Alibaba's Hema supermarket offers 'New Retail' experience

September 18, 2017 15:28
Hema supermarket is Alibaba’s latest response to the changing global retail industry. Photo: Alibaba

Ever wanted to buy fresh food from the supermarket and have it delivered to your home using an app?

Customers of e-commerce giant Alibaba’s Hema supermarket can do so and have live seafood and fresh vegetables sent to their doorsteps within 30 minutes. No minimum charge. Free return. Unconditional refund.

Alibaba’s latest addition to its retail chain might be changing the grocery retail game in China. In launching the Hema supermarket chain, the group aims to provide a seamless blend of the online and offline shopping experience.  Alibaba founder and executive chairman Jack Ma Yun dubbed it "The New Retail".

HKEJ Monthly recently visited the Hema store in Shanghai.

Hema looks like any typical supermarket at first glance, with various fresh produce available. But look closely, and you will notice that all the price tags at the stores are digital, all products have barcodes.

To avail themselves of the store's services, customers have to download the Hema mobile app. It is linked to the customer’s Taobao or Alipay account.

While the app enables customers to make orders online, shoppers at the supermarket can scan the barcode on every product on sale and find information about it.

Take the fermented bean curd, a traditional Chinese condiment, as an example. As soon as you scan the barcode next to its price tag, details of its origin of purchase and production process show up, along with a recipe for fried pork spare ribs with fermented bean curd, as well as a suggestion on other products on sale.

Price tags at the stores are digital, meaning the prices shown at the physical store and online are aligned and can be changed simultaneously. That is far more difficult than it sounds, especially when the cost of rent and other expenditures at the physical store are taken into account.

A revamp of supermarket business model

For Hema supermarket, using a single price for products offered online and offlinemeans the company has to make huge cost cuts. Hema partners with Tmall, one of the country's largest e-commerce platforms, for common sourcing. Given Tmall’s wide customer base and huge bargaining power, Hema gets substantial savings in terms of procurement costs.

Furthermore, in a revamp of the conventional retail practice, Hema and Tmall approach the producers and acquire their products directly from the original source, thus doing away with any middleman or wholesaler. This practice accelerates the time to market, offering more room for price cuts.

As a result of this strategy, Hema can offer a wide variety of, say, live seafood, directly shipped from Russia, Australia, Canada, Norway, etc., and priced 15 percent lower than those sold in other supermarkets.

During the visit, customers were seen flocking to the "Hema vegetables", which are directly sourced from the farms on Chongming Island and in Fengxian District on the outskirts of Shanghai.

3 kilometers, 30 minutes

“You may see there are about 30 people shopping in the store, but in fact, there are 100 to 200 customers shopping online at the same time,” said Alibaba representative Yan Qian.

“Once we receive an online order, our staff immediately start picking out the customer’s selected items, get all items in the basket scanned and packed, and put the bags on a conveyor belt that carries the orders to a delivery center adjacent to the store."

Two years after its launch, Hema, leveraging on advanced technology and efficient logistical delivery system, is able to keep its promise that “all of the merchandise is available for delivery within 30 minutes in a three-kilometer radius from each shop”.

So far each store is able to fulfill over 4,000 orders a day on average, with each customer shopping 50 times a year and spending 70 yuan (US$10.68) on each purchase.

For mature stores like the one in Shanghai Jinqiao, annual sales have reached 250 million yuan, with the store’s sales per square meter at 56,000 yuan, nearly four times that of a conventional supermarket (15,000 yuan).

Jack Ma's 'New Retail' strategy

Hema supermarket is Alibaba’s latest response to the changing global retail industry. As Jack Ma said in October last year, today’s e-commerce activities will become “traditional business” in the coming years.

“We anticipate the birth of a re-imagined retail industry driven by the integration of online, offline, logistics and data across a single value chain,” Ma wrote in a letter to shareholders.

Serving as labs for the group’s “New Retail” strategy, Hema has opened 13 stores across China since 2015. Apart from the 10 in Shanghai, there are two in Beijing and one in Ningbo. It intends to enter the Shenzhen market and the first one in the city will be launched in September this year.

As an essential element of Alibaba’s future growth, Hema aims to open 2,000 stores across the country, according to Hema’s founder, Hou Yi, a former top official at JD Logistics.

This article appeared in the September 2017 issue of the Hong Kong Economic Journal Monthly

Translation by Ben Ng

[Chinese version 中文版]

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Hema supermarkets have so far opened 13 stores across China since 2015. Photo: Alibaba
Customers shop for live seafood at a Hema store in Shanghai. Photo: Bloomberg
Once they receive an online order, staff immediately pick out the customer’s selected items, get them scanned and packed, and transport them to a delivery center adjacent to the store. Photo: Alibaba