Hema suddenly terminated the IPO process.
On November 16, 2023, Alibaba disclosed in its third quarter financial report that Hema's listing plan has been postponed and the company is evaluating market conditions and other factors necessary to ensure successful project implementation and enhance shareholder value.
The pressure on Hema is now approaching its maximum, and we can't afford it anymore. After the hopes for listing are shattered, it will be very difficult for Hou Yi to struggle again. "A Hema supplier told Interface News that he would not disclose the specific industry and name.
In fact, even before the official announcement of this news, suppliers had heard about the possibility of Hema's IPO failure. The IPO situation is pressing, and it has to take a strong stance to examine its situation and make adjustments.
In early October, a nail notification popped up on Yang Yi's phone.
The person who sent the message was Hema's procurement partner. The other party notified that starting from October 13th, the two cake products he supplied to some stores in Hema's East China region must be further reduced based on the original supply price. But for Yang Yi, it has already reached the profit red line.
Yang Yi is facing the most innovative sample in the Chinese retail industry in recent decades - Hema, born in the Alibaba system with a "golden spoon" in 2015.
Driven by data and technology, Hema was once seen as a representative of China's "new retail".
After the reform and opening up, international retail enterprises entered the Chinese market, bringing about a store dependent retail model like "hypermarkets". Subsequently, both local brands, Yonghui and Wumart, were established based on foreign retail models. After building an ecosystem of mobile internet, e-commerce, and logistics networks in China, Hema's "online shopping+store experience" model has become a new ecosystem for the retail industry in China and even globally.
Just now, it stands at the crossroads of life and death.
After eight years of development, Hema must re-examine its increasingly hypermarket like side - with continuous product redundancy and stagnant offline passenger flow growth. According to Alibaba's 2023 fiscal year data, Hema's overall GMV exceeded 55 billion yuan, with online transactions contributing over 65%. There has not been much improvement in offline customer flow and overall orders.
Hema has made seemingly unreasonable price reduction demands to suppliers like Yang Yi, in order to continuously self pressure and reform through price competition. Hou Yi, CEO of Hema, said in an interview with Lianshang Net that behind this is essentially a "battle of life and death" for Hema and represents local retail enterprises in international competition.
October 13th is the day when Hema officially launched the battle.
On this day, Hema announced to the outside world the comprehensive launch of the "discount transformation".
Starting from offline stores, Hema has aggressively lowered the prices of over 5000 products offline by 20%, including major categories such as dairy products, biscuits, instant food, water drinks, cleansing products, and frozen meat, poultry, and aquatic products. In addition, Hema is also decisively reducing SKUs, directly reducing the number of SKUs in standard stores from 8000 to 5000. The ferocity of the attack made colleagues tremble with fear.
Hema told Interface News that the excluded products are based on purchasing and operating judgments, ultimately determining whether the products have price competitiveness. The goal is to eliminate 3000 out of over 5000 standard SKUs, and with the addition of over 800 new products, the standard SKUs will ultimately be controlled at around 3000. However, the 2000 fresh SKUs will remain unchanged, keeping the standard store's SKUs at around 5000
(Chart production: Interface News Gu Lexiao)
On whom does the wool come from? Hema is determined to either lower prices for suppliers or directly eliminate products.
Using such a rough approach, Hema was also a bit panicked internally.
After we released the news on October 13th, we were very concerned about the consequences and couldn't predict how many suppliers would stop cooperating with us and cut off the supply of goods, "a person working next to Hou Yi told Interface News.
Hema can fully imagine that the supplier does not want such a rough price reduction. Because suppliers have a price control system, some like Yang Yi withdraw due to losses; Some are concerned that the price reduction will affect their prices in other retail channels, and if they cannot negotiate, they may directly withdraw the product.
Sure enough, various reactions from suppliers after the price reduction and elimination of SKUs directly rushed to the hot search, and Hema faced public questioning in terms of morality, fairness, and so on. Wang Yumeng, founder of Chabiubiu, a tea consumption brand, posted a tweet stating that from October 21st, the brand was officially taken off the shelves by Hema, and tens of thousands of boxes of goods were required to be cleared within a specified period of time. Her title is "The Difficult Survival of a Female New Consumer Entrepreneur".
'Lao Cai' has been mentally prepared for at least three months to cause muscle and bone damage, 'the Hema source mentioned above told Interface News. Lao Cai "is Hou Yi's flower name. An imperfect system
Stop playing! "A Hema imported beverage and snack food supplier told Interface News.
As the national general agent for a certain category of beverages, he provides over thirty SKU beverages and blended products to Hema. Recently, the Hema system has removed some of their beverage categories, and some products have been required to leave large weight specifications and remove small size SKUs. The reason given by Hema is also due to the need to streamline categories.
In addition, there is another casual biscuit that Hema has requested to participate in the "Mountain Moving Price" activity, directly reducing the price by 30%. The final price is almost the same as the procurement cost, and there is no room for negotiation, and the supplier has no choice but to take it off the shelves.
The so-called "moving mountain price" is a price war initiated by Hema in July, and the industry generally believes that Hema refers to Sam's Club. After the price of moving mountains was launched, Hou Yi wrote on his friends' circle, 'It's been a long time since there was a war. It's important to fight and train soldiers.'
The intuitive perception of the beverage suppliers mentioned above is that in the past, the reference factors for Hema's phased out products included factors such as price, product sales performance, consumer acceptance, etc. However, the proportion of price factors this year is higher than before, reaching 70%.
After all, it's still the supermarket supply model. If you don't do it, there will be another supplier filling in immediately. Your attitude is very strong, and the supplier has very little say in this, "he told Interface News.
The reason why Hema is so strong is because it has a strong appeal to suppliers.
After all, it still has a relatively large market share, "Yang Yi told Interface News." In the short term, there is no better channel in the Chinese retail system than him
The "good" he said is not only reflected in size. According to the "2022 Top 100 Chain Stores in China" released by the China Chain Management Association in June 2023, Hema Fresh's 300 stores contributed 61 billion yuan in sales, ranking sixth. Before Hema, there were also Wal Mart, Yonghui and RT Mart.
But Hema is different from these traditional retail channels in that it does not charge channel fees, and suppliers sometimes have conflicts with retailers due to excessive display fees. For example, in the first half of this year, Mengniu's room temperature products began to withdraw from Beijing Wumart due to the lack of agreement on display fees.
More importantly, entering the Hema channel helps to enhance one's brand influence. In recent years, many new consumer brands and mature fast moving consumer goods companies that have entered the offline market have often chosen Hema as their preferred distribution channel.
"As a supplier, it is actually the position of Party B and has little say." Yang Yi said, "For example, like Carrefour and RT Mart in the past few years, Hema has the overall advantage in the supply chain channel." In addition, in this round of price negotiations, Hema basically has two or three backup suppliers to choose from. If the first one fails to reach an agreement, it will immediately talk to the next one.
But from the perspective of Hema, it can only achieve its goals with such ruthlessness.
Internally, Hou Yi revealed to Lianshan.com that he had invested heavily in inviting two top global retail consulting companies to assist Hema in implementing its strategy, and had also recruited two executives from abroad. He believes that it is necessary to solve the problems that Hema may encounter in the next decade, such as product capability and price competitiveness.
The reason why Hou Yi is so popular may be that Hema needs to keep up with the pace of changes in China's consumer society.
Since 2015, Hema has caught up with the environmental dividend of economic prosperity and strong consumption. Various emerging tea beverage, retail, and coffee shop formats have gained great popularity in the Chinese capital market, and products such as Hema with their own unique characteristics and ultimate experiences have also met the upgrading consumption needs of consumer groups in first and second tier cities.
After stabilizing, Hema entered the second stage of intensive testing of the "new business format" around 2018. Hou Yi wants to further subdivide Hema's model and thus penetrate offline to a greater extent.
As a result, small and medium-sized stores such as Hema Station, Hema Mini, Hemari, and Hemacai Market were successively opened; Starting from 2020, it has attempted store models such as Hema Neighborhood, Hema X Club, and Hema Ole.
However, the low gross profit characteristics of the retail industry have not outperformed Hema's high fulfillment costs due to the high proportion of online orders. Hema, which needs to bear its own profits and losses, has begun to close new business formats that do not see a profit outlook. For example, Hema Xiaozhan was closed after a year of water testing, and Hema Linli, positioned as a community self pickup store, was also closed at the end of 2022.
This attempt also seemed to make Hou Yi realize that although there are advantages online, there is still a significant gap between Hema and international traditional retail giants offline.
To maintain a long-term and sustainable competitive advantage, Chinese retail brands must continuously adjust and innovate their retail formats. Hou Yi himself admitted that Hema does not yet have the ability to compete with Sam and Costco. "Currently, the development capacity and speed of domestic private brands are not perfect, including our supply chain system and highly competitive procurement system, which are all shortcomings
Mountain Moving Price Training
What made Hou Yi feel even more urgent was that the entire consumption environment in China had suddenly changed.
The sluggish consumption brought about by the economic environment has made retailers pay more attention to consumers who are becoming "stingy".
After the gradual relaxation of entry and exit restrictions at the end of 2022, Hou Yi began spending time exploring local retail businesses in Europe, Japan, and the United States, such as Aldi, a large discount chain supermarket in Germany; In March 2023, Hou Yi went to Japan to participate in the largest food exhibition in Asia, Foodex Japan, and specifically went to the discount store Trial in Japan.
These discount retail models, which are already quite mature overseas, are still new things in China.
But fortunately, they were born in a common historical background. This is also the background of the rise of discount stores represented by Don Quixote and Trial in Japan. In the 1990s, after the foam of Japanese economy, the macro-economy declined, and consumers were highly sensitive to prices, a large number of discount retail companies emerged.
Nowadays, in China, offline consumers, even those in first tier cities, are being lured away by discount retail stores such as good specials and busy snacks. The pursuit of cost-effectiveness and consumer degradation has become a new trend in consumption.
However, Hou Yi does not want to copy the overseas discount retail model.
He has repeatedly emphasized to the public that the "price competitive advantage" he wants to achieve through discount transformation is not just discount stores. In Hou Yi's view, discounting in the retail industry is a way to win competition - discounting is not about cheap prices or simple low prices, but about "differentiated product competition, vertical supply chains, and extreme operating costs".
Employees in Beijing Hema Fresh Store are setting up promotional materials for low-priced products (Image taken: Interface News Zhao Xiaojuan)
Specifically, the fundamental logic behind Hema's large-scale price reduction at present is that it needs to abandon its previous KA model (i.e. purchase from suppliers) and follow Costco and Sam's lead in establishing a procurement system centered on "OEM/self-produced".
From the perspective of retailers, the dividends of KA model come from demographic dividends, consumer dividends, and offline traffic dividends. At present, the entire economy is in a downward cycle, and dividends are disappearing. Hema, whether it is a suicidal behavior or not, seems to have to take this step in the face of high fixed store costs.
Hou Yi decided to start his military training with the activity of moving mountains.
Only by surpassing Sam can China's retail industry enter the world. "" Roll up Sam, roll down discount stores. "His circle of friends has been constantly using moving prices to lure Sam since August this year. At the end of August, there were also media reports that Hou Yi had flown to Hema in Chengdu and personally supervised the battle.
The relocation price has indeed opened up the possibility for Hema to lower the price of popular models.
One case is that Hema launched a product of the same size, Durian Thousand Layer Cake (1kg size), which is a popular product at Sam's Club at a price of 128 yuan. After several rounds of price negotiations between both parties, Hema's product was ultimately reduced to 88 yuan, and a 470g package of 39.9 yuan product was also launched.
(Chart production: Interface News Gu Lexiao)
The low price strategy quickly highlighted its effectiveness. According to data disclosed by Hema, the sales of Thousand Layer Durian Cake in Shanghai have increased by 26 times. In the baking industry in Shanghai, there is even a claim that "Hema has already eaten two-thirds of the Chinese durian raw material market".
Hema hopes to shift this type of strategy to more products.
As a result, Hou Yi set a general direction for Hema to strictly import and export goods, and in the future, he will launch strategic products through cooperation with strategic suppliers. This strategy can be seen as the prototype of the October "discount transformation".
Hema Yishan Classic Product Durian Thousand Layer Cake (Image taken: Interface News Zhao Xiaojuan)
Own factory deployment
Simplify SKUs and make them attractive in terms of price. What Hema can do is to produce them themselves or deeply bundle with suppliers. In fact, this is also something Sam has been doing in the past.
For example, the Kunshan Sugar Box Factory, jointly established by Hema and the founder of the chain baking brand Dad Sugar, Cao Guoliang, is producing four strategic items for Hema, including lamb horn, white toast, Hokkaido toast, and sweet potato. The core competitive barrier for these four individual products is still the roll price, and the cost is minimized through large-scale production among similar products.
In order to save costs, Kunshan Sugar Box Factory is quite stingy - the raw flour comes from Yihai Jiali in the factory's park, which can save logistics costs; Kunshan Sugar Box Factory even chose to start work at midnight in order to save electricity.
We only produce large products with core competitiveness in Hema, not long, and produce products with ultimate efficiency and quality, "Cao Guoliang told Interface News. At Hema's Shanghai store, a pack of 240g toast costs only 6.9 yuan.
However, such discounted prices can only be seen in over 200 Hema stores in the East China region, and similar products from other regional stores cannot be supplied by Kunshan Sugar Box Factory. Hema stated that factories in North China and Southwest China will be put into production next year.
Like toast products, there will be more factories like "sugar boxes" in the future to fill the gap in the entire Hema supply chain across the country.
Hou Yi's idea is that in the process of discount transformation, it is best for Hema to have only 1-2 factories for each core category. For example, Hema has already built a frozen instant noodle factory in Hai'an, Nantong, and hopes that in the future, this factory will become its supplier of frozen instant noodles.
Our ideal way of cooperation is to establish a joint venture factory, "Hema told Interface News. But each core product has its own factory, which is a strategy with huge investment and seems difficult to achieve immediately in a short period of time.
Hema's own brand baking products (Image taken: Interface News Zhao Xiaojuan)
Is the alliance united?
So Hou Yi's other approach is to "form factions".
The prerequisite for making friends is interests. Our OEM agent or ODM brand is actually very normal to take orders from others. If the Hema volume is large enough, we can package all of their production capacity, "the aforementioned Hema insider told Interface News.
In order to ensure sufficient supply, Hema continuously emphasizes to its suppliers its over 350 Hema Fresh Stores, 10 Hema X Member Stores, and over 60 Hema Outlets - which can give Hema more credibility in digesting products when negotiating with suppliers.
From the perspective of Hema, deepening the bundling with suppliers through sales makes it easier to control product quality from the source, achieve product exclusivity, and gain bargaining power.
But how many products can achieve such deep bundling, and how many suppliers are willing to cooperate, Hema has never given the answer to this question.
Bean product supplier Chen Weijiang has been cooperating with Hema for over 4 years, and his brand "Yixing" supplies over 30 individual products to Hema, with an annual sales growth rate of over 20% in Hema.
He told Interface News that he heard that Hema's key assessment for employees has shifted from profit margin to profit margin, which will encourage suppliers to adjust their products from the perspective of total profit and no longer simply pursue single item profit margins.
If Hema can promise a certain sales volume, nearly half of the products can reduce the price by 20% -30%. "He said," Because the profit margin of soy products is very narrow, labor costs have already accounted for 60% of tofu costs. If the price is reduced, it cannot be squeezed from labor costs. Ideally, the price reduction can exchange for Hema's customer flow return, thereby driving product sales
But in Chen Weijiang's view, inferring the cost range based on sales forecasts is itself a risk.
But ultimately, it's still a matter of supply, "a supplier who declined to be named told Interface News.
The advantage of self owned brands or customized products is that they have a higher gross profit level than the standard products, but they need to have continuous sales in the store. Not every household can do the same model as sugar boxes, and retailers can set prices independently. Many suppliers are actually still in the swing.
For example, Sam's 2KG imported honey pomelo tea is a customized product that sells for 69.9 yuan. And Hema has recently launched a 1KG * 2 Korean imported pomelo tea, priced 10 yuan lower than Sam. However, due to differences in customer base, large packaged grapefruit tea can sell well in Sam, which does not mean it also sells well in Hema.
But the dilemma lies in the fact that compared to small packaging, the price reduction of large packaging is greater, and the squeeze on profit space is also greater. This profit damage needs to be borne by Hema.
And the big item strategy is not just about exploding. Because Hema has long been positioned in the minds of consumers not for good prices, but for innovation, novelty, internet celebrities, young people, and the middle class. Its stores are also located near shopping centers and office buildings in the city