Recently, Hema plans to raise funds, and in the past two or three years, several types of new retail models have been played from the first line to the fifth line, although the traditional retail giants have been seriously injured, and they are also dying. This outcome was predicted before the epidemic, but the epidemic once created the illusion of prosperity, and finally pleased the people and lost investors. Today, in the most intense period of change in China's retail industry, what should we think about in 20 years is what retail will look like? In this regard, we always believe that Hema is the most representative of the future.
First of all, the research basis, this analysis is mainly based on more than 20 relevant expert interviews and more than 30 Hema stores, mini stores of the survey and public information. In addition, in the past two years, I have also been more or less taught by many former colleagues and friends, including the core backbone of the community group buying Top3 enterprises (reporting CEO), the executives of the top 2 companies in the front warehouse, the former Chinese executives of the world's largest retail companies, and my mentor and former president of JD University.
I would also like to thank my partner, former Bain & Company's Managing Director, the world's most consumer-retail-savvy consultancy, for providing a professional perspective based on hundreds of millions of consulting projects. Rich first-hand research, coupled with a top team of experts, hope to produce the most insightful and professional research value.
What core customer value should hypermarkets offer in the future?
Before entering the main topic, let's take a look at the post-war aftermath of the two years of retailing in the same city. At that time, the community group purchase four small dragons were only left with a single dragon, fully defending the Hunan base camp, waiting for the giant siege at all times, and nine dragons lost billions of dollars in investment and then vanished. The 2 pre-warehouse companies that have landed, the cash flow can not support 1 year, who will rescue? After this battle, not only did the money run out, but the small vendors could not survive, and the traditional stores that could have made stable profits could not stop the blood loss by closing the stores sharply.
Yonghui just issued a performance forecast, losing 3.9 billion yuan in 2021, and also 4.5 billion yuan less than the previous year. In terms of gambling, those local stores can not catch up with Yonghui, so they barely retain a net profit of 0.5%-1%, becoming the industry leader (Figure 1). Even Walmart closed 35 stores in 21 years, and only 400+ stores nationwide. So to be fair, Hema 300+ stores, only closed a few is not bad.
Performance of typical domestic retail listed companies, 2021H1
Back to the point. The question that has been asked in the past two years is whether the hypermarket format will be eliminated? Before coming to conclusions, let's first review that more than 30 years ago, the store, there is a product is the king, more than 20 years ago, Wal-Mart, Carrefour have entered China, new and exotic goods and lower price standards are the king. What about today? Which standard can be cheaper than Pinduoduo tail goods? What discounts can be more affordable than a good sale? Some people will say Costco, is it really successful because of the extreme low price?
Price should never be the only advantage of a store, not in the past, and even less in the future. If you want good goods to have no goods, no price, and finally the traditional store will become what it is today, becoming a vegetable market for the retired elderly and housewives, after all, it is close to home, the dishes are not expensive, and the environment is clean. This is a great trap, fresh is the store drainage products, high loss, designed to drive the daily hundred, tobacco and alcohol and other high customer orders, high gross profit commodities, and the latter today has too many optional channels, both to maintain the genuine, but also cheap, and eventually lead to non-fresh FMCG goods continue to decline in turnover rate. Faced with the current situation of being swept away after this drainage, traditional stores have no way to do anything, sit and wait for losses, and fall into a dead cycle. Those retail giants who can barely survive either rely on the first-mover advantage in the early years of site selection (offline is always a position war, the location is selected, and the goods and operations of 60-70 points can also be profitable), or such as delaying the supplier account period.
So, in the next 10 years, what is the value of the existence of hypermarkets? Let's go back to 20 years ago, remember that in the early 2000 Wal-Mart just came to Shanghai, every two weekend evenings, our family will take a car for 40 minutes to Go to Tangqiao Wal-Mart, then Wal-Mart (Figure 2) was crowded, nearly 30 cash lines, each line for at least 15 minutes, full of old and small people, this is not 20 years ago offline Taobao? This weekend evening, no matter the first line or the third line, is it still possible to go to the traditional store to see?
Store crowd comparison, 20 years ago VS today VS Hema X club
Once we had a judgment, according to the four elements of retail how fast and good the province, any one of the elements to achieve the ultimate can achieve a type of retail model, but today it is not true. Pinduoduo has a total loss of more than 25 billion yuan in 3 years, Jingdong has not made a profit so far (after the listing of the loss once continued to lose a lot), those tens of thousands of SKUs of the store lost money year after year, as a good representative, Hema is still in the profit and loss line. 20 years ago, a hypermarket carried almost all daily consumption, and today after being divided by various kinds, except for Ali, who is the biggest winner, there is really no model that dares to say that it really runs through. No subsidies, try it? Delivery delay 2 times, try it? So, what is the endgame of the hypermarket? If there is only a price advantage, it is called a discount store. How do you get people back into the store? Taobao is the best case, Taobao slogan is never the lowest price, what is it? "It's so nice to go around!" The future of hypermarkets should also be like this, hypermarkets should become offline Taobao, and the biggest challenge is the gap from "operating goods" to "operating users", and the requirement of "finding people for goods" will completely subvert the operational logic of traditional stores.
Today's traditional store, ask the young people, are you okay to go shopping? Then you are depressed. If it weren't for work, I wouldn't go to a traditional store once a year, ask a circle of peers who have families around me, most likely, but we are all members of Hema and Sam's members, and even my parents' retirement salaries total 8K (they can't reach the second-tier retired civil servants), spending nearly 10,000 yuan on Sam every year. The old book will eventually be eaten one day (those who have eaten for decades of geographical pits), the traditional retail bigwigs, so strong consumption change, if you do not change, you are the next hundred, and the box horse will definitely replace you.
So our view is that hypermarkets will definitely exist, and after 20 years will gradually return to the same as 20 years ago, the store can not only carry the daily procurement needs of the people, but also can re-become a new place for the people to kill, and even become a way to promote family feelings, all the efforts of Hema are getting closer and closer to this direction.
In the next 20 years of retail, what do we learn from Hema?
This par can be said for a day, Hema from 2015 internal project to today (Figure 3), never to do old changes, nor imitation plagiarism, Hema two years of innovation, worthy of many local retail giants since the opening of the innovation accumulation.
Before expanding, let's use a few data to look at the crowd portraits of the entire fresh retail and hema formats (Figures 4-6). Figure 4 compares all fresh e-commerce models according to the core age group, delivery timeliness, price positioning, online single volume scale and other indicators, hema is on the cutting of young people (18-39 years old) on the dust, and the community group buying main low-priced flat fresh cut in the high-frequency grocery buying crowd (30-60 years old). High-frequency grocery buying crowd is a group that cannot be ignored, Figure 5 is the situation in Beijing, the elderly account for nearly 80%, and the more to the lower-tier cities, the proportion of middle-aged and elderly people will be higher, they are not only the core decision-makers of daily grocery shopping and daily necessities, but also the high repurchase crowd of traditional hypermarkets, but the disadvantage is that the demand of this group for Daily Hundred, tobacco and alcohol, mother and baby, food breaks, consumer electronics, etc. is constantly divided by Pinduoduo, and finally the best category contribution structure of the store is getting farther and farther away.
Hema Development Milestones, 2015-2021
Comparative Analysis of Major Fresh E-commerce Models, 2021
Fresh Retail Market Share, by Consumer Population, Beijing, 2021
Looking at Figure 6 in turn, the core user group of Hema is in the youth population, and it has also cut a part of the elderly population. Imagine 10 years later, today's young users of Hema are still in Hema, and the younger user structure of Handtao (~800 million MAU) continues to increase The increase for Hema, while traditional stores are still consuming the residual consumption power of this batch of middle-aged and elderly people. On the price, hema is high but acceptable, so through more than ten years of precipitation of high quality, distribution efficiency and affordable price, this is almost irreversible in shaping consumption habits. In order to strengthen this "irreversible" consumer mentality, Hema has made many innovations in the past 6 years, and we analyze them one by one.
Hema User Portrait, 2019
First of all, Hema has been operating a retail format with the style of a consumer brand since the first day of opening. What are the basic elements of branding? Enough user trust and differentiated competition. At the same time, consumers who have used Hema, Dingdong and Excellent Fresh are almost unanimous in their approval of the quality of Hema and we have climbed a large number of third-party platforms, although there is no rigorous statistics, but this universality is confirmable.
The second is the way to play differentiated competition. 6 years ago, with king crab as a cold start, directly pulled up the grade of a hypermarket, to this day, Hema 2.0-2.5KG king crab is still the lowest price in the country. Even a few times to Sanya, have not eaten so low prices.
Here is a trick, hema king crab is best to wait for 1299-1399 yuan promotion, go to the store at 9 o'clock in the morning to fish, almost can be fished to more than 2.4KG, and other front warehouse platform 1599-1699 price, the actual delivery is barely 2KG crab. This is the way consumer brands play, with a superb explosive product to make consumers always remember you. This type of SKU, there is more than one box horse.
There are also the first internet celebrity brand launch positions, such as Beyond Meat China's first launch on the box horse, and the co-branded models of Internet red tea drinks such as Hexi Tea are emerging in an endless stream. There are also Hema's five permanent rice, daily fresh milk, Max claw, Newland and other PB hits, conservative estimates to the present accounted for GMV ~ 15%, and China's best Yonghui PB (color food fresh and other brands) also accounted for only GMV 3-4%.
Of course, looking at the world, the PB revenue of European retail giants generally accounts for more than 30%, which is the gap.
Secondly, Hema has not opened a store in recent years, and the first 1/3 of the time is almost polishing the methodology and running the UE model. According to our statistics (Figure 7), Hema only opened more than 20 stores in the first two years (16-17 years), and more than 300 stores were opened all the way in the last four years (18-21 years), and it is expected to open 50-100 stores this year.
During this period, Hema has suspended the opening of stores for a long time, and restarted its expansion from the second half of last year, and Lao Cai once admitted: "The previous large store operation was too focused on localization, decentralization to the operation of city companies, and now it is adjusted to the "one box horse" strategy. ”
To be honest, at that time, this strategy was indeed once despised and laughed at by the circle, but the old dish would not understand the "strong dragon is difficult to suppress the ground snake", precisely because of his deep understanding of traditional retail, in the 16-18 years stage, did not dare to rush to use new commodities and operational strategies, but after being beaten by all parties, and a series of new models in recent years have worked, the maturity of the methodology, let him reflect and have enough determination to adjust the strategy.
The Expansion Process of Hema Core Format, Big Store & Mini Store, 2016.01-2022.01
Incidentally mentioning the loss, crazy store opening needs to spend money, especially 18-20 years in the supply chain, software and hardware technology, fresh production area investment, is the most burning stage of Hema money, and from the public data of the investment day and UE calculation (later analysis), the front desk loss has been significantly narrowed, the omni-channel single volume structure is also adjusted to a reasonable proportion, this kind of burning money is worth it.
As the core chess piece of Ali in the next 20 years, the operation of Hema is actually gradually getting better, if it is not for the other models to kill out, Hema is now very likely to be fully profitable. Another point, have to be fair for Hema, Hema from 16 years to cut into the store business, as mentioned above, offline retail is the location! location! location! The best spots have long been occupied by established retailers, and many regional retailers have local support, both overtly and covertly.
Hema took 6 years to do this, slightly exaggerated to make an analogy, people who started working and bought a house in 2000, now the house is worth 10 million, and in 2015, they only started working, 5 years 0 to 1 people who bought 10 million houses, can they compare? Offline holding a hand of rotten resources, and eating dividends head-on competition, this difficulty, traditional retail people know.
But this is the battlefield, you have to recognize if you want to take it, and this old dish is a mold. In many public sharing of the old dishes is also very honest, what is done well, what is not done well, what needs to be improved, rather than some friends and businessmen have boasted about Haikou and been punched in the face.
Talking about the goods and display strategies of Hema again, at this point, the old dishes did not leave a way back for themselves. Figure 8-9 shows the display of mini stores and the typical SKU structure of large stores, through field measurements and third-party online data. Such a high proportion of fresh SKUs and display areas are rare in stores across the country.
Fresh is a double-edged sword, behind the extremely high loss comes with a very high repurchase and consumption frequency, if the operation is successful, it will be beneficial to the brand potential, store flow, crowd fission, origin construction, new costs, user stickiness, etc.
If the management is not good, especially the high requirements of Hema for fresh quality, it will lead to the loss of goods 4-6% higher than that of ordinary stores, and the proportion of Hema's high gross profit SKUs is also low, which is a major challenge to profitability.
In addition, there is a saying, as Sam's heavy users, personally feel that the price of hema X member store is very general, if Sam's 10 products in 2 thunderbolts, Hema X store goods have to have 6-7 thunderbolts, a lot of SKUs are not even as good as good sales (although from the model can not be compared), in general, the selection is hasty, relying on 2-3 years of chicken blood piled up thousands of SKUs, and Sam's decades of global supply chain precipitation, selection methodology compared with there is still a gap.
Layout and display ratio of a hema mini store in Shanghai, 2021
Hema big store VS traditional store, online SKUs accounted for, 2020H2
Figure 10 is the fresh branding rate of Hema Mini, which refers to the proportion of PB and branded goods in fresh SKUs, including packaged dishes and prepared dishes, which will also increase the loss rate, but play a key role in the minds of users who create "good products". We believe that for local fresh and old brands, it is advisable to appropriately reduce the proportion, through a stronger buyer strategy, absorb the short-term SKUs of some regional high-quality brands, and even continuously test on PB, rather than adopting a homogeneous commodity strategy.
Retail innovation is mostly in the details, there are almost no secrets, everyone can go to the store, but how many friends are willing to spend a lot of energy to reflect and learn? The most terrible competition is that all the laodice show you (play the card), at first disdain to learn, then unwilling to learn, and then shout that you can't learn, and finally really become unable to learn.
Hema mini Shanghai store, fresh branding rate, 2021
Then talk about the online operation of Hema, we have experienced a wave of APP/mini programs of top30 domestic supermarkets, no more than 10 APP, in addition to the operation level of multi-point APP and Sam APP reaching the level of mobile Internet head, the gap between the self-operated APP and Hema APP of the rest of the traditional retail giants is almost 10 years, yes, it is the level of APP about 11 years. Yonghui APP, which can barely be used, is almost the ceiling, and the detailed experience can be downloaded to try. This piece does not stick to the product test results, point to the end. With the foundation of Ali e-commerce, Hema currently has no opponents in the membership system, activity operation, and private domain operation of fresh e-commerce.
From the perspective of online operation data, as of now, hema APP MAU is about 23 million, compared with ~6K+ million registered user scale, which is no less sticky than Xiaohongshu and B station. DAU/MAU is also ~30%, higher on weekends, summers and promotions, whether sticky or online operations, and can even hang most apps.
Some people may say, why build your own APP, it is not very good to go to the US group and Jingdong to get home? First of all, if you don't want to serve young people well, that's fine. Secondly, Jingdong Dajia (Dada) has a total loss of nearly 10 billion yuan in 17-21 years, how many years can you post it?
Moreover, looking at the fate of today's catering industry, it is not good to be pinched by the neck to do business. But today to build a fresh e-commerce APP with 80 points of experience, no 300-person R & D team spent 1 year, basically as soon as the promotion will drop the chain, which in itself is a huge barrier.
Hema also has a major key barrier, Hema operating system (earliest called RexOS). We always say retail digitalization, looking at the world, the real leader of retail digital systems, one is Hema OS, one is convenience bee OS, there may not be one, CC is also an entrepreneur we admire.
Many people ask dozens of companies within the mainland to do retail SaaS or retail digital middle office targets, the real experts in the box horse, multi-point and convenience bee. Convenience Bee is the best convenience store in China, and it will definitely overturn 711 and the whole family in the future, but it will take time, and the latter two are too deeply rooted in the Shanghai base camp.
Back to the main topic, how strong is the box horse system? Hema large stores will be divided into four categories of A-D according to the level of daily orders, of which the daily single volume of A-class stores is at least 8K single, and in the case of extreme values, such as Yanggao South Road store in the summer promotion, the daily single volume is more than 15,000, and 80% of which is online single volume, that is, a large store has ~10,000 online orders to be delivered a day.
Due to the existence of peaks and troughs in orders, the peak hour order volume ~ 2500 singles, 40 online orders per minute are issued to the store, and it is necessary to complete the front and back yard picking (mostly in the back yard) within 10-15 minutes, theoretically need to be delivered to home within 30 minutes, but in this case of explosive orders, the basic average is 1.5 hours to complete the delivery, no error. Behind the real-time calculation of commodity inventory, the upgrade iteration of the replenishment system, the design of the moving line of all communities in the city, the scheduling of inter-store and third-party transportation capacity, etc., all require a lot of modeling and complex algorithms.
In addition, a set of minute-based SOPs is needed to support it (Figure 11). I don't know if RexOS is still affiliated with Taoxianda, but this set of capabilities based on Ali's technology middle office, if pulled out and productized, the commercial value is not less than 2-3 billion US dollars. So it is rumored that Hema raised 10 billion US dollars, is it expensive?
SOP and Efficiency Analysis of Fulfillment Process in Hema Stores, 2020H2
Of course, the high proportion of online single volume is not a good thing, if the customer unit price is less than 90+ yuan, it is almost impossible to cover the performance cost, this single basically does not make money, and the rider's cost rise is irreversible. The most suitable for online is METRO, Sam,X member stores, offline customers unit price is not less than 300 yuan, online is at least 150 yuan, completely cover the cost of performance, let go of the line will not affect the profit level of UE.
This is also the challenge of today's pre-warehouse, home service, buy a package of soy sauce also have to be delivered in 30 minutes, even if the user pays a little delivery fee, the platform can ask the supermarket to draw 25%? If soy sauce is only 4 yuan, what is the point of letting you smoke 25%? Therefore, the latest strategy of Hema is the coordinated development of online and offline, of which ensuring that offline orders account for more than 40%, which is a key line.
Finally, let's talk about the topics that investors care about, one is profit, and the other is sinking. When will Hema be profitable? We checked the UE analysis of all the brokerage research reports, a bit ridiculous, some models are wrong! Hema 330 stores, the operating situation is very different, the SKU structure of large stores and mini stores is very different, the rent difference in different cities is large, even in the interior of Hema, I am afraid that no more than 20 people really understand.
But not to say that it can not be analyzed, but how to analyze, the most critical of the entire UE table is four data indicators, the first is the daily single volume and composition, followed by the gross profit of the goods before deduction, and then the fresh loss, and finally the marketing cost.
The average gap between trunk transportation and warehouse costs, average costs per rider, local rents, in-store unidentified cargo damage/theft, depreciation and water and electricity is not large. We made more than 30 UE assumptions, and given the sensitivity, a few points.
When the gross profit of the commodity before deduction is calculated by 35%, the daily single volume < 4K single, no matter how much the online proportion is, it is basically difficult to make a profit; when the daily single volume is > 8K single, and the online single volume is > 80%, the slight loss or barely equal, the proportion of online single volume must be reduced; of which the fresh loss is calculated by 11-13%, because the proportion of fresh food in Hema is high, and in order to ensure quality, the loss is definitely higher than that of traditional stores, and the marketing fee is normally calculated by 5-6%, and the promotion is calculated by 8-10%. If you are interested, you can talk about it.
Overall, we firmly believe that Hema will soon achieve overall profitability at the front desk. Normally, the gross profit before the loss of goods is less than 28%, and unless the location is excellent, it is not easy to make a profit. Those strategies that do not charge entry fees usually disguise the gross profit at more than 30%, while the proportion of Hema PB goods is 15-20%, the GMV contribution is quickly / has exceeded 20%, and the gross profit of high-quality PB goods is at least 50%, and the gross profit of high-quality PB goods is at least 50%, and more than 60-70%.
Hema has to overcome fresh food loss in the short term, but recently opened an Ole shop, or can make up for some of the losses. In fact, taking a step back, Ali is always the backer of Hema, as long as the direction is right, Hema will not worry about the problem of money (of course, the pressure on the old dishes can also be imagined, the opportunity to arrive is independent), therefore, today Hema is still constantly trying new models, from Hema wine cellar, Hema Garden, Hema Butcher Shop, etc., really, the most cost-effective and stable flowers in Shanghai, Hema is not the first and second.
Regarding the sinking problem, it is very challenging for large stores to achieve penetration in coastal third-tier urban areas in the short term of 3-5 years. First look at the population situation, the average permanent population of the main urban areas of the third line of the coast is ~3 million, the central area is ~2 million, the average permanent population of the main urban area of the fourth line of the coast is ~800,000, and the central and western regions are ~500,000. According to 2.5, the number of households is converted, and taking into account the absence of the person in the household registration, then 20% off.
The active consumer population of large stores is at least light and middle class (there is no authoritative definition, we believe that it is more than 150,000 after tax in non-first-tier cities), which is not measured in the third line, let's take 8%, that is, 300/2.5*8%*80% ≈ 80,000 families. According to the stickiness of Hema users, opening a large store requires at least 20,000 active household users, which is equivalent to reaching a penetration rate of 25% in households that meet purchasing power.
There is also a key challenge factor that is not considered, that is, the basic plate of a store is generally decided by the high-frequency vegetable sellers, and in the third-tier cities, most of the people who bear this heavy responsibility are also retired elderly people at home, which is difficult, if you do not buy vegetables, it is not easy to consume once a week.
In another algorithm, suppose that the daily order volume of a single store is 8K, that is, the monthly order volume is 240,000 orders. According to each family consumption once a month (this is still affordable, from the purchasing power, the monthly after-tax income of the third-tier urban households is 6-8K, the annual after-tax is about 100,000), and the number of households in the main urban area of a coastal third-tier is ~1 million, which also has to reach a penetration rate of 25% in the main urban area, even if other positive factors are counted, it is not easy. Not to mention the X member shop, just take something for seven or eight hundred yuan.
In fact, in our view, the second-tier cities are still far from penetrating, the average population of the second-tier main urban areas is more than 5 million, and the monthly income of families after tax has also increased significantly.
We believe that in another 20 years, there will be a "Wal-Mart" in China, what kind of company is Wal-Mart? In the past 20 years, it has hardly fallen out of the world's top 3-scale enterprises, with a profit of ~13.5 billion US dollars and a market value of ~380 billion US dollars in fiscal 21. Compared with China's supermarket industry, the largest one has a revenue of nearly 100 billion yuan, and the total scale of the top 100 is trillions, but in terms of supply chain capabilities and profit levels, it is far less than Wal-Mart. In 20 years, China's "Walmart" will not be less than the market value of 100 billion US dollars. After looking around, the most likely one is the box horse.
Source: Ruize Insights Jiang Wenwei