China Chain-Store & Franchise Association (中国连锁经营协会) released a report on TOP 100 China’s Fast-Moving Consumer Goods (FMCG) Companies in 2018 on May 9. Freshhema (盒马鲜生) ranks eighteenth in all FMCG companies with an annual sales revenue of CNY 14 billion, with franchise stores up to 149.
Founded in May 2015, Freshhema is the best sample of new retail industries since its establishment. The innovated business model that reconstructed the traditional retail industry, the online-offline combined shopping experience for consumers, the high-tech driven operating system and the in-store dinning design has made Freshhema a symbol of fashion. Similar to school district housing, or “Xuequfang” in Chinese, Freshhema also brought a new world called “Hequfang”, which means living within 3 kilometers of a Freshhema chain store. This is because Freshhema provides free delivery service for consumers lives in “Hequfang”. The groceries purchased online will be delivered in less than 30 min.
The fast expansion strategy of Freshhema has brought fame and criticism at the same time. Many competitors doubt that this is a capital driven game backed by Alibaba rather than a long-term business.
The fact of capital support is also proved by the publication of Alibaba’s financial report in the 2019 fiscal year. Alibaba’s revenue for the 2019 fiscal year topped at CNY 376.84 billion (USD 54.78 billion). The total GMV of China retail marketplaces was CNY 5,727 billion (USD 853 billion), a year-over-year 19 percentage increase. Under this stronger-than-expected result, we can still see a net loss of CNY 25.4 billion (USD 3.78 billion) in the Alibaba innovation initiatives segment. Freshhema, which is included in this segment, is not in a profit state for now.
Moreover, Freshhema also 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.
The situation of Freshhema is interpreted by media as the decline of the rising star. In the author’s opinion, however, in this retail industry game, both Internet giants and traditional retail enterprises are facing the current situation of the capital ebb and consumption decline. With a CNY 120 million sales revenue per store, Freshhema’s performance is roughly the same as the leading FMCG companies like RT-Mart, Walmart and Carrefour.
Besides, Hema also adjusted the store system to "one big four small". That means despite the original 4000 square meters Hema as one big, Hemacaishi, Hema mini, Hema F2, Hemaxiaozhan acting as the four small, will target at customers in a small range in the community with lower cost in both store expansion and operation.
With a timely adjustment of expanding strategy and a strong supply chain and service solutions backing by Alibaba, Freshhema will remain its leading position in the new retail market.