It is reported that Hema Xiansheng is seeking independent financing and intends to valuate it at $10 billion

Author | Zheng Xuan

In the field of fresh e-commerce, Ali is brewing a big move.

On the morning of the 14th, Bloomberg reported that according to people familiar with the matter, Alibaba Group is considering seeking independent financing for Hema Fresh, with a proposed valuation of $10 billion.

Hema is working with investment banks to draw up an exclusive list of potential strategic and financial investors who will be invited to join the round, which could begin in February. It is worth noting that the financing plan is still in the review stage and it is uncertain whether it will be implemented, and the valuation of $10 billion is also preliminary and may be adjusted as subsequent negotiations progress.

As of press time, Ali and Hema officials have not responded to rumors seeking financing. From the current point of view, Ali seeks to let Hema raise funds independently, for no more than three reasons:

Adjust the organizational structure, split the box horse for independent development

Look for outside investors to ease the pressure of burning money for Hema

To meet the challenges of the fresh e-commerce industry since the second half of 2021

Founded in 2016, Hema Fresh is a self-operated retail chain platform under Alibaba. Hema focuses on the "store warehouse" model, the main model is to open up online and offline by using offline physical stores to fulfill online orders. As of the end of fiscal year 2021 (March 31, 2021), Alibaba has opened a total of 257 Hema stores in Chinese mainland, mainly in first- and second-tier cities.

Hema store

According to media reports such as Late and 21st Century Business Herald, Ali made an adjustment to Hema Fresh at the organizational structure level last year. In August 2021, Alibaba CEO Daniel Zhang issued a letter to all employees, saying that Dai Shan, an Alibaba partner who was then the president of the B2B business group and the MMC business group, would no longer represent the group in charge of the Hema business group, and Hou Yi, president of the Hema business group, would report directly to the Daniel Zhang.

Later, in the new round of organizational restructuring announced in December 2021, Dai Shan, as the president of the group, was in charge of the first layer of organizations such as Taobao (including Taobao, Tmall, And Alimama), B2C Retail, Taocaicai, Taote and Domestic Trade (CBU), jointly forming the "China Digital Commerce Sector". It is worth noting that in the new "China Digital Business Sector", there is no mention of Hema.

At this time, the independent financing is rumored, which inevitably leads to speculation from the outside world whether Ali is considering splitting Hema Xiansheng and letting the latter operate independently. According to people familiar with the matter, Ali has not yet decided on the scale of the hema fresh plan to raise funds, but it is certain that after the completion of this round of external financing, Ali will still retain the vast majority of the shares of hema fresh and have control over the latter.

In fact, there have been similar cases before. In August 2018, Alibaba announced the establishment of a local life company, Ele.me and Koubei two major businesses into the new company, in early 2019, Ali announced that the local life company completed a $3 billion independent financing, investors including Alibaba Group, Ali's majority shareholder SoftBank and some external investors.

One of the reasons for the independent financing of Ele.me and Word-of-Mouth is to inject new funds into the fast-growing but continuously burning local life business, and the fresh e-commerce company where Hema Fresh is located is facing a similar situation. According to the financial report, in the third quarter of 2021, other revenue, including Hema Fresh, increased by 66% year-on-year, much higher than Ali's overall revenue growth of 29% in the third quarter; at the same time, the quarterly total transaction volume (GMV) of the community e-commerce business increased by more than 150% month-on-month.

However, while revenue and transaction scale are growing rapidly, the loss of new business has also pulled down Alibaba's overall profit level in 2021. Alibaba's net profit for the quarter was 28.524 billion yuan, down 39% year-on-year. According to the disclosure in Ali's financial report, the decline in profit was mainly due to its investment in Taote, local life, community e-commerce and other fields increased by 12.575 billion yuan year-on-year.

In addition to its own organizational structure and financial considerations, the development and changes of the fresh e-commerce industry may also be one of the reasons why Ali is seeking independent financing for Hema.

In 2021, the domestic fresh e-commerce track has undergone a rollercoaster development. In the first half of the year, as the hottest Internet investment track in China, Dingdong Buy Vegetables, Xingsheng Preferred, Shihui Tuan and other head players have completed hundreds of millions of dollars in large financing, Pinduoduo, Meituan, Didi and other Internet giants have also joined the battlefield, Dingdong Buy Vegetables and Daily Excellent Fresh have been listed within a week to compete for the "first share of fresh e-commerce", which is to push this boom to the highest point.

However, with the coldness of Chinese stocks and Internet investment in the second half of the year, coupled with the relevant ministries and commissions to rectify the chaos in the industry, the situation of the fresh e-commerce industry has taken a sharp turn for the worse, and the ten huituan, Meicai.com, and Dingdong buy vegetables have been exposed to layoffs, and Didi's orange heart preferred has been exposed to shrink its business.

While other startups and giants are busy laying off employees and closing stores, Hema is trying to expand. After restarting the expansion plan in mid-2021, at the end of November 2021, Hema opened its first stores in Jinan and Nanchang, and intensively opened more than 20 stores in 13 cities including Chongqing, Chengdu and Changsha in December.

With the rebound of the epidemic at the end of 2021, Hema is also playing a positive role. After the lockdown of Xi'an due to the epidemic, although it was punished by the competent authorities for acts that did not conform to the norms, such as "unwashed eggs on the operating table", "chaotic placement in the operation room", and "mixing bread with staff clothes". However, on social media, Hema insisted on delivery during the lockdown and insisted on not increasing prices, but it was still praised by many netizens.

For Ali, this is also a rare scene on social media after a series of public opinion crises in the past two years.

*Header image source: Visual China

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