The four month old Hema is reorganizing its military morale. We have learned that at the June Hema all staff meeting, the newly appointed CEO Yan Xiaolei made it clear that "Hema will not be sold." Similar statements were made during new employee training sessions and the "3-year Chen" and "5-year Chen" activities for senior employees.
Yan Xiaolei also set a goal for Hema to achieve an annual GMV of 100 billion yuan in three years, an increase of 69% compared to 2023. She said, "At that time, Hema had already become one of the top retailers in China, and going public would be a natural thing
The employees holding options originally expected Hema to go public by the end of 2023 at the earliest, but in November last year, Alibaba Group announced the suspension of Hema's listing, and there were multiple reports of Alibaba's offline retail businesses, including Hema, Gaoxin Retail, and Intime, being sold.
In 2016, Alibaba proposed the "Five New" strategy, among which the most important is the new retail strategy. In the following four years, Alibaba invested over 75 billion yuan in cash and stock in multiple offline retail businesses such as Hema, Suning, Sanjiang Shopping, and Gaoxin Retail.
Hema was the first project of former Alibaba CEO Zhang Yong for a long time, and he invested a lot of energy into Hema: he participated in the establishment, and in the early stages, he would discuss business directions with Hema founder Hou Yi every two to three weeks.

Previously, it was reported that Zhang Yong resigned as CEO of Alibaba and joined Chen Yi Fund, which focuses on mergers and acquisitions, as a managing partner. He attempted to push Chen Yi Fund to negotiate with Alibaba to acquire Hema at a valuation of $2 billion, but ultimately failed. Hema denied the news at the time.
Two years ago in 2022, Hema considered raising funds at a valuation of $10 billion. However, a year later, the valuation was halved. After Alibaba's restructuring, Hema was one of the three businesses originally planned to go public, but only received a valuation of $4 billion during the roadshow. Eventually, due to "unfavorable market timing," Hema temporarily postponed its listing.
After the founder of Hema, Hou Yi, announced his retirement in March this year, we learned that he has started his own business again. Currently, he has opened a low-priced restaurant in Shanghai that sells seafood for an average of 60 yuan per family, and is also preparing for multiple new projects at the same time.
In the four months since taking office as the new CEO of Hema, Yan Xiaolei has made adjustments in three directions: restructuring military morale, focusing on direction, and striving to achieve normalized profitability.
Originally, Hema mainly promoted three types of stores: membership stores, where customers can shop by paying to become a member, similar to Sam's; Fresh Fresh Store, a fresh food supermarket that started with Hema, is located in big cities, near office buildings and residential areas with high consumption power; NB discount stores (hereinafter referred to as "NB stores") have two formats: hard discount stores and community group buying self pickup points.
Hema has already closed two member stores at the beginning of this year and will not open new stores temporarily. Instead, it will focus its resources on fresh produce stores and NB stores. Fresh produce stores will take on the task of expanding into lower tier markets and will open 70 new stores this year; By the end of the fiscal year 2025 (March 31, 2024), NB discount stores plan to open 300 stores.
From March to June this year, Hema achieved its first off-season profit. The last time Hema achieved continuous and overall profit was in the fourth quarter of 2022 and the first quarter of 2023. In the second half of 2023, Hema is preparing to go public and carry out "discount reform", but it has fallen into losses again. Having been profitable during the off-season for four consecutive months means that Hema has the potential to achieve long-term and stable profitability.
This is the result of Hema's downsizing and cost reduction in the past two years - the number of Hema stores in 2023 decreased by 30% compared to 2021; In March of this year, some Hema store employees switched to outsourcing and meal subsidies were cancelled; Starting from April this year, after the membership store business stopped expanding, about 10% of personnel were laid off.
In the past 8 years, Hema has tried 12 business formats, almost every year trying to tell a new story to provide imaginative space for new retail and strive to obtain more resources from Alibaba Group. Now Alibaba is no longer expanding in all directions, but emphasizing "business awareness", which is consistent with Alibaba's overall tone - reducing losses, making profits, and being pragmatic, and has become the key words for Hema in the future.
An old employee of Hema said that he didn't know when the company would be sold or when he would be optimized at the end of last year. Now he feels that the business is gradually moving towards stability and "is beginning to accept the new normal without radical growth
New CEO takes office: regain confidence, focus on fresh produce and discount stores
After the retirement of founder Hou Yi in March this year, CFO Yan Xiaolei faced the darkest moment of Hema's internal and external environment when he took over as CEO: being blacklisted by suppliers and experiencing a shortage of shelves; Short term closure of 6 or 7 stores, questioned by the industry whether they are going to close down; Frequent rumors of being sold have led to a continuous decline in valuation from $10 billion; Continuous layoffs and low employee morale.
In 2016, when Hema was founded, Yan Xiaolei joined Alibaba as the financial manager of UC Business Unit and Intime Group. Two years later, she joined Hema as CFO, and now it is her sixth year. Alibaba Group CEO Wu Yongming praised it for having "sharp business insights".
The first thing she did after taking over as CEO in 2024 was to regain confidence - first and foremost, to regain consumer confidence.
In December 2023, Hema suspended the opening and renewal of X membership in order to reduce costs. Although Hema has a membership revenue of 588 million yuan in a year, it is difficult to cover the cost of providing members with 88% off products twice a week, free products every day, and 365 unconditional free deliveries. In the end, the annual membership fee of 258 yuan is difficult to cover the cost.
This has caused dissatisfaction among over 3 million Hema members, and the inability to renew means that the original rights cannot be extended. After the "discount reform", all offline products of Hema are discounted by 20%, which means that other non member consumers can enjoy cheaper prices for free than members as long as they enter the store.
After taking office, Yan Xiaolei restored membership renewal and added membership benefits such as rebates and birthday gifts, with the goal of "regaining consumer trust" written in the membership business.
In February of this year, Hema raised the free shipping threshold for Beijing, Nanjing, and Changsha from 39 yuan and 49 yuan per order to 99 yuan, which is on par with member supermarket Sam's Club and discount supermarket Outlet. Compared to the original plan of raising barriers in 25 cities at the same time, this is a slowed down action, but it still has caused many complaints from customers.
A Hema employee calculated an account for us, and the gross profit margin of Hema Fresh Store is about 30%. Among the 49 yuan online orders, the gross profit is only 14.7 yuan, while the delivery cost is close to 10 yuan. After deducting the cost of picking and other expenses in the store, we lose one order for every delivery. And online orders account for 70% in Hema.
While the threshold for free shipping has been raised, the daily active users of Hema applications in March have decreased by 7.2% compared to the previous month. After Yan Xiaolei took office, he immediately lowered the free shipping threshold to 49 yuan, and the daily activity of Hema application began to slowly recover.

In addition to consumers, Hema also needs to regain the confidence of its employees. In 2023, due to cost control considerations, Hema only promoted positions P7 and below, and suspended promotions for positions P8 and above. This year, the promotion quota for all job levels has been expanded, and promotion for P8 and above job levels has also resumed.
In terms of business direction, Hema has become more focused.
In 2022, Hema will simultaneously focus on three directions: Hema MAX Business Unit (Hema Member Store), Hema Fresh Business Unit (Hema Fresh, Hema MINI), and Olay Business Unit (Hema Fresh Olay, Hema NB Store, Hema NB Self pickup Point). Now the operation and procurement personnel of Hema member stores have also been merged into Hema Fresh Business Unit.
Originally, Hou Yi's plan for membership stores was to open 50 stores by 2023, with a GMV exceeding that of Hema Fresh. But by the end of 2023, the contribution of member stores to Hema's sales will be less than 10%. After the closure of two member stores at the beginning of this year, there are still 8 stores nationwide. In contrast, Sam's has 47 member stores nationwide, with sales exceeding the entire Hema.
There is also a conflict in the business logic between Hema membership store and Fresh Life store. Hema Fresh hopes to provide users with instant fresh food delivery within half an hour, without the need for stockpiling or refrigerators. X member store hopes that consumers can go to the site to browse, taste, enjoy various services provided by the member store, and stock up with large refrigerators. Under the same system, two types of businesses thrive and thrive.
Hema Fresh and Hema NB have become the main directions for future efforts.
The products at Hema NB's discount stores and community group buying self pickup points mainly come from external purchases and self operated products. The cost of opening a fresh produce store is high, costing about 30 million yuan, and the coverage area is limited. Hou Yi hopes to cover a larger market with Hema NB's discount stores and self pickup points - the cost of opening a NB discount store is less than 3 million yuan, and self pickup points are also open for franchising.
Now, Hema Fresh Store has also taken on some of the sinking targets. At the internal meeting in June this year, Yan Xiaolei said that the Hema Fresh Store is overall profitable and is more likely to quickly expand in the sinking market after multiple rounds of model iteration, because the Fresh Store is still the most well-known brand among users.
Sanjiang Shopping's Hema Fresh store in Ningbo has been profitable for three consecutive years. This year, Hema Fresh plans to open 70 new stores nationwide, which is about twice the number of stores opened last year.
NB discount stores have slowed down their opening speed. Hou Yi's plan for expanding NB discount stores in 2024 is to have 500 stores in Beijing, Jiangsu, Zhejiang, and other places. Now the target has been lowered to 300 stores, with an annual GMV target of 10 billion yuan and a loss control within 100 million yuan. Don't limit the opening scope of NB discount stores to cities around Shanghai, as the Jiangsu, Zhejiang, and Shanghai regions can use the same management team to save manpower.
A person from Hema NB said that the current goal of opening a store is more stable and "can be achieved with enough
Under the key indicator of reducing losses and profits, financial assessment is more stringent. A Hema insider said that in the past, when doing new business, business came first, and finance controlled costs in the process; But now it's finance first, first proving that opening new stores and doing new business can be accounted for, and then investing.
The pace of 'discount reform' slows down
Reorganizing military morale, focusing on strategic direction, and striving to achieve normalized profitability are still repairs at the operational level. What kind of retail company Hema ultimately wants to become has not changed, and the internal requirement is to achieve "low price but unique".
To achieve this goal, Hema will launch a "discount reform" in October 2023, setting up "offline exclusive prices" that are 20% cheaper than online prices, hoping to allow consumers to shop at home, save on delivery costs, and also eliminate a group of suppliers who are unwilling to give in with low prices.
This has caused dissatisfaction among many suppliers. A Hema supplier said that while requesting a price reduction, Hema did not lower the 25% -40% commission rate. This means that if they agree to lower prices for a single channel of Hema, it will destroy their brand's pricing system in other channels, and their profit margin will also decline. Therefore, he decided to remove more than ten brands that were originally supplied to Hema.
Forcing suppliers to lower prices on retail platforms is a common business tactic. But when the sales of a single product on a platform are far lower than those of its competitors, forcibly lowering prices will only delete suppliers with good products and choices.
After Yan Xiaolei took office, Hema began to slow down the pace of its "discount reform". Starting from April this year, the "offline exclusive price" promotional posters of Hema stores have been removed, and some suppliers have received high-quality demands from Hema procurement. Purchasing still requires merchants to lower prices, but their attitude is not as tough as before, and a price reduction of less than 20% is acceptable.
Now I can finally catch my breath, "said a Hema supplier.
In January of this year, Hema streamlined its original 5000+SKUs to about 1800, hoping to leverage lower prices with a larger single item scale. However, the withdrawal of a large number of products in a short period of time caused a shortage of shelves in the store. Starting from April, the SKU has rebounded to about 3000.
It is the growth path of almost all integrated retail channels, such as Amazon, Wal Mart, and so on. It is right to ask suppliers to reduce prices based on scale, but this step is in a hurry.
9 years of supply chain reform, but not thorough enough
Low price but Unique "is the goal that offline supermarket giants all hope to achieve. Representatives who have explored mature routes are Sam's, Costco, as well as discount supermarkets in Europe and Japan. They have all done the same thing - building vertical supply chains, conducting their own procurement in the supply chain to avoid dealer markups, and signing exclusive supply agreements to customize products. Hema is also doing these two things, but neither is thorough enough.

To establish a vertical supply chain, it took 20 years for Japanese supermarkets to scale up, 28 years for Sam's in China, and only 9 years for Hema to be founded.
To bind suppliers, Japanese business supermarkets choose to directly acquire. Since the 2008 financial crisis, its parent company Kobe Materials has acquired 25 food factories and integrated production and sales of high-frequency consumer goods such as bread, eggs, and frozen products. Its own brand accounts for 11% of SKUs and contributes about 30% of sales.
Hema also attempted to invest in suppliers and recruited 25 companies to jointly develop and co create new products, but there was no second phase after the first phase of the activity ended.
Sam's Club does not acquire factories, but with only 4000 SKUs, it can achieve an annual revenue of 66 billion yuan. This is because the size of each SKU is large enough to give Sam the leverage to buy out suppliers' products and ensure unique supply of goods. By comparison, Hema sold over 6000 SKUs for 59 billion yuan last year.
As a sales channel, Hema's own brand brings sales revenue to top suppliers in the billions of yuan range, while Sam's top suppliers have sales revenue exceeding one billion yuan. Suppliers are more willing to conduct market research, improve technology, update equipment, and produce more distinctive and cost-effective products for large customers.
Hema will face exclusive agreements from other retailers when building a vertical supply chain. Sam's high-quality suppliers will not sell Sam's best product formula to Hema, and even packaging material suppliers will not provide identical product packaging to Hema.

Unlike Yonghui and RT Mart's KA model, Hema and Sam's Club do not charge intermediate fees such as barcode fees.
Sam directly buys out rigorously screened products from suppliers, and generally does not return them to suppliers unless there are quality issues. This is equivalent to helping suppliers bear some inventory risks, which increases the difficulty of inventory management but also results in lower product prices; Hema demands an unconditional return to the supplier and does not bear the inventory itself. The supplier will ultimately add the inventory risk to the supply price to Hema.
At the first zero supply conference in 2018, Hou Yi clearly expressed his hope that Hema would achieve 50% of its own brand in the next three years. Three years later, he summarized the difficulties of reform: internal procurement has inertia, unwilling to give up procurement fees, external partners are unwilling to change the status quo, and there is not enough motivation to create a dedicated "Hema system".
At the end of 2023, Hou Yi promoted the separation of procurement and sales internally, setting up "formulators" to lead the procurement of new products. After a trial period of six months, the selection was changed back to being jointly decided by "formulators" and local procurement. A Hema insider said that local procurement is more familiar with the local supply chain, and communication with the headquarters' "formulators" is not smooth.
It is also difficult for the brand to give up KA prices solely for Hema's channel. A brand owner said that Pinduoduo is able to achieve multi brand price breaking because there are too many distributors, making it difficult to manage the brand, and some inventory products are also willing to sell at price breaking prices; But if the price of Hema breaks, the offline physical space can only cover a limited number of consumers, and the lower price will not attract many incremental consumers, which will reduce the overall profit for the brand.
Both stores and suppliers can only proceed step by step. Once the pace becomes aggressive, retailers may face a pincer attack from both suppliers and consumers. Today's Hema may no longer have too much room for imagination, but it has the potential to become a regularly profitable and healthy retail enterprise.