New retail pioneer Hema is expected to go public within 6-12 months.
Recently, Alibaba has made significant moves.
On May 18th, Alibaba announced its financial performance for the fourth quarter and full year of the 2023 fiscal year, and also announced that the Cloud Intelligence Group will be fully separated from Alibaba Group and listed independently. Cainiao and Hema will initiate their listing plans, with Hema expected to go public within the next 6 to 12 months.
From its establishment in 2015 to the opening of its first store in Shanghai in January 2016, Hema has only been around for 8 years, but it has told a series of stories in its own way, which is worth reviewing.
【One】Successful business model + clear profit prospects
From a corporate perspective, the first requirement for going public is a successful business model and clear competitive advantages.
As the creator of the new retail format of fresh supermarket + catering, Hema mainly solves consumers' scenario-based demands for "eating" while covering daily high-frequency consumer categories.
Through the combination of offline stores and online apps, Hema not only provides integrated online and offline services, but its offline stores also achieve "store-warehouse integration" - they are not only fulfillment centers for consumers' in-store needs, but also fulfillment centers for consumers' home needs within a 3-kilometer radius. This front-store-back-warehouse model fundamentally enhances the capabilities and value of the stores, which explains why Hema's store efficiency can be 3-5 times that of traditional retailers.
For the retail industry, the organic combination of people, goods, and scenes forms a growth engine.
Born out of Alibaba, Hema has had the ability to understand consumer demands from the first day, as it is a data-driven retailer. Hema then empowers products and scenes with this ability, which is its unique competitive advantage.
In terms of products, Hema selects SKUs and purchases globally through buyers, so consumers can see a large number of domestic and foreign products in its stores that they haven't seen in other retailers or e-commerce platforms.
In fact, this is just the first step in building product strength. Hema's stores have seen more and more of its own brand products.
For example, Hema has turned "daily" fresh fruits and vegetables into the "Daily Fresh" brand. It may seem like just adding packaging, but behind it is cooperation with the upstream of the supply chain, directly working with the origin to establish "Hema Villages".
"Hema Villages" produce based on Hema's orders, integrating procurement and sales, and standardizing, digitizing, and branding agricultural products.
Currently, Hema has established over 150 "Hema Villages" upstream, and has set up supply chain centers in Wuhan and Chengdu, weaving a denser network of fresh stores and warehouses, providing hardware support for the growth of its own brand products such as "Hema Organic," "Tree-Ripened," and "Hema Field Shrimp."
Currently, Hema maintains an average speed of 30-45 days for product development and a 97% success rate in developing its own brands, which is a testament to its product strength. Hema CEO Hou Yi also said, "Product strength is the only core competitive advantage in today's retail industry."
Hema's exploration and practice in terms of scenes are also worth mentioning. How to sell high-quality products well? Hema realized early on that the answer lies in combining catering and retail.
The early Alaskan king crab turned Hema into a popular retail store, and later Hema further iterated on this:
In 2019, Hema launched the hot pot season, where customers can directly cook hot pot in the store after buying the ingredients. The innovation in hot pot lies in the fact that most of the hot pot ingredients are Hema's own brand, which is perceived by consumers as high quality and affordable, but in Hema's eyes, it means high turnover, high gross profit, and high stickiness. In the future, even if consumers don't cook hot pot in the store, they will directly purchase these hot pot own-brand products to make a hot pot feast at home.
In June last year, Hema also launched "Hema Night Market" to attract customers to eat late-night snacks in the store. This model is closely tied to Hema's product capabilities, as the featured products in "Night Market" are small lobsters and craft beer, which are among the best-selling products in Hema's own brand products in recent years and have strong synergy with the upstream supply chain.
By retailing like a consumer goods company, combining product strength and scenes, turning stores into showcases and products into models - this is the unique answer that Hema has provided in terms of "scenes."
The "people, goods, and scenes" model helps us observe the process of establishing a business model in the retail industry. From the results, successful business models usually have two characteristics: others cannot replicate you, and you can replicate yourself.
Based on data empowerment, the "people, goods, and scenes" model has become Hema's unique competitive advantage and a competitive barrier. According to Warren Buffett's view, this is a "moat," or the so-called "others cannot replicate you."
As for "you can replicate yourself," we can see that over the past 8 years, the number of Hema stores has been consistently increasing: as of March 2022, there were a total of 273 self-operated stores nationwide. Currently, Hema has over 300 stores in 27 cities across the country.
Looking at the financial data, based on Alibaba's financial report, Hema's current EBITA should be positive. Hou Yi also confirmed this in an internal letter at the beginning of the year, saying, "Hema Xiansheng's main business format has already achieved profitability."
In April, Hou Yi also mentioned in an interview that the first phase goal of Hema's new retail has achieved three points. The first manifestation of the success of new retail is "comprehensive profitability of the business model" and "sustainable profitability." "New retail is not a money-burning model, but a sustainable profitable model."
In terms of scale, according to data from the China Chain Store & Franchise Association (CCFA), Hema Xiansheng's sales reached 40 billion yuan in 2019, ranking among the top ten retailers in China.
With 8 years of running a successful business model, achieving a scale of over 40 billion yuan and profitability, with product strength as the core and digital capabilities, Hema is indeed a pioneer in the transformation of the retail industry and a benchmark for the success of new retail.
【Two】Huge industry space and growth potential
As we often say, only a large pond can breed big fish, and retail is an industry with a high ceiling:
In 2022, China's total retail sales of consumer goods reached 43.9733 trillion yuan, with retail sales of goods reaching 39.5792 trillion yuan and catering revenue reaching 4.3941 trillion yuan. Even if we only look at the three major segments of grain and oil, beverages, and daily necessities, the market size is 2.9201 trillion yuan.
Currently, the retail industry is experiencing favorable policies and favorable changes in the market environment. Due to the impact of the pandemic, seizing the economy and people's livelihood has become the most important task at present.
The retail industry is one of the essential consumer sectors for the general public, not only the "vegetable basket" for the general public but also a reservoir of employment. Hema's dual online and offline model innovation and exploration have not only brought new development opportunities to the retail industry but also become a signal for the recovery of the Chinese economy after the pandemic.
Firstly, the retail industry where Hema Xiansheng is located has received policy benefits. In terms of policies, the country encourages and supports the development of new retail companies and promotes the integration of traditional retail and e-commerce. With the emergence of the pandemic, the government has also taken active regulatory measures to support the retail industry, introducing a series of support policies to encourage companies to expand domestic consumption demand and promote economic recovery and stable growth.
At the same time, with the advent of the digital age, the government has also increased support for online retail platforms, promoting policies such as smart retail and smart commerce, further reducing operating costs and enhancing the overall competitiveness of enterprises.
Secondly, seizing the economy and people's livelihood has become the most important task at present, and the retail industry, as an industry with essential demand attributes, is expected to become a key area for the country to promote consumption upgrading and economic recovery. Therefore, companies like Hema, which have technological innovation and new retail innovation advantages, can more accurately meet consumer needs, meet national policy directions, adapt to changes in the market environment, and become powerful participants in promoting consumption innovation.
In Hou Yi's view, the key to the success of new retail lies in the comprehensive transformation and upgrading of the retail industry with Internet technology.
In fact, the success of Hema's new retail also tells the entire market that we can completely reconstruct traditional industries with technology and let the sunshine of the Internet shine into every corner of the industry: while improving the customer experience, reducing costs, improving efficiency, and strengthening turnover capabilities.
In the 8 years since Hema's establishment, we often see Hou Yi sharing his thoughts and explorations on new retail in his circle of friends. With Hema's entry into the capital market, more information will be disclosed in the future, and we will see more of Hema's methodology, more exploration, and thinking:
Just like Wang Huiwen's course notes at Meituan and Zhang Xiaolong's 8-hour speech on WeChat, these contents are treasures that the entire industry can learn from. Perhaps they will inspire a new wave of entrepreneurship in the future, and they will undoubtedly contribute to China's economic recovery.
【Three】Paying the bill for uniqueness
In the entire Alibaba ecosystem, Hema is a unique presence because it is the only subsidiary that does not rely on Taobao traffic, and even Hema can feed back into the entire ecosystem's traffic pool.
Hema was originally a new retail project incubated by Alibaba. During the entrepreneurial process, Hema actually enjoyed support from Alibaba's ecosystem in terms of talent, funding, supply chain, and other "hidden assets," while avoiding the "hidden liabilities" of the traditional retail industry's difficulty in transitioning due to being accustomed to being a second-tier landlord. It is essentially a high certainty, high-level innovative entrepreneurship that solves the problem of talent incentives in the process of transitioning to the new economy and the problem of second-line innovation for giant companies.
Looking back now, when Hema insisted on guiding consumers to place orders and make payments through the Hema app, it seemed unnecessary at the time, but now it is clear why.
Having its own app is equivalent to having a traffic stronghold with significant commercial value. Online + offline, these are two precious consumer operation fields with autonomy. Hema continues to attract and retain users with its strong product strength, forming a virtuous cycle of online and offline. This also makes Hema a unique presence in the Alibaba ecosystem and even the entire Chinese internet.
It is worth mentioning that in January this year, Hou Yi stated that Hema is actively exploring online sales and wholesale business, allowing competitive own-brand products from Hema to be sold outside of Hema and across the entire internet, and making Hema's supply chain company another development channel for Hema.
It is obvious that in the future, Hema will open up its accumulated capabilities to the outside world, work with suppliers to incubate own-brand products that meet consumers' real needs, and then open up these own-brand products to the outside world to seek greater development.
From being incubated by Alibaba to being able to incubate new projects and brands on its own, it is believed that in the near future, there will also be listed companies among the brands incubated by Hema.
【Four】Conclusion
Through these analyses, we can see that Hema has proven through its business success that the new retail business model is correct. In other words, if Hema can gain recognition from the capital market, it will prove that Alibaba does have the ability to tell a new story outside of the Taobao ecosystem. The story may not be big, but it is highly symbolic:
Hema's move to the capital market is not only its own success but also a boost for its parent company Alibaba in the capital market.
Therefore, the Alibaba board of directors' decision to approve Hema's listing first shows that they truly understand the market.
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"Retail Wei Observation" focuses on the latest strategies, tactics, and thoughts in the field of new retail and new consumption from a global perspective. The founder of the platform, Wang Ziwei, is an independent retail analyst.