Experiencing new retail in China: Hema Fresh

Recently, my mom has been raving about a new grocery store opened in my hometown. She can order fresh imported salmon on the store’s mobile app, and it is delivered to her door within half an hour, free of charge. It turns out, the company is Hema Fresh, the grocery store invested by Alibaba, which embodies Jack Ma’s vision of “new retail”, combining on-line and off-line businesses. It is e-commerce at core, with brick and mortar stores driving on-line traffic, creating new shopping experiences and cultivating new consumption habits. I’m very curious how exactly it works and during my recent visit home, I asked my mom to take me on a “tour” to Hema Fresh.

It was definitely an interesting experience. If you don’t have time to read the details, here are the summaries of what the store is:

  • It is Whole Foods with a on-demand kitchen: Hema sells everything food related and sources directly from the suppliers. It also has different food stands, selling cooked food. And if customers like it, they can buy all the ingredients from the store. It also cooks seafood on-site for customers to enjoy at their dining area.
  • It is Instacart with its own warehouse. Hema has an app for customers to place orders. Staff will fulfill the orders from the store which also serves as the warehouse and deliver it in as fast as half an hour. Customer can also self-check out in the store and have the order delivered. They promise 30 minutes free delivery with a delivery radius of 3 kilometers.
  • It is Blue Apron. The store sells pre-packaged meal kit.

However, by seamlessly connecting everything above, Hema creates a ecosystem built around one theme — food, that caters to customers with different shopping habits.

  • It standardizes product labeling. Except for seafood, all the products are pre-packaged and labeled for daily uses. This has traditionally been a challenge for fresh grocery e-commerce businesses. Hema also uses electronic price tags which synchronizes on-line and off-line products information. Because the store is the warehouse, everything you see in the store is the same with what you order from the app. It attracts offline customers by providing them with superior shopping experiences, establishing trust and then converts them to on-line ordering which has higher frequency. On-line orders have already surpassed off-line orders and are the drivers of the business.
  • Hema encourages cashless payment with Alipay. As customers must download their app before shopping, all the activities are recorded by the app, it collects enormous amount of data both online and offline which are used to analyze consumers behavior, predict demand, manage inventory, personalize marketing and increase customer retention.
  • Supported by Alibaba, Hema has built a powerful logistic systems. All the fresh goods are directly shipped from origins to the stores. The store has several automated conveyers that link the front end of the store to the back end sorting center. After an order is placed on the app, it takes 10 minutes for staffs to fulfill the order and 20 minutes to deliver. It uses machine learning to keep optimizing delivery route. Similar to Amazon’s Prime membership, Hema’s free and fast delivery cultivates customers’ habit, changes their perception and make it difficult to switch to another e-commerce business that can’t offer such services.

Below are the highlights of my “tour”:

There are three Hema stores in my city, and a total of 10 to be opened before end of the year. They are all located in residential areas with mid to high income customers. They call the store member’s store, but unlike Costco, all you need to do to become a member is downloading their app.

The entrance
Hema’s tagline. Hema means hippo in Chinese

The store is separated into several parts: fresh seafood island in the center, regular grocery on the right and dining areas on the left.

The center seafood island is one of the elements that showcase Hema’s freshness. Here fresh and live seafood are stored in the water tank. They can be cleaned and cooked on-site by Hema’s staff. If you choose not to have it cooked by Hema, scan the bar code on the tag using Hema’s app and you can find recommended recipes. All the fresh goods are sourced directly from suppliers.

Seafood island
Hema’s seafood kitchen where they cook the seafood in anyways you want right after purchase is made, for a small fee.

Scanning the bar code on the tag not only shows recipes, but also shows the complete information about the merchandise, including origin, expiration date (fresh goods are usually sold for the day). But most importantly, customer can scan the code, add anything they want to their cart on the app, and select a half hour window for delivery, then the order can be delivered as fast as 30 minutes. (Imagine going to wholefoods, skipping the lines and having everything you buy in half an hour). The standarization of packaging and label is rarely seen in fresh grocery e-commerce businesses.

Everything is pre-packaged

The salmon my mom loves. It’s the same with what she receives from her on-line order. The tag here says it only takes 72 hours from the sea to the store.

We found a pineapple stand that sells pineapple and cuts the pineapple into pieces for free. The staff gave us a tag with bar code to pay first. We went to self-checkout machine and the payment process is very streamlined. Scan the pineapple code, then scan the QR code within the app, then done. Receipt is printed.

Pineapple price tag
Self check-out process: download the app, log in, scan the bar code

It took us less than a minute to finish payment (not counting the time I spent on taking pictures, it would be less than 30 seconds). We then showed the receipt to the pineapple stand, and got a box of freshly cut pineapple. We sat down at the dining area. It was so sweet, better than any pineapple I bought from Wholefoods. And it’s only $3.

Self check-out steps and the pineapple stand

Around us, people are enjoying their freshly cooked shrimps, sea gallops, lobsters. It’s a full house.

Dining area

The most interesting or unique part of Hema store is the “flying bags” up on the ceilings. As the store is also the fulfillment center for all the on-line orders, Hema designed the conveyors in different sections of the store: seafood, cooked food and others. Different categories of items from one order are picked up by different staffs, rather than one staff running around the store to collect the items. They scan the code, put the item in the bag, hook the bag on the conveyor which transfers the bag to the back end. Staffs there will aggregate items from different bags into one package ready for delivery.

A staff uploading a sorting bag to the converyor in the seafood section
Different bag colors represent different categoreis of products

Hema’s meal kits.

The biggest challenge of Hema is that to meet the growing demand of on-line orders, save on delivery cost and ensure fast delivery, they need to quickly expand their foot prints and open as many stores as possible. First opened in 2016, Hema now has 57 stores nationwide and plans to reach 100 before end of this year. Currently in some stores, because of the limited capacity for on-site cooking, the line on weekends can be as long as two hours, negatively impacting customers’ experiences. Lastly, the price tag at Hema is higher than the average on the market, limiting its addressable market.