Author 丨 Su Min
Editor 丨Fang Yu
The source of the picture | Box Horse Official Micro
Following independence from Alibaba Group at the end of last month, Hema Xiansheng has announced plans to raise funds at a $10 billion post-investment valuation.
According to Bloomberg, Hema is working with advisors to develop a list of potential strategic and financial investors to invite those investors to join the current round of funding, which could be launched as soon as next month.
Bloomberg quoted people familiar with the matter as saying that Alibaba has not yet decided on the size of Hema's financing, but will retain a majority of its shares after the financing. As matters are still being negotiated, there is no guarantee that the deal will be completed and the $10 billion valuation is only a preliminary figure or will change as negotiations progress.
In this regard, Ali and Hema did not respond.
In fact, at the end of 2021, after Hema transformed from Ali's business group to an independent company outside the group, and needed to bear its own profits and losses, the outside world speculated that Hema was likely to raise funds externally and even seek listing. The emergence of financing rumors further confirms the previous speculations of the outside world.
In the fresh retail track where Hema Fresh is located, you sing I debut, new retail, front warehouse, community group buying, in just a few years, these models have taken turns to fight again.
It can be said that the nearly 6-year-old Hema and Ali New Retail have come to a key node that requires phased results, from "sacrificing life to run wildly" to "saving life and running wildly".
Self-financing means that the era of Ali's continuous blood transfusion is over, but before it can truly achieve overall profitability, Hema still needs the help of capital. Ali new retail 5 years, can Hema walk independently? What are the possibilities for the future of Hema?
"Running from the inner ring of the Ali system to the first ring"
The independence of Hema actually had a precursor. In 2021, the internal organizational structure of Alibaba Group has been adjusted many times, first in August of that year, Hou Yi, president of Hema Business Group, no longer reported to Dai Shan, but directly reported to Daniel Zhang.
By the end of 2021, Ali will directly transform Hema from a business group to a company that has developed independently from Alibaba's organizational structure. This was described by Hou Yi as "running from the inner ring of the Ali system to the first ring".
He explained to the media: "The essential difference is that Hema hopes to adapt to the development of the market more independently, completely be a market player, achieve its own benign development, and have self-hematopoietic functions." ”
This means that Hema needs to prove its model through profitability, whether it can support itself, rather than continuing to burn money to expand the market.
In the past few years, Hema, which has been jokingly called the aura of "the second generation of the rich in the retail industry" by the outside world, although it has also taken some detours, but because of its back to Ali, hema's constant trial and error is far greater than that of other budget-conscious peers. Hema's most important format, Hema Fresh, has held high the banner of omni-channel from the beginning, and finally occupied a place in the retail industry with subversive ideas.
Hema Fresh's first store, Shanghai Jinqiao, was officially opened in January 2016, a full six years ago. As of December 18, 2021, the number of Hema Fresh stores nationwide has exceeded 300, opening into 27 cities across the country. Hema X clubs also have 7 stores.
Regarding Hema's financing history, Qicha App shows that in March 2016, Shanghai Hema Network Technology Co., Ltd. received Alibaba's Series A financing with an amount of $150 million. In addition, there is no record of financing.
Bloomberg quoted people familiar with the matter as saying that Alibaba has not yet decided on the size of Hema's financing, but will retain a majority of its shares after the financing. That is to say, in the equity distribution of Hema, Ali still occupies an absolute dominant position.
Bloomberg senior analyst Catherine Lim pointed out that Ali raised funds for Hema and can invest in new technologies and automation to provide a more efficient fresh food supply chain. Hema has many competitors, including giants such as Meituan, Pinduoduo, and JD.com, and higher efficiency can reduce the unit cost of its fresh business, thereby improving its competitiveness.
In addition, according to the New Consumption Daily, Hema X member stores are expected to land in the form of their own properties. Again, this is not a small investment. If this round of financing is successfully landed, it may provide sufficient "ammunition" for the next expansion of Hema.
In fact, Ali has had similar cases before. In early 2019, Alibaba Local Life Services, a merger of Ele.me and Koubei, received $3 billion in independent financing from Alibaba, SoftBank and other third-party investors. One of the main reasons is that although the transaction scale of the local life business has grown rapidly, the demand for funds has also continued to grow, which has reduced Ali's overall profitability. Apparently, Hema Xiansheng is facing a similar situation.
Is the valuation of $10 billion high? Not low, to say the least. In horizontal comparison, the current market value of the front-end warehouse platform Daily Fresh and Dingdong Grocery Shopping, which landed on the US stock market, is 850 million and 1.44 billion US dollars respectively; the market value of Yonghui, the leader of the A-share supermarket sector, is less than 40 billion yuan, equivalent to about 6 billion US dollars; Ali fully controls Gaoxin Retail with 42.3 billion yuan, equivalent to nearly 7 billion US dollars.
From this point of view, Hema Xiansheng is a representative of the new type of supermarket retail that is currently pinned high hopes by capital. If Hema can finally achieve an IPO and land on the capital market, its market value can be comparable to the current retail leading enterprises.
From a capital perspective, valuation is an expectation of a company's profitability in the coming years, and reference data includes sales revenue, net profit, net assets, and the average level of the entire market. That is to say, at least the primary market has positive expectations for the future of Hema.
On the other hand, the development and changes in the fresh retail industry may also be one of the reasons why Ali is seeking independent financing for Hema.
The fresh retail industry is turbulent, like a roller coaster. Taking July 2021 as the watershed, in the first half of the year, daily excellent fresh and Dingdong groceries have landed on the US stock market, and the community group buying is still the end of the strong crossbow; but after July, with the bankruptcy of the "old three groups" living in the same journey, orange heart preferred and other shrinkage layoffs, the situation has taken a sharp turn for the worse. In addition, Yonghui Super Species, which is also a new retail, closed stores on a large scale; Jingdong 7Fresh announced an accelerated restart after experiencing a downturn; Ali also invested in the fresh supermarket T11 at the end of 2021...
With such a complex industry pattern, even Hema, which is known as the benchmark of new retail, seems to be not easy to survive in the fiercely competitive jungle ecology.
Can I walk independently?
In fact, whether it is the front-end warehouse head platforms that have entered the secondary market, or the community group buying that has shown a parabolic trend after the epidemic, no company has really achieved profitability on the fresh online so far.
In 2019, Alibaba's financial report showed that as of the end of September of that year, the self-operated Hema fresh stores that operated for more than 12 months successfully recorded profitability through adjusted EBITDA. However, the expansion to the company as a whole is subject to the impact of commodity gross profit level, warehouse operating costs, loss costs, distribution costs, etc., and cannot continue to make profits.
At the beginning of 2022, that is, after independence, Hou Yi issued an internal letter saying that Hema's goal is to improve from the current single store profit to full profitability. Intriguingly, Hou Yi also mentioned that from "online development is the mainstay, offline development is supplemented" to "online and offline common development" of the two-wheel strategy.
This phrase "common development" can be understood as if there is enough capital, the speed of hema fresh stores will continue to accelerate.
As a representative of new retail, Hema was originally characterized by 30-minute delivery to home and freshly made seafood, attracting the middle class and young people to return to the supermarket. In the meantime, there was a rapid stage of opening a store with "desperate running", and later it became a "life-saving rush".
In the development of the format, Hema also tried many things, and tried about 10 formats before and after. Today's hema, it should be said that whether it is the main format of hema fresh or the new eye-catching X member store, in its general development direction has no longer swayed, serving the middle class family life is the consensus between different formats of hema and will enter the adjustment period of deep cultivation.
Nowadays, new concepts are emerging in the market, and "new retail" seems to be a fading day. But since Alibaba proposed "new retail" in 2016,
This time, Hou Yi re-mentioned the common development of online and offline, which is worth pondering. This may mean the adjustment and transformation of Hema's thinking and strategy in the new environment. Hou Yi also mentioned in an interview that 70% of Hema's transactions were online before, and there were deficiencies in physical stores.
Backed by Ali, Internet thinking is the most important component of Hema's genes, and the basic action of members pulling new and draining e-commerce is also the normal state of Hema. However, with the changes in the industry situation, especially the rise of community group buying, it means that there is still huge potential value in the offline transaction scenario. The independent Hema may re-examine the relationship between Internet data-driven and offline store operations, and return to the retail essence of serving consumers from several dimensions of scenarios, products and supply chains.
In Hou Yi's view, consumers need consumption upgrades, not basic demand satisfaction. In terms of positioning, Hema did find a model of the so-called "supermarket needed by the middle class", which is slightly more refined and priced slightly higher than hypermarkets such as Wal-Mart and Yonghui, but it is more approachable than real boutique supermarkets such as China Resources Ole'.
In fact, between the two, there is indeed a need for a middle ground. The driving force behind consumption upgrading comes from China's expanding middle-class consumer group. Daniel Zhang, CEO of Alibaba Group, mentioned at the Davos Forum that within five years, the number of middle-class consumers will double.
Standing at the demand point of consumption upgrading, strengthen the offline experience and improve the service level. In 2021, Hema has adjusted the lighting, shelf color and design, and rebuilt the physical store. In terms of store location, according to the logic of physical stores, the full coverage of the network in the city and the number of people around a single store are no longer emphasized, but more people choose the local core high-gathering area to open stores.
On the other hand, consumption upgrading also shows a "sinking" trend. When middle-class consumers in first-tier cities are no longer surprised by Hema, the consumption upgrade in second- and third-tier cities is still in progress. Data from the National Bureau of Statistics also show that the per capita disposable income of second-tier cities is higher than that of first-tier cities. In other words, second-tier cities do not lack spending power.
In December 2021, Hema opened a total of 14 stores, almost every two days. What is different from before is that in this round of hema store opening tide, second-tier cities account for the majority, such as Zhengzhou, Hefei, Jinan, Nanchang and so on. It is understood that the consumption level of these newly opened cities is lower than that of first-tier cities, but they have achieved profitability in the first month. Hema will also focus on such provincial capital cities in the future.
All in all, for self-reliant box horses, profitability becomes crucial. Standing at a new crossroads, the real challenge of Hema has just begun.