How HEMA Developed Its Online Grocery Stores

How HEMA Developed Its Online Grocery Stores

Online shopping, one form of e-commerce, has undergone drastic growth in just a couple of decades. A typical online retail business facilitates customers to browse the store’s product range, take a look at photographs with information about the product features and buy through mobile or online transactions. For online grocery business meetings, customers’ requests for swift delivery at low prices diminished the already small margin, meaning it is difficult to attain profitability in  the online grocery business (Kumar, 2019). The perishability, as well as the delicate nature of grocery products, also makes the online grocery business barely profitable.  Despite this, reality, some considered the business the next frontier in the online retail business. Two primary distribution models exist centralized distribution whereby orders are made from established centers of distribution (Kumar, 2019). The store fulfillment model, on the other hand, in-store fulfillment model, existing stores act as centers of fulfillment for shipping as well as picking orders made online. Keeping the prices low enough to encourage customers and achieving profitability remained the main challenges of the two models.

In 2015 one of the world’s most prominent Chinese online stores, Alibaba launched Hema supermarket in an attempt to integrate both online and offline approaches in what was described as ‘New retail. After four years, Hema’s hybrid approach to online grocery business has been a great success. In 2018 Hema grew to 171 stores operating in 22 cities having over 20 million active customers. The store fulfillment approach was better due to enhanced customer experience (Kumar, 2019). It also faster and flexible distribution to clients, and unlike the centralized distribution model, it has an inherent quality of fostering the trust and confidence of clients. It makes the conversion of offline clients to online ones. However, the store fulfillment model has the disadvantage of its manual processing of orders, which can be time consuming and has a physical upper limit due to the fixed number of shelves available. Further, it was cumbersome ascertaining the accuracy of store inventories, making it challenging to determine item availability. As a result, there was a likelihood of promoting a product that was actually out of stock.

Alibaba’s vision was somewhat dissimilar from that of its American equivalent Amazon. Alibaba’s undertaking was increasing the ease of doing business anywhere. Up to lately, Alibaba had primarily focused on making platforms that interconnected customers and sellers. Four years ago, Alibaba started its  New  Retail tactic,  which was, in essence, the holistic amalgamation of online and offline retail, operated by digital technologies like data analytics and artificial intelligence. Due to this Alibaba began engaging in a sequence of efforts to get offline retailers, together with China’s major electronics retailer (Suning Schögel & Lienhard, 2020). Separately from the offline stores Alibaba possessed, Hema was formed as a new entity to be the developer of New Retail. It was created as the testing ground for belligerently innovative ideas. Hema was the very first shot at Alibaba’s calculated plan for the digital revolution of offline retail.

Hemi Xiansheng was figuratively translated to “Mr. Hippo,” but the correct translation was “packaged fresh and raw.” This publicized Hema’s principal focus: fresh foodstuff products, mainly fresh meat and seafood. Presently, these product types were typically purchased in wet markets in China, with only 22% bought through supermarkets and just 3% via e-commerce channels. Chinese shoppers preferred the habit of price negotiation and considered products from wet markets to be “straight from the farm” fresh (Suning Schögel & Lienhard,2020).  Besides, one more reason for picking fast-moving consumer goods (FMCG) to be the first New Retail project was the “consumption upgrade” in China,  whereby the purchase of premium goods skyrocketed with growing disposable income. Hema’s first store opened at the beginning of 2016, with marginal marketing and nearly zero media presence. Hema’s general manager, revealed that the company’s early spreading out was exceptionally careful. Hema being the “pathfinder of New Retail”; in other words, it had to undergo a lot of trial and error of the whole concept (Lingyu,  Lauren & Zhijie, 2019, May). Several years on, numerous people still questioned Hema’s model.

Nevertheless, Hema grew traction rapidly due to its noticeably innovative ideas.   Hemi was position 18^th in the 2018 ranking of FMCG. In terms of yearly revenue growth, Hema topped the list, having had 300% growth, far ahead of popular brands such as Walmart (0.3%) or Metro (4.9%). It recorded an increase in online sales from 51% to 61% in 2018.  During the same period, t also recorded aa 305 decreases in the cost of operation, 483 direct procurement agricultural produce sources, with 329 agreement sources and 154 certified sources. In addition, it attained 33 room temperature and multi-function warehouses, 11 fundamental kitchens and processing facilities, and four seafood short-term feeding facilities and about 3,000 to 6,000 SKUs (stock-keeping units) for every store (Lingyu,  Lauren & Zhijie, 2019, May).

Hema targeted the wealthy population in China by describing its characteristic customer profile as women aged 25 to 42 with a yearly household income of RMB 270,000 (~US$38,000). Additional details of customer portraits included young travelers, wealthy middle class, and gorgeous. Additionally,  Hema placed high weight on high-frequency buying,  namely fresh food products, as the admission point into nurturing the habit of grocery shopping online. It was because Chinese customers were particularly sensitive to the value of fresh products, which would persuade a halo effect that could advance the overall perception of Hema and end in more customer traffic (Lingyu, Lauren & Zhijie, 2019, May).  Hema’s offline-to-online Transformation of getting customers through the Door One fundamental encounter for only online grocery platforms was nurturing the habit of shopping for groceries online. The end result is making a viable base of repeat customers (Escaris, 2019).  Similar to old-style grocers like Tesco, Hema’s brick and mortar stores mainly aimed to entice customers into the store to foster trust, possibly transforming them into online sales in the long run. Hema went one step more by exploiting viral marketing.

Hema stores highlighted an ample space for live seafood, particularly eye-catching merchandise such as Alaskan king crab.     Seafood consumption was blooming as a result of increasing income in China: the wealthy population integrated more premium seafood into their principal diet,   and the less affluent coveted seafood on distinctive occasions,   such as   Chinese   New Year.  As a result,   a   massive amount of viral content on social media sites like   TikTok and WeChat was made by early visitors to Hema, and the greatest of the content was on the remarkable seafood products (Escaris, 2019). This viral occurrence even made Hemi shops into tourist allures that spun off social media figures and tourism blogs. They pooled content like “Travel Tips for Hema,” “What to Eat in Hema with RMB 100,” and “Cost-Saving Tips for Hema,” particularly for explorers whose home city did not yet have Hema. The perfect scenario for Hema was for a customer to be enticed into the store by the elegant displays of live seafood and peculiar robots running about the restaurant providing food.  The consumer then selected a few products, particularly those that they were worried about buying online, and had them sit at the restaurant. They tried out the food, felt gratified with the quality, and ordered others either right away or when they got home (Escaris, 2019). Its offline-to-online transformation strategy was somewhat fruitful, with more than twice the number of online dealings as offline by July 2018.  Hema stores thus operated as more than just supermarkets;  they functioned as gateways to aggressively engage and entice clientele and possibly build a feasible long-term base of online grocery buyers.

Hema strived to retain one competitive lead, as its 30-minute delivery time. While the fast delivery facility attracted clients, it also saved expenses throughout last-mile delivery by removing the need for refrigerated vans. The speedy delivery meant that fresh products could be reserved adequately chilled using only insulated boxes and ice bags, which could be reused for successive deliveries. Nonetheless, the bargain of free 30-minute delivery with no lowest order had two restrictions. It was applicable only for parts within a  3-km radius of the nearby Hema store, and particularly for fresh products;  other items such as cosmetics were delivered the following day (Escaris, 2019).  Nonetheless, Hema’s delivery was still eye-opening, specifically with the start of night delivery of health and medication products with similar 30-minute delivery time-frame.

Hema was designed on grounds data acquisition and data analytics as an internet company.  It originally obliged customers to pay via the Hema app by only making self-check-out counters that combined Alipay as the single payment method. But this ignited intense debate since it is illegal to reject money in China. Hema bowed to the pressure and made cash counters, but in lots of stores, they are under the pretense of “customer service counters.” Hema’s intent is thus to compel customers to check out by the Hema app interpreted into an enormous quantity of data, which was utilized in many ways. Highly custom-made   product references and advertising. It also helped in drawing on Alibaba’s extensive e-commerce platform involvement; the Hema app tailored recommendations in a similar way to Amazon. Modification of accessible products. It also collected data from “search without results” and used it to present or de-list products (Caro, Kök & Martínez-de-Albéniz, 2020). On sourcing products, Hema had three procurement bases. Global supply mainly for seafood products, conveyed by air freight inside 72 hours, and for live seafood for short-term storage in tanks in the handling center (Caro, Kök & Martínez-de-Albéniz, 2020). The second source is national supply primarily for less perishable products like fruits and freezing meat, conveyed by both air freight and truck. Local supply is majorly for highly perishable products like vegetables, beef, and dairy.

Therefore Hema serves as a practical example of how innovation and creative ideas can transform any business into a giant enterprise. Its rapid expansion, as well as growth over a short period, is a piece of evidence on what sustained innovation can do to a business? However, we also learn that new transformative ideas at the early stages of infancy need to be implemented carefully at every stage of the establishment to avoid massive losses. With the sustained growth of the online stores witnessed, Hema is likely to continue with the trajectory, especially if they continue embracing technology in product promotion, advertising as well as enriching customer experience to retain their customer base and recruit additional loyal customers.

References

Kumar, D. (2019). Monopoly moves online: Top e-commerce companies move into retail. Guardian (Sydney), (1870), 5.

Schögel, M., & Lienhard, S. D. (2020). Cashierless Stores–the New Way to the Customer?. Marketing Review St. Gallen.

Lingyu, M., Lauren, C., & Zhijie, D. (2019, May). Strategic Development of Fresh E-Commerce With Respect to New Retail. In 2019 IEEE 16th International Conference on Networking, Sensing and Control (ICNSC) (pp. 373-378). IEEE.

Escaris, M. (2019). Do food retailers need to adapt their business model to millennials? (Doctoral dissertation).

Caro, F., Kök, A. G., & Martínez-de-Albéniz, V. (2020). The future of retail operations. Manufacturing & Service Operations Management, 22(1), 47-58.