the role of the store in the operation

Retail reality

What is the role of the store in the operation?

On our last trip to Shanghai, we naturally had to include a visit to Hema, Alibaba's physical supermarket. Whether it's a supermarket, restaurant or large warehouse, the fact is that this chain is growing rapidly. The first store of this phygital food chain opened in 2015, and has since been followed by more than 100 others. However, ambitions for growth are many times greater, with 2,000 supermarkets planned for the next few years! What makes these supermarkets so popular? And what can we learn from them?

Let's start by saying that the road Hema has taken is opposite to the route taken by most food retailers. The majority of retailers have a large number of branches and are more or less connected to these online. Hema is part of the pure player Alibaba and therefore first had a webshop and then opened physical stores. So everything that happens in the supermarket can be traced back to Alibaba's online infrastructure. Whether it is the choice of location, the product range, the shopping process, the store departments or the payment systems, everything leads back to Alibab's data.

And they stick to their main USP at all times: 30-minute delivery! This makes your shopping lightning fast, and it's also very popular, as we have seen at first hand.

Alibaba chooses its locations very carefully. Their databases provide a very precise insight into where potential customers are located. These customers are profiled according to their spending pattern on Alibaba and the specific products they buy. If enough customers in an area meet this profile, this makes it a very interesting area to open a branch. So it's no surprise that Hema will open shops mainly in large cities in the coming years. In these places, the population density of the middle classes (the core target group) is very high and the 30-minute promise is easy to live up to. In fact, to get your order delivered within 30 minutes, you need to live within a radius of 3 kilometres from the branch. In the big cities, this is more than enough.
What's more, with a population of 2 billion there is also more than enough growth potential in China. Several hints have already been dropped about foreign expansion, but Hema itself has said that they are waiting until they are really ready and China is under control. But also for a foreign adventure, the population density of a city is key!
For traditional Western retailers, this way of choosing a location is nothing new, but the use of own data is. And the more precise (and bigger) the data is, the greater the chance of a successful opening. Hema itself claims that most stores are already showing a profit within six months.

Of course, the location is not the only success factor; the product range that Hema carries is also unique. They are certainly not the largest supermarkets to be found in the big cities.

An average Hema has an area of 650 square metres. That is even 350 square metres smaller than an average Dutch supermarket. However, these square metres are by no means overcrowded. This is because Hema chooses its range very carefully. Only the most popular, frequently purchased products can be bought in the store. There are about 3,000 of these, while in the Netherlands there are about 10,000 to 15,000 articles on sale. Of course, Hema has more of them, but does not display them in the store. Hema's strategy is that they want consumers to buy on their online platform and from there take customers to other parts of their platforms.

Almost half of the store focuses on fresh produce. That, too, is certainly no coincidence. Fresh produce is a major headache for every online seller. At Hema, you choose your own fish and shellfish from aquariums (very popular in China) and a large part of the store is stocked with vegetables, fruit and meat. In addition, a large part of the store is fitted out for immediate consumption. There are several food stalls that will prepare your chosen products there and then for a small surcharge. As an operator, you pay Hema 20% commission, in addition to the rent. Just like their online platform model. You don't have to eat the freshly prepared dishes in Hema's eateries. You can also order them online and have them delivered to your home within half an hour, freshly prepared, and at supermarket prices.During our visits to various Hemas, it quickly became clear that this is a very strong model. On a Sunday morning, we saw about 10 customers shopping in the store, while there was certainly double the number of employees retrieving orders, taking them to the food stalls, and placing them on the monorail delivery system.

And it makes sense too, because how nice it is to order a fresh noodle breakfast from your bed, take a relaxed shower and, just as your tea is ready, open your front door to accept your freshly prepared breakfast from the delivery man.

The way orders are picked at Hema is a tourist attraction in itself. All employees are equipped with a mobile device, on which the orders come through in real time. The available employee gets an online order pushed to his/her device and has to pick it immediately. To do this, he goes to the nearest delivery bag point (where the bags are on clothes hooks) and scans the barcode on a bag, so the order is tracked in real time.

The employee sees which products he needs to pick and scans each of them with his device. What's more, at the same time he repositions the articles on the shelves where he is working so that they are impeccably arranged. When all the products have been picked, he scans the bag once more so that a delivery man can be ready. The employee hangs the bag on the monorail that runs through the entire store and sends it automatically to the warehouse. Here the order is prepared for delivery by electric scooter and within half an hour the customer is served.
This is a very popular service. At the first branch to be opened in Shanghai, 70% of all orders are now generated online. This not only puts Hema in competition with physical supermarkets but also with meal delivery services and online grocery delivery services.

In our view, Hema shows where the future of retail can go, and they know how to link smart innovations to shopping enjoyment and convenience. We are now awaiting the first chain that dares to take this step in Europe, or will Hema soon be ahead of them?

Do you want to know more about this trend? Then you should contact Dirk van Eunen, dirk.vaneunen @kega.nl or +31 (0)252 750275.

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What is the role of the store in the operation?

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