The Chinese tech giant Alibaba is expanding aggressively into physical retail through investments in a variety of product categories to push its “New Retail” strategy of combining online and offline shopping.
Its most critical New Retail venture has been Hema Xiansheng, a futuristic supermarket launched in 2015 that offers free 30-minute delivery and payment using facial-recognition technology.
Deeply integrated with Alibaba’s technology and services, Hema provides a window into where Amazon may try to take Whole Foods in the future.
We recently visited Hema in Shanghai, China, and found the store to be a pleasant, streamlined shopping experience. While the tech was cool, it was the store’s uber-fresh seafood and picture-perfect products that left the biggest impression.
With a valuation of over $500 billion, the Chinese tech giant Alibaba is second only to Amazon in e-commerce. But it’s going after the offline world to keep growing.
Long before Amazon purchased Whole Foods for $13.7 billion, Alibaba was forging into physical retail with investments in the supermarket Sun Art, the department-store operator Intime, the electronics seller Suning, and the furniture store Easyhome, among others.
All in all, Alibaba has spent $10 billion on traditional retailers since 2016.
The investments have aimed to help the company develop its “New Retail” concept, a term coined by the Alibaba founder Jack Ma that means the fusion of physical retail and e-commerce.
At its core, it’s about making it convenient to buy what you need or want in whatever way is the most convenient to you — whether at the store or online, delivered to your home or picked up at a nearby store location.
By integrating online and offline, Alibaba thinks it can radically change customers’ shopping experiences for the better while boosting business for its partners.
“That means that the whole inventory and supply chain is one solution for whatever your needs are,” Jet Jing, the president of Tmall, Alibaba’s brand-focused e-commerce platform, recently told Business Insider.
He added that no matter whether purchases are generated online or offline, “it will be fulfilled in whatever is the most efficient route to you.”
Nowhere is the New Retail idea more on display than in Hema Xiansheng, Alibaba’s futuristic supermarket. Launched in 2015, Hema has expanded to 46 stores in 13 cities in China, with plans to open up to 2,000 more branches in the next five years.
The fresh-food-focused supermarket offers customers the ability to shop in-store or on its app, see the origins of its products, have food delivered for free or prepared for pickup within 30 minutes, and pay with facial-recognition technology.
We recently visited a Hema branch in Shanghai to see the company’s vision of the future of grocery shopping. One can’t help but think that Alibaba’s deep integration with Hema signals how Amazon will integrate Whole Foods.
There are over 40 Hema Xiansheng locations in China. Most are in high-end shopping malls or mixed-used developments close to where Chinese people work and live. Core to Hema’s model is offering free 30-minute grocery deliveries within a 3-kilometer radius.
The joke used to be that Chinese people like to live near good public schools, Liyan Chen, the manager of international corporate affairs at Alibaba, told Business Insider. “The joke now in China is that they want to live where the Hemas are, because then they can get everything delivered to them really easily.”
To shop at Hema, you have to download the app, which logs all of your purchases, saves your preferences and delivery address, and allows you to pay with Alipay, Alibaba’s mobile-payments provider. After shopping at Hema, you’ll have a personalized product page.
The name Hema Xiansheng means “boxed or packaged freshness and liveliness” and is a pun in Chinese for “Mr. Hippo,” hence the hippo mascot. Hema’s major selling point is its ultra-fresh meat, veggies, fruit, and seafood.
Freshness is a big deal in Chinese culture, particularly given the inconsistency at other supermarkets. There are two words for freshness in Mandarin: one for crisp fruits and veggies, and another for freshly butchered meat and fish. Customers can taste the freshness and sweetness of the produce at numerous testing stations in the store.
All technological innovations aside, the main draw of a Hema store is its expansive live-seafood section. It’s like putting a traditional seafood market in the middle of Whole Foods — except Hema’s is spotless and organized.
There are rows and rows of fresh live oysters, scallops, shrimp, prawns, lobsters, and fish. Though you can pick your own seafood, I opted to have a Hema employee help me select a mix of clams and scallops.
While most purchases happen through the app or a cashier-less checkout counter, the seafood section still needs someone to weigh and price the products. But one scan of a QR code on Alipay and I was all set.
In addition to its traditional grocery items, Hema has an expansive prepared-foods section. It’s a little like a high-end food court, with enough space to seat 100 people. Because Hema stores are usually near office buildings, it’s a very popular lunch spot.
There’s also a counter where you can bring your seafood after you buy it to have it cooked in several different styles. I decided to do that with the crab, scallops, shrimp, and clams I bought.
While I waited for my seafood to be cooked — it takes about 20 minutes — I wandered around the store. Compared with a Whole Foods in the US, it’s pretty small. But it packs a variety of products into the shelves. Hema can afford to have a smaller footprint.
Thanks to Alibaba’s deep trove of data on consumers — the company had 515 million active consumers on its platforms last year — as well as the data collected by the Hema app, each Hema store can tailor its stock based on the spending habits of those who frequent the shop.
The supermarket offers about 3,000 different products in each store, while the Hema app has over 50,000 items. Prices are synchronized between online and offline via electronic shelf labels. The goal of the store, according to its founder, Hou Yi, is.
While about 80% of the products at Hema are packaged food, most of the floor space is dominated by fresh products and in-store dining.
All items in the store have a barcode that can be scanned in the app to provide information about a product’s origin, the company behind the product, cooking instructions, nutritional information, and pricing. Customers can even add a product to an online order to be delivered at another time.
China has had a lot of food-safety issues in the past 20 years. Hema’s transparency and quality guarantee — reinforced by the info on the app — are huge draws for Chinese consumers who have been burned time and time again.
Key to changing consumers’ mindsets around online purchasing is Hema’s ultrafast delivery, which promises groceries in under 30 minutes for those living within 3 kilometers. Some stores offer 30-minute delivery 24 hours a day.
All over the store, you can see Hema employees searching through aisles and selecting products. When I was there, at 2 p.m. on a weekday, there appeared to be as many employees as customers in the store. About 50% of a Hema store’s orders are online delivery; for some it’s up to 70%. Hema’s founder is hoping to push that to 80% or 90%.
Each Hema employee focuses on a particular section — dairy, meats, produce, etc. — so that they know where each product is and can move fast. The bags are color-coded for the section and tagged with a QR code corresponding to the online order.
Sometimes you’ll see employees working together to find a rare item. Each employee carries a scanner to add each item to the order immediately. Once the order is complete, they hook the bag onto a conveyor belt that sends it to a distribution center in the back.
When you look up at the ceiling, you’ll see tons of bags traveling along these conveyor belts. It’s unobtrusive, but it feels a bit like being inside a factory. In the back, the bags for different parts of the order are combined into one and sent out for delivery.
The entire process is crazy fast — 10 minutes to pick the items, 10 minutes to sort them in the back, and 10 minutes for delivery. During my hour or so at the store, I saw more than a few Hema employees sprinting to complete orders.
It may not seem like a big deal to Americans, but the fact that all produce is packaged and sealed is major for Chinese consumers. Most Chinese supermarkets, even Walmart, look more akin to neighborhood markets, where cleanliness is not the top priority.
The ideal scenario for Hema and Alibaba is that a customer comes into the store, buys a single orange on the app, tastes it in the store, and then decides to order a bulk delivery to their home for then or later. In the future, the customer trusts that the oranges at Hema are high quality and doesn’t hesitate to order more online.
If you come across a fruit, vegetable, or fish that you’ve never seen before, you can scan the item and learn what it is, its nutritional information, and numerous popular recipes. It makes being adventurous in your shopping a lot less scary.
Or you can just try a product at one of the testing stations set up around the store.
In contrast to most US supermarkets, Hema is about making shopping so convenient that you don’t need to buy a lot (like Costco), but you do buy often.
After about 20 minutes, my seafood was ready. And I have to say: I traveled for a month in China, and this might have been the best seafood I had. It was super fresh, perfectly springy and tender, and cooked in three very different (and complicated) styles. This is not your average supermarket takeout.
While Hema is an innovative concept, many analysts have questioned whether the business will be able to turn a profit. The stores are in prime locations, meaning high operating costs, and there aren’t enough locations to spread out logistics costs, Jason Ding, a partner at Bain & Company, told Forbes last year.
While Alibaba certainly has the capital to invest in Hema until it gets big enough to become profitable, both companies maintain that, despite plans to grow to 2,000 stores in five years, the aim is not to develop a massive grocery chain. “When the model is more established, it can be shared with other traditional retailers to help them transform in the digital age,” Hou told Forbes last year.
It was time to leave, but not before having a look at the checkout. There are no cashiers but several kiosks where you pay with Alipay. If you want to use cash, you have to go to the service center on the right. Hema and Alibaba really want people to stay in the app.
Hema is more or less a “prototype” for how Alibaba envisions retail in the future, according to the company. You can imagine similar principles about convenience, delivery, ease of purchase, and product information in stores ranging from electronics to clothing to home furnishings. In that context, a store becomes the place to persuade you to buy one thing or another, rather than just where to complete another chore.
Perhaps one of the coolest features — or creepiest, depending on your view — is the facial-recognition payment option. Because sales are linked to Alipay, the checkout can simply scan your face to confirm your purchase. It’s nearly instantaneous. You put in your phone number after as an added layer of security.
As I walked through the store, all I could think about was what a tech company of Alibaba’s size could do if it were handed the keys to an existing major grocery chain …
… which brings us back to Amazon and Whole Foods. The technological advancements Alibaba has brought to Hema — easy in-app ordering, ultrafast delivery, price matching, facial-recognition payment, tailored stocking based on spending habits, etc. — Amazon could easily bring to Whole Foods. And in my opinion, given Amazon’s obsession with efficiency, it’s a matter of not if, but when.
Via Business Insider