Is Close-Store Decision A Downside Sign for Freshhema’s Expansion?
COVID-19 and China
Fresh grocery is an industry of high operation cost . Photo: Credit to Unsplash website

Freshhema (盒马鲜生), the best sample of new retail industries since its establishment, announces that one of its chain stores in Kunshan, Suzhou province will be closed by May.31, 2019. About this decision, Hema explains that the closure plan will not affect the expansion in this area and nationwide, however as the scale goes up, Hema will pay much attention to the financial healthiness and adjusted in accordance to the market feedback.

Within three years of its development, Freshhema has opened 150 stores, each store has an area of over 4000 square meters. It draws attention of its competitors like (launches 7Fresh) and Tencent (invests in Yonghui’s Super Species) who also rushed into this money burning game even barring a great loss, according to AEB 2016 (农业电商发展创新高峰论坛), of 4000 fresh grocery companies in China, no more than 1% are in a profit state, 4% of the companies are break even, 88% are barring loss, while the remaining 7% is in a huge loss situation.

However, in this retail industry game, both Internet giants and traditional retail enterprises have to face the current situation of the capital ebb and consumption decline. On early March, Hema adjusted the store system to "one big four small", meaning the 4000 square meters Hema as one big, and Hemacaishi, Hema mini, Hema F2, Hemaxiaozhan as the four small, targeting customers in a small range in the community. Coincidentally, the CEO of 7FRESH was transferred to another department for the previously thousand-stores target is far from accomplishment. The Super Species was directly pealed off by the parent company Yonghui after a huge loss of RMB 1 billion in two years.

Despite recent years momentum on the fresh grocery market, it is cooled for the huge physical store expansion and begins to focus on community based small stores areas around 400 square meters in the first quarter of 2019. As we discussed the expansion model of Qiandama, its strategy is more sustainable with good cash flow and strong management of the supply chain.

However, that does not necessarily mean Hema will quickly enter its downside tunnel just like it had quickly entered its upside expansion previously. Because Hema also has a great supply chain management and it is clearly heading to a community-based store as the “one big four small” adjustment in order to transfer to a more sustainable and healthy mode of expansion.

If we review the strategy adjustment on the new retail industry of Freshhema on Dec. 24, 2018, it will help us better understand the ecosystem it plans in the future. Hema cooperates with Yiguo (易果生鲜), one of the first companies that sell groceries online, currently representing the largest market share in fresh grocery supplier in China. Yiguo will use its expertise in the supply chain, cold chain logistics, and new retail empowerment, to assist Hema and other new retail companies in Alibaba Group.

With a timely adjustment of expanding strategy and a strong supply chain and service solutions backing by Yiguo, Hema will remain its leading position in the new retail market.

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