Source of this article: Times Finance Author: Zhang Xuemei
Source: Photo by Times Finance
"Hema has become too fast, especially when there is a sudden change in management. A Hema supplier said to Times Finance.
Just a month after Hou Yi announced his retirement, some of the initiatives he implemented during his tenure are being gradually adjusted. On April 17, two announcements on the resumption of membership opening and freight adjustment were announced in the Hema APP, and it is planned to resume the card opening and renewal services of X gold members and X diamond members on April 24, 2024, and adjust the rights and interests of the original members, increase shopping rebates, birthday gifts, and add "every Monday" and "every Thursday" as options for membership days, and the exemption threshold will be adjusted to 49 yuan.
Previously, Hema planned to raise the free shipping threshold in 25 cities such as Beijing, Shanghai and Guangzhou, raising the original 39 yuan or 49 yuan to 99 yuan, but the final cities with the increase in the free shipping threshold were Beijing, Changsha and Nanjing.
Times Finance noticed that at present, the Hema APP has opened the membership card opening service. At the same time, many products that originally participated in the "offline exclusive price" have been restored to their original prices.
After price reductions and price increases, suspension and restart of the membership system, supplier adjustments, and even changes in leadership, there are more and more discussions about Hema on social platforms, which also makes the outside world question: "What happened to Hema?"
"Hou Yi has been at the helm for so many years, and others may not fully understand his vision for the future of retail. "Some suppliers said bluntly to Times Finance.
Constant correction
On March 18, Hou Yirong, the founder of Freshippo, retired, and Yan Xiaolei, CFO of Freshippo, concurrently served as CEO. In just one month, from reinstating members to recovering some of the discounts, Hema seems to be reversing many of its strategies over the past year.
When Times Finance recently visited several Hema fresh stores in Guangzhou, it was found that a number of "offline exclusive price" products, such as Lion King toothpaste, La Roche-Posay mask, Kao Lerya sanitary napkins, and Florence facial cleanser, have been restored to their original prices. Many netizens also reported on social platforms that similar situations have occurred in cities such as Shanghai, and the billboards of "offline exclusive prices" have been removed.
Since its establishment, Hema has been constantly experimenting with new business formats, and it is no stranger to tear down and start over.
In 2016, Hou Yi single-handedly founded the new retail format Hema Fresh, which at that time, this format that provides high-quality fresh food and can also eat directly in store has attracted a large number of consumers, and Hema has become a popular target for middle-class families.
With the support of Alibaba's $150 million investment, Hema quickly expanded its stores, and the number of Hema fresh stores reached about 200 in 2019. In June 2021, Alibaba announced an organizational upgrade, fully implemented the business responsibility system, and upgraded Hema to an independent business group and began to be self-responsible. Without Alibaba's financial support, Hema needs more sources of growth for its high operating costs.
This year, Hou Yi launched Hema Neighborhood against Duoduo Food, which is also regarded as "the most important strategy of Hema in the next ten years". From June 2021 to January 2022, Hema expanded to 6 Hema X Club stores, which are benchmarked against Sam's Club. However, the development of these two formats has not been smooth, the Hema neighborhood has shrunk significantly, and the opening speed of the Hema X membership store is also lower than Hou Yi's expectations.
At the beginning of 2023, Hou Yi said in a letter to all employees that Hema new retail has entered a mature period, and the main business of Hema Xiansheng is the first to achieve profitability. However, in March 2023, Alibaba announced the "1+6+N" reform to further divest Hema; on June 20, Daniel Zhang, who had strongly supported the Hema format, announced his resignation; and in September, the Hema IPO plan was rumored to be shelved. In order to quickly seize the market, Hou Yi still took a series of expansion actions.
At the Hema 2023 New Retail Supply Conference held in November last year, Hou Yi mentioned that Hema will open more than 60 new stores within a year, and said that in 2024, Hema will seize offline stores at a faster speed, which undoubtedly brings huge cost pressure to Hema.
In the second half of last year, Hema reduced operating costs by adding a packaging fee of 1 yuan, modifying delivery rules, raising the threshold for free shipping, and adjusting the salary structure of employees.
A rider who has worked in Hema for 3 years told Times Finance that since 2022, Hema has begun to adjust the salary structure of riders, and before running enough 1,300 orders, each order can be settled at the highest price, but now it needs to run 1,600 orders, and the maximum price has also been lowered, "It is difficult to reach 1,600 orders, and you need to run more than 50 orders a day." I'm a relatively good runner, but I can only finish it. And in the past, I could earn more than 10,000 yuan by running more than 1,300 orders a month, and now I can run 1,600 orders and get more than 9,000 yuan after deducting social security. ”
"Life and death" controversy
Discount is an important card in Hou Yi's hand, and in his view, the "discount war" is a battle of life and death. However, under huge cost pressure and tight trial and error time, the discounting of Hema seems to be a bit rushed.
In August 2023, Hema started a huge "discount war" in the retail industry with the "moving mountain price" as a starting point, which is bound to transmit pressure to suppliers.
On October 13 last year, Hema announced on its official Weibo that it would reduce the price of more than 5,000 offline products, and it will be valid for a long time. From December 13, the Hema APP stopped opening and renewing X members, which was interpreted by the outside world as "making way for discounts". In February this year, Hema piloted online price reductions in Beijing, Nanjing and Changsha, and raised the threshold for free shipping to 99 yuan.
With more and more discounting measures in place, Hema suppliers are feeling the pressure. Supplier Chen Fei has been cooperating with Hema since 2019, and according to him, Hema held a supplier conference in the fourth quarter of last year, and it was also around this time that Hema began to force suppliers to reduce prices.
Chen Fei said that Hema is one of its main supply channels, and its bargaining power is very strong, so he had to lower, "After Hema did discounting, we reduced the price by a large margin, and the gross profit of the brand declined, but the price reduction led to an increase in sales, and we are currently able to maintain a state of small profits but quick turnover." ”
In addition to suppliers such as Chen Fei, there are also many suppliers who have a fierce collision with Freshippo. On the one hand, Hema streamlined SKUs and eliminated more than half of the more than 5,000 SKUs in the finished product department, resulting in the forced removal of some brands; on the other hand, Hema lowered prices to suppliers, resulting in some voluntary supply cuts, and on December 27 last year, Wang Xiaolu announced that he would stop cooperating with Hema in order to maintain the price plate.
"Hema is a new force in the retail industry, and the overall proportion of China's retail format is not too large, and the termination of cooperation with Hema has little impact on the overall sales of some suppliers, so suppliers will choose to stop stock Hema in order to maintain the traditional system. Some suppliers pointed out to Times Finance.
At the same time, Hema is also looking for new suppliers. Peng Nan is a distributor of imported goods, and when Hema opened its first store in Zhengzhou in 2020, the two sides reached a cooperation to supply about 30 SKUs. However, as Hema changed from local direct procurement to national unified procurement, Peng Nan withdrew from the supply of Hema. In October 2023, Hema approached him and hoped to reach a second cooperation, "We resumed supplying Hema at the end of last year, reducing the supply price by 10%-15% compared with 2020, and reducing the number of SKUs to about 10."
Disruption brings pains
Since its inception, Hema has targeted the urban middle class. In May 2023, Hema launched a diamond membership of 658 yuan/year, benchmarking Sam's in competition. However, since October last year, Hema has firmly adhered to the "price reduction" label and vigorously promoted its own brand, resulting in vague positioning and the loss of some users.
Times Finance visited the Hema store and found that the current shelves are almost occupied by its own brands, and the proportion of self-operated goods and duplicate products is relatively high, covering multiple categories such as rice, flour, grain and oil, leisure non-staple food, fresh vegetables, pet food, etc.
Source: Photo by Times Finance
Hema store employees told Times Finance that the store will not display all the goods, and some will be placed in the warehouse, "The display is decided by procurement, and many things of Hema have been taken off the shelves, and now they are more keen to do their own private brands." ”
In 2023, Hema announced that it will account for 70% of its own brands in the next three years. However, the store's large-scale display of its own brand did not make consumers pay, but caused a lot of controversy.
According to an industry analysis of Times Finance, the problem of Hema now is that its own brands occupy too many barcodes, but it is difficult to reach the corresponding proportion of sales. Hema is forcing its own brand to push its own brand, which will lead to a decline in sales of other similar brands, which makes suppliers worried.
Previously, Freshippo's practices such as charging packaging fees and changing delivery rules have caused dissatisfaction among member users.
On January 4 this year, Hema user Wang Ning sued Hema in court with a complaint, telling Times Finance that he bought a Hema X gold membership in September 2023 and spent more than 7,000 yuan in more than 3 months. However, on December 20 last year, Hema issued new delivery rules, adjusting the number of free deliveries for Hema X Gold members to once a day. "According to the new rules, I need to pay an extra 17 shipping orders per month to continue my old consumption habits. In his view, Hema is transferring operating costs to consumers in disguise.
At the same time, Times Finance noticed that there are more and more discussions on social platforms about Hema quality control and capacity. Wang Guoping, a senior retail expert, analyzed the times of finance and economics, this is a problem at the management level, Hema is in a period of change, personnel control is not in place, there will be an increase in on-site loss, and there is no way to keep up with the display and commodity sales in time, and even lead to the expiration date.
According to the above-mentioned riders, after the discount reform, many riders in the store have left their jobs, because consumers have purchased more things per order, and the difficulty and duration of riders' secondary sorting and delivery have increased, resulting in a decrease in the number of orders, which in turn affects revenue. Recently, a full-time employee of Hema said on social media that he was asked by Hema to become an outsourced employee, sign a labor agreement with a third party, and cancel five insurances and one housing fund.
Tian Xu, a former employee of Freshippo, confirmed the above news to Times Finance, he is an employee of the Shanghai regional safety management department, joined Hema in 2021, and the contract date is until March 2024. In February, I was verbally informed that Hema had a layoff plan, and the store's approach was to convert some of its own employees to a third-party outsourcing organization. ”
Tian Xu revealed that after the year, his department adjusted its establishment, "While recommending and transferring personnel, I also let me find a way to transfer by myself." ”
Discounting is still the future
Although the discounting of Hema has brought a lot of controversy, in the view of Peng Nan, a supplier of Freshippo, discounting is one of the future trends.
"This is a collision between the old and new forces of China's retail, and the discount is in line with the needs of consumers, but also a blow to the original traditional retail. But from the industry level, who is in line with the future, it must be what the people like. ”
According to VerifiedMarketResearch data, the global discount retail market size will be about 510 billion US dollars in 2022, and it is expected to increase to 830 billion US dollars in 2030 at a compound annual growth rate of 5.35% in the future.
In addition, according to the data disclosed by Euromonitor International, in 2022, the proportion of warehouse membership + hard discount stores in mainland offline channels will be less than 1%, far lower than the global penetration rate of 10%+. In addition to the mass merchandising snack chain format that has emerged in recent years, more and more traditional supermarket leaders have begun to explore and deploy discount formats, and 2023 can be called the first year of the era of comprehensive discounts. Among them, hard discounts also show the characteristics of low gross profit and high turnover.
Peng Nan told Times Finance that in October last year, Hema directly pulled the gross profit margin of his products from about 20% to 10%-15%, "There are some products that are difficult to find on the market or are always out of stock and can still achieve a gross profit margin of 15%, but at most no more than 15%. Peng Nan revealed that after reaching a cooperation with Freshippo, he also lowered the supply price of all partners in accordance with this standard.
"The future of business must be transparent. We have already partnered with 4 of the top 10 hard discount stores in China, and we have to build relationships with them because they represent the future. He said.
In fact, "discounting" by optimizing the supply chain and reducing costs is also the business logic of Sam's, Costco and other member stores. On March 16, Sam's Club's official WeChat account released a long-term price reduction list, announcing a price reduction for a batch of products under its own brand Member's Mark, with a price reduction range of about 2-20 yuan. At the end of 2022 and in May last year, it also carried out long-term price reductions on some of its own brand products. On April 15 this year, Sun Art Retail M Club announced a long-term price reduction for some of its own brand products.
However, after the new CEO takes office, some of the discount measures of Hema have been adjusted.
Wang Guoping's analysis of Times Finance and Economics, Hema is now in chaos, plus the founder Hou Yi retreated to the second line, took over at a time when Hema was extremely uncertain, and the new CEO was under great pressure, "At present, the existing resources of Hema are not enough to support the rapid development of the two formats at the same time, with the recovery of consumption, market confidence and economic activity have risen, from the current action and consumption trends, the new management of Hema will invest part of the discounted resources into warehousing membership stores." ”
(At the request of the interviewee, except for Wang Guoping, all names in the article have been changed)