not made this business model work. After Alibaba announced the "1+6+N" architecture reform last year, Hema was classified as "N". Through several speeches by Alibaba's new CEO, Wu Yongming, it is not difficult to see that retail businesses such as Hema have become a heavy burden for Alibaba.

In mid-March, there were rumors in the market that "Hema Fresh would be acquired by COFCO for 20 billion yuan," but Hema denied this. Prior to this, Alibaba had announced plans to list Hema and Cainiao, but it was eventually shelved, with rumors that the valuation given by investors was lower than Hema's expectations.

On April 21, there were market rumors that Hema founder Hou Yi and former Alibaba CEO Zhang Yong intended to join forces to acquire Hema and offered a bid of 2 billion US dollars. However, this news was quickly denied by Hema.

02

Hema probably wants to become like Sam's Club. According to market sources, as of 2023, Sam's Club has 48 stores in China, with annual sales of up to 80 billion yuan, nearly half of which are from online sales.

Hema's only chance of winning is probably the number of stores. By September 2020, there were 72 Hema stores in Shanghai, while Sam's Club, which also targets the middle class, still has only 3 stores in Shanghai.

As far as we know, Hema Fresh has a delivery range of 3 kilometers, Hema NB (formerly Ole) has 800 meters, while Sam's Club covers almost the entire city. In Shanghai, Hema may be able to compete in terms of store density, but in non-first-tier cities, Hema's coverage is far less than Sam's Club.

From a business perspective, Hema seems to be "learning from" Sam's Club. In addition to launching a membership system, Hema has also reduced the number of SKUs in standard stores and strengthened the development of its own brands, which is similar to Sam's "wide SPU, narrow SKU" principle.

However, in this process, Hema is finding it difficult to avoid the lowering of product review standards, the complexity of SKU management, and reliance on suppliers. Hema's procurement team is struggling to replicate Sam's product strength in the face of rapidly changing markets and the pressure of a high number of SKUs.

But in terms of results, whether it is learning from the Sam's Club model or engaging in a "price war," Hema has not been very successful. After the appointment of the new CEO, Yan Xiaolei, Hema still maintains its "old traditions," and regardless of the results, it cannot afford to make sudden changes.

On one hand, Hema is attempting to further focus on middle to high-end consumers, increase user stickiness, and purchase frequency by relaunching its membership business, canceling offline discount prices, and unifying free delivery thresholds.

However, the implementation effect of this strategy still needs further observation. Especially in a fiercely competitive market environment, how to ensure that the membership business can truly attract and retain middle to high-end consumers will be a major challenge for Hema.

On the other hand, when adjusting price strategies and delivery thresholds, Hema needs to consider the problem of declining online orders and the lack of significant growth in offline customer numbers.

Previously, Hema's online transactions accounted for over 65%, and the decrease in this proportion will directly impact its overall performance. Therefore, how to expand the offline market and increase store traffic while ensuring the stable development of online business is also a difficult problem that Hema needs to solve.

The recent series of adjustments by Hema Fresh indeed reflects its efforts to find a new positioning and development direction.

However, in the context of the overall contraction of Alibaba's new retail strategy, it is still difficult to say that Hema is doing well.