Hema Xian­sheng has made its bricks-and-mor­tar stores feel like gi­ant online su­per­mar­kets

China Daily (Hong Kong) - - BUSINESS - By HE WEI in Shang­hai hewei@chi­nadaily.com.cn

Hema Xian­sheng’s fresh ap­proach ap­pears to be pay­ing off in the cut­throat world of hy­brid shop­ping.

Rolled out by Alibaba Group Hold­ing Ltd in 2015, the online-to-off­line or O2O re­tailer has suc­cess­fully com­bined bricks-and-mor­tar stores with online ser­vices.

Known for its fresh food, this O2O startup has steadily ex­panded its net­work of su­per­mar­kets since it opened its first out­let two years ago.

Now, it has 10 stores in Shang­hai, two in Bei­jing and one in Ningbo, Zhe­jiang prov­ince.

“Hav­ing both an online and off­line out­let should cre­ate syn­er­gies by align­ing two sets of cus­tomers un­der one gro­cery brand,” said Matthew Crabbe, Asia Pa­cific research di­rec­tor for con­sul­tancy Min­tel.

“That is im­por­tant for Alibaba, as the com­pany gets a bet­ter un­der­stand­ing of online and off­line cus­tomers, and the data about their spend­ing habits,” he added.

Hema is a pro­to­type of “New Re­tail” for the e-com­merce be­he­moth as it ce­ments its po­si­tion in the online mar­ket­place, de­spite fierce com­pe­ti­tion from do­mes­tic and over­seas ri­vals.

Dur­ing a visit to the flag­ship su­per­mar­ket in Shang­hai’s Jin­qiao area in July, Alibaba Chair­man Jack Ma and CEO Daniel Zhang were de­lighted at what they saw.

“The store lever­ages data and smart lo­gis­tics tech­nol­ogy to seam­lessly in­te­grate on­lineto-off­line sys­tems,” said Zhang. “This means we can de­liver fresh food to cus­tomers in just 30 min­utes.”

The online gro­cery mar­ket is ex­pected to reach 678 bil­lion yuan ($100.8 bil­lion) this year, nearly 10 times the value of the sec­tor back in 2013, con­sul­tancy Min­tel pointed out in a re­port.

In­deed, the shift to O2O has been pi­o­neered by ma­jor in­ter­net play­ers such as Alibaba, Ten­cent Hold­ings Ltd, Baidu Inc and JD.com Inc.

“The real spurt in growth came from 2015 on­wards, which fol­lowed Alibaba set­ting up Hema and JD.com col­lab­o­rat­ing with con­ve­nience stores,” Crabbe, of Min­tel, said.

Since then, the sec­tor has grown rapidly.

At hy­per-lo­cal Hema, cus­tomers can ei­ther shop from the com­fort of their own homes by us­ing the su­per­mar­ket’s app or pop into the store.

Once there, they can hand­pick their food, have it de­liv­ered or eat it on the spot.

In one 10,000 square-meter out­let lo­cated in a shop­ping mall in Shang­hai’s down­town Changn­ing district, ev­ery item had a bar code.

When scanned, this showed the price, prod­uct in­for­ma­tion and ori­gin of pur­chase.

Be­fore leav­ing the store, cus­tomers scan the code and com­plete their elec­tronic pur­chase through Ali­pay, Alibaba’s home­grown pay­ment sys­tem, at a check­out reg­is­ter.

Nearly all of Hema’s prod­ucts come in sin­gle-meal por­tions. This is to ad­dress the de­mand for high-qual­ity food with un­nec­es­sary waste.

“Un­like in the past, city dwellers sel­dom cook for at least half of the week,” said Zhang Guo­hong, general man­ager at Hema. “They tend to dine out or or­der food in.”

The O2O su­per­mar­ket’s fresh seafood sec­tion, such as king crabs and lob­sters, has proved to be ex­tremely pop­u­lar.

Shop­pers can pur­chase what they want to eat from large tanks, have it cooked and then tuck into their food in the din­ing area.

Al­ter­na­tively, they can have it de­liv­ered to a lo­ca­tion within a ra­dius of three kilo­me­ters from the store.

Fu­elled by the vo­ra­cious ap­petite for fresh food in China, Alibaba has ex­panded its seafood and fruit sec­tors.

Fresh pro­duce, in fact, now ac­counts for more than half of all Hema’s stocks. In some stores, it is as high as 70 per­cent.

“If we can han­dle fresh fruit and seafood, then learn­ing to han­dle all the other kinds of im­ports be­comes rel­a­tively easy,” said Ma when Alibaba’s busi­ness-to-cus­tomer site Tmall first in­tro­duced Cana­dian lob­sters.

Nat­u­rally, online re­tail is ex­pected to grow from 15 per­cent of over­all sales in 2015 to 47 per­cent through to 2022, ac­cord­ing to KPMG, the pro­fes­sional ser­vice com­pany and one of the big four au­di­tors.

“That is ev­i­dent from the rise of the likes of Hema,” said Jessie Qian, head of Con­sumer Mar­kets for KPMG in China.

“Hema achieves a 50 per- cent split be­tween off­line and online sales through a busi­ness model in­te­grat­ing show­rooms and online de­liv­ery of fresh prod­ucts,” she added.

Sta­tis­tics sug­gest that Alibaba’s early ven­ture into O2O re­tail is pay­ing off, al­though fi­nan­cial fig­ures are sketchy.

The online gi­ant re­ported that Hema’s Jin­qiao store in Shang­hai, the first to open in the coun­try, is now prof­itable.

Shop­pers on av­er­age make 4.5 pur­chases a month and visit the su­per­mar­ket 50 times a year, the group re­vealed.

Among Hema app users, the con­ver­sion rate for mak­ing a pur­chase was as high as 35 per­cent, al­though again de­tailed fig­ures were not dis­closed.

Fi­nally, stores’ sales per unit area are three-to-five times those of other su­per­mar­kets, Alibaba stressed.

Since the shops are also gi­ant ware­houses, Hema has cracked the problem of how to deal with 1,000 de­liv­er­ies per out­let a day.

Big data and cloud com­put­ing, as well as an in­no­va­tive dis­tri­bu­tion sys­tem, have been cru­cial to mak­ing that work.

In par­tic­u­lar, big data has be­come a vi­tal pil­lar of the in­for­ma­tion in­dus­try, and is used to crunch vast amounts of com­plex sta­tis­tics to show pat­terns and trends in busi­ness and con­sumer habits.

In store, “or­der-ful­fill­ment” spe­cial­ists move up and down the aisles with scan­ners, re­us­able shop­ping bags and spe­cial bar codes for each or­der.

The bar codes not only help cus­tomers trace the ori­gin of their goods but they also track de­liv­er­ies.

Once an or­der has been put to­gether in shop­ping bags, they are placed on hang­ers and swept off on over­head con­veyor belts.

Normally, it takes about three min­utes to put a small or­der to­gether after re­ceiv­ing it online.

Again, big data is key to this op­er­a­tion as the process goes through an app.

Hema is able to col­lect reams of sta­tis­tics for phys­i­cal and vir­tual stores, which al­lows it to track and an­a­lyze the shop­ping pat­terns of cus­tomers.

Ev­ery pur­chase is logged and pref­er­ences noted, with items pro­moted that ap­peal to the tastes of in­di­vid­ual shop­pers.

But the su­per­mar­ket chain faces chal­lenges as it ex­pands, such as de­liv­ery de­lays and lo­gis­ti­cal prob­lems.

“If the Hema group is to con­tinue to ex­pand, it will have to take this into ac­count,” Crabbe, of Min­tel, said. “It must learn how to avoid such prob­lems in new cities and districts they open stores in.”

es­ti­mated value of the online gro­cery mar­ket in China this year


Jack Ma, founder and chair­man of Alibaba Group Hold­ing Ltd, picks up an im­ported crab in the newly opened Hema Xian­sheng out­let in the Jin­qiao area of Shang­hai on July 14. Hema Xian­sheng, fi­nanced by Alibaba, is a new form of online-to-off­line re­tailer, com­mit­ted to fresh food, and ready-to-cook meals de­liv­ered to cus­tomers in 30 min­utes.

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