Hema farewell, say goodbye to free growth

"Core Tips"

Hema has changed its senior management, and CEO Hou Yi has officially retired. Alibaba's other two offline businesses, Sun Art Retail and Intime Department Store, were also caught in the turmoil of the sale. The story of new retail has gradually become a thing of the past for Alibaba.

Author | Gao Yuzhe

Edit | Xing Yun

At the 2016 Alibaba Yunqi Conference, Ma Yun first proposed the term "new retail", which is a highly integrated online and offline, user-experience-centric, and personalized customization-led shopping form, which began to appear more and more in the public eye.

A year later, when Ma Yun personally appeared at the first store of Hema and grabbed a fresh king crab with his bare hands, and "recognized his relatives" in a high-profile manner, people realized that under Ma Yun's feet, a new retail bridgehead had been formed.

Hema grew rapidly under the leadership of Daniel Zhang, the standard-bearer of the new retail strategy at that time, and the founder Hou Yi. Within Alibaba, the weight of Hema has been continuously improved, and it is regarded as the "No. 1 project" of the new retail sector. Unlike the acquired chess pieces such as RT-Mart and Yintai Commercial, Hema was born with a golden key and was fully decentralized, and its early nickname was "the second Tmall".

At the beginning of 2023, Hou Yi, then CEO of Freshippo, concluded in an internal all-staff letter: 2022 is the mature period of Freshippo's new retail, and through the improvement of operational efficiency and the construction of commodity power, the main format of Hema has achieved profitability, and "Hema has completed the first phase of the goal as a new retail format".

At its peak in 2022, Hema was valued at about $10 billion. No one thought that the plot that followed would be that the discount war, the increase in consumer complaints, the suspension of listing, and the rumored "selling" ...... Although Hema has denied it several times, by March 18 this year, the top management of Hema was replaced, CEO Hou Yi officially retired, and the current CFO Yan Xiaolei concurrently served as CEO, which also brought more uncertainty to the future of Hema.

At the same time, two other offline businesses in Alibaba's new retail sector, Sun Art Retail and Intime Department Store, were also caught in a sales turmoil. On the evening of March 26, in the announcement issued by Sun Art Retail, the parent company of RT-Mart, Lin Xiaohai has resigned as executive director and CEO of Sun Art Retail, and transferred back to Alibaba Group for another appointment. After the announcement, Sun Art's retail stock price rose by more than 10%.

The story of new retail has become a thing of the past, and today, the physical retail business represented by Hema has become a "burden" on Alibaba's financial report that is eager to exit. How did the much-loved Hema go from "pro-son" to uncertainty?

1, the former "darling" of Ali

To a certain extent, it can be said that Hou Yi's joining Ali and the birth of Hema are inseparable from the promotion of Ali's previous helmsman, Daniel Zhang.

Prior to joining Alibaba, Hou Yi worked at JD.com. Among the leading Internet companies, JD.com explored O2O earlier, and Hou Yi once led the online and offline integration of JD.com and Tangjiu convenience stores. As a veteran entrepreneur who has been doing business since 1992 and has served as the manager of Shanghai Ke's convenience store, Hou Yi has a natural acumen, he once said: "O2O is a subversion of the original business model, and it is full of huge business opportunities."

At that time, Hou Yi took a fancy to the O2O model, "using the advantages of stores, chain stores, and the Internet to combine them to create an emerging chain format." However, JD.com chose a more conventional light model, and Hou Yi resigned and returned to Shanghai with an idea that had not yet been realized.

At that time, the prototype of Hema new retail had already appeared in Hou Yi's mind.

Because of the high transportation cost, high loss rate, complex supply chain, and failure to develop online consumption habits, fresh food is regarded as the last fortress to be conquered by e-commerce. In 2015, when Xu Xingao, the founder of Today Capital, shouted this slogan, fresh e-commerce also entered the fast lane.

In the end, it was Daniel Zhang who made Hou Yi put his idea to fruition, and the two are both Shanghainese and have similar backgrounds. At that time, Daniel Zhang, who single-handedly created Tmall and created the Double 11 National Shopping Festival, had just been promoted to CEO of Alibaba. In the face of the slowdown in online growth and the stagnation of offline entities, he tried to put the new vision of Ali e-commerce on new retail, reconstructing people, goods and places.

The cooperation between Daniel Zhang and Hou Yi took only 5 minutes. After the first meeting in a café in Shanghai, the two met many times in half a year, and the story of Hema officially began here, and Daniel Zhang gave Hou Yi a reassurance: "You try boldly, I will solve the problem of money."

At the same time, in order to compete for offline retail resources, Alibaba has also continuously invested in Intime Department Store, Sun Art Retail, Lianhua Supermarket, Fresh Supermarket T11, etc., and has spent more than HK$50 billion in the three years since it took control of Sun Art Retail.

From Alibaba's internal point of view, the independently hatched Hema is very important. In 2017, Jack Ma appeared in the first store of Hema and took a photo with King Crab to show his identity as a "second generation"; as an innovative project, it is generally led by the director of P9 or P10, and the CEO Hou Yi and CTO You Tan are in charge of the two P11 vice presidents; Hema has repeatedly improved its strategic position in the interior and is considered to be the "No. 1 project".

Under the gaze, Hema galloped all the way. Different from traditional offline supermarkets, as a product of consumption upgrading, the total turnover of the first store of Hema is about 250 million yuan in the first year of opening, and the ping efficiency is 3.7 times that of traditional hypermarkets, and it was rated as the top 10 new retail of the year by Harvard Business Review, and in 2017, Hema opened 18 new stores from 6 stores, and 88 new stores in 2018.

For traditional retail, such an expansion is already fast. According to the rigid standards originally given by Daniel Zhang: online transactions are larger than offline; delivery within 30 minutes within the controllable cost; online orders per day should reach more than 5,000 orders; apps do not need other traffic support and can survive independently; Hema continues to evolve.

More aggressive than Hema is the parent company behind it, Ali. Under the leadership of Daniel Zhang, the full-day turnover of Tmall's Double 11 in 2017 reached 168.2 billion yuan.

The Freshippo in the wild has become a footnote to Ali's all in new retail.

2. Say goodbye to free growth and open the shock

The full name of Hema started with "fresh" is "Hema Fresh", which means to provide consumers with "fresh life".

As early as Jingdong, the selling point of the fresh self-owned brand "Jingxuan" under the leadership of Hou Yi was "carefully selected and fresh to the home". This is the same quality of life advocated by Freshippo, and it also represents Hou Yi's own style.

In the retail industry for nearly 30 years, the outspoken Hou Yi calls himself a "vegetable seller" and is very picky about "eating". It is this pickiness that makes the 99 yuan Boston lobster and the 245 pound king crab become the hit of Hema in the future, and successfully occupy the minds of consumers.

Behind the marketing represented by "Box District Room" is the pursuit of quality life such as organic fresh vegetables and raw eggs, and Hema has also successfully helped users complete the consumption upgrade from industrial beer to craft beer. At that time, a cup of Hey Tea of 30 yuan, Yuanqi Forest with 0 sugar and 0 fat, and Haidilao, which had risen in price, jointly started a vast consumption upgrading movement.

But at the same time, the listing of Pinduoduo in 2018 has allowed the outside world to see the broad space of the sinking market.

With the disappearance of the demographic dividend of mobile Internet, the growth rate of Alibaba China's retail GMV has slowed from 46% in 2015 to 19% in fiscal 2019.

2019 is a watershed year for Freshippo, from the free growth and crazy exploration in the early stage to the 200 self-operated stores this year, the cost, benefit, and management problems have been greatly revealed.

At the beginning of this year, at Ali's internal conference, Hou Yi received the "Rotten Strawberry Award" criticism award; in March, Daniel Zhang spoke at the management meeting of Hema Fresh, talking about "asking about the flow of goods and asking the efficiency of the organization", which not only pointed out the organizational management of Hema, but also made it clear that "fine management and fine operation are the core".

As a result, the outside world saw that in May, the Hema Kunshan New Town Wuyue Plaza store ceased business after less than a year of operation. This is also the first time that Hema has closed since opening its first store in 2016.

At the same time, Hema has intensively tested the waters of Hema mini, Hema Li, Hema Station, Hema vegetable market and Hema Pick'n go. Behind the experiment of a variety of store types and formats, Hema expects to cover more scenarios, attract more diverse users, and amplify traffic and commercial value.

According to a later report, because profitability and GMV growth did not meet expectations, Hema only scored 3.25 in the performance appraisal in mid-2019. Interestingly, in the middle of the year, Hema was upgraded from an innovative business to an independent business group, and Hou Yi reported directly to Daniel Zhang, and by the end of the year, Hema was downgraded from an independent business to a sub-business group, and Hou Yi no longer reported to Daniel Zhang.

The outbreak of the epidemic has brought a highlight moment to Freshippo. However, the operating pressure came at the same time, and Alibaba, whose business was slowing down, could not pay for its dream indefinitely.

Under the approach of rising stars such as Pinduoduo and Douyin, Ali, which has a huge organization, has to carry out structural and power changes. Hema has entered a turbulent period: in June 2021, Ali implemented a comprehensive management responsibility system, and front-line business leaders must take the lead in the war, and Hema began to take responsibility for its own profits and losses. Half a year later, Hema has changed from a business group to an independent company, although Hema has always been an independent APP, and has not received the support of the group in terms of traffic, but the "blood transfusion" of funds and resources is continuous.

Since then, Hema has no longer opened stores aggressively, and with the increase in competition in the industry, it has begun to strictly reduce costs and increase efficiency. According to LatePost, from January 1, 2022, Hema has closed all recruitment places and began to sort out the operating costs of each link. According to the 2022 financial report, Freshippo's operating costs were reduced by 5%.

In 2023, Ali announced the split change of "1+6+N", and Hema, which was divided into "N", originally claimed to be listed independently, but it was postponed after half a year. In its earnings report, Alibaba stated that it was "evaluating market conditions and other factors necessary to ensure the successful implementation of the project and enhance shareholder value." ”

Since then, Hema has stood at the center of public opinion from the "second generation" that is loved by thousands of people. In the past, Ali's investment in Hema was not capped and profit and loss was not counted, and behind such support was not only the story of Ali's need for new retail, but also the support of Daniel Zhang.

In September 2023, Daniel Zhang stepped down, and the fate of Hema was in turmoil.

3. How to get out of the predicament?

Two months ago, Hou Yi, who likes to express his views in the circle of friends, posted that "opening 10,000 Hema NB outlets is not a dream"; according to the China Business Daily, he was still handling business emails internally at one o'clock in the afternoon on March 18. In the eyes of many employees within Alibaba, this retirement is obviously unexpected.

Alphabet once asked in an interview, "What is your KPI?", and Hou Yi replied, "I am the founder, what KPI do I have". Whether it is Ali or the outside world, Hema has a strong Hou Yi style, which is a career that he has spent nine years and devoted all his efforts to.

Hou Yi's withdrawal may be sudden, but there are traces of Hema's predicament.

In order to cope with the competition, Ali put forward the slogan of "return to Taobao, return to users, and return to the Internet" to return to the low-price policy.

Hema specializes in the middle class, which seems a little out of place under the trend of low prices. At the beginning of November 2023, Wu Yongming appeared on Alibaba's earnings call as the group's CEO, announcing Alibaba's definition of "core business" and "non-core business" - that is, except for domestic and foreign e-commerce and cloud computing businesses, other businesses have moved into the "non-core" matrix.

Among them, the physical business represented by Hema is even more "dazzling". The Group's CFO directly named the Group in the earnings call to "exclude businesses with physical retail operations, such as Sun Art Retail, Hema and Yintai", and the Group's total revenue growth increased from 5% to about 8% year-on-year.

The mysterious thing is that the new retail, which was once enshrined as a faith, has not been mentioned at all in Alibaba's latest financial report. Instead, there is a brick-and-mortar retail waiting to be sold.

In the changing situation, Hema is like a roller coaster from the center to the edge. What brought it into the whirlpool was what Hou Yi called "the biggest change in eight years" - discounting.

In order to cope with low-price competition, from October 2023, in just five months, Hema will cut a wide range of 5000+ products to only 2000+, and by stopping procurement and only selling inventory, it will generally drop by 20%, and cheaper Hema self-operated products will begin to replace big brands. The price reduction, which was originally good for consumers, has been repeatedly reduced due to the repeated reduction of the total number of SKUs in stores, which has caused consumer dissatisfaction. Subsequently, the membership system was canceled, online packaging bags were charged, and the free shipping threshold was raised several times, which made the reputation accumulated by Hema collapse overnight.

Hema was once a benchmark for quality in the eyes of consumers, but it was questioned about the decline in quality and service. "The quality is not good, I applied for a refund, and every time I was inexplicably closed for a refund" "I used to buy fruit in Hema before, but this year it was a big thunder, and the durian and peaches I bought were not good, and the customer service asked me to contact the store manager, and I didn't answer the phone for two days...... A large number of members have left Freshippo, and the brand influence has been declining.

In order to shorten the process and reduce costs, Hou Yi officially opened the "de-KA mode" of "deciding the life and death of Hema". In the battle with dealers, it was obvious that due to the price reduction of Hema, many dealers stopped supplying. Dealers who have cooperated with it told "Leopard Change": "Dealers are not squeezed by others, and it is not okay if they are pressed" "Hema has actually been lowering prices, and now it is even more pressing".

Hema's low-price revolution has stirred up the industry, and it is even regarded as a "price breaker". Hou Yi didn't think of it, "The industry has been shaken a lot, and many people have banned us, so let's block it." In November last year, he was not to be outdone at the New Zero Supply Conference.

In fact, increasing the proportion of self-operated brands can indeed increase brand profitability. Among similar players, Wal-Mart's own brand accounts for more than 25%, and Sam's own brand accounts for 30%, with a turnover of more than 40%. Freshippo's goal is to reach 50% of its own brand, and only by producing and selling itself can we control costs and have greater control over procurement. However, at the same time, behind the discounting, higher requirements are put forward for the procurement and operation of the supply chain, and the supply system of Hema seems to have yet to be verified in the extreme pull with suppliers.

In nine years, it has been upgraded from consumption to low price for all. Hou Yi's original goal was to start from the core middle class, drive consumption upgrading, and "let the people of the whole country live a good life", but the wind direction changed, and the Hema in the emergency U-turn became a cross-section of historical development.

Under the wind of the times, the story of Hema continues, but no one mentions the once vigorous new retail.