Hema - Key To Alibaba's New Retail Strategy

|
About: Alibaba Group Holding Limited (BABA)
by: Kevin Carter
Summary

Alibaba's "new retail" strategy blends traditional bricks-and-mortal retail with ecommerce.

The company's Hema supermarket division is a key component of its new retail strategy.

Consumers have many options for both fresh and prepared food delivery.

Alibaba (BABA) is best known as one of China’s leading ecommerce companies. The company uses cutting-edge technology to offer Chinese consumers the comfort and convenience of online shopping. So, it may seem counterintuitive that Alibaba is rolling out a bricks and mortar concept in the form of its Hema supermarket.

Yet, Hema capitalizes on the same cutting-edge technology as Alibaba’s ecommerce platform and its objective of providing consumers with the products and services that they want in the most efficient and convenient manner. Hema is also key to Alibaba’s new retail strategy that blends the best of online and offline retail.

Investors can gain access to Hema through holding its parent company Alibaba. Or they can hold funds such as EMQQ – the Emerging Markets Internet and Ecommerce ETF. EMQQ held Alibaba as of 11/30/18.

What is Hema? And how is the concept central to Alibaba’s new retail strategy?

New Retail – Blend of Offline and Online

New retail is Alibaba’s strategy to redefine commerce by enabling seamless engagement between the online and offline world. It’s not about converting online users to offline customers or vice versa. It’s about building a retail ecosystem that blends online and offline channels in a unified way that features the consumer at the center, often in new and unexpected ways. 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.

Hema – At the Center of New Retail

Hema is a futuristic blend of bricks and mortar and online retailer. Hema Xiansheng, the chain’s full name, 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, vegetables, fruit, and seafood.

The Hema Experience

Customers begin by downloading the Hema app on their smartphone. Customers have the ability to shop in the store or use its app to shop from the comfort of their home. They can order fresh food to cook it at home or have it prepared by the Hema chefs and delivered within 30 minutes.

Customers who prefer the in-store experience can visit the supermarket to hand-select their fresh food, such as seafood. They can purchase it in the store, choose to have it cooked for carry-out, delivered to their nearby home or office, or they can eat it on the spot the store’s dining area.

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. The app may also suggest recipes based on what you scan. The stores have numerous tasting stations so that shoppers can sample different foods.

In addition to its traditional grocery items, Hema has an expansive prepared-foods section. It's like a high-end food court, with enough space to seat 100 people.

Standout Seafood Section

What often stands out in the consumer’s mind is the chain’s fresh seafood section. Shoppers can pick out their own lobster or other shellfish, buy it right away and have it cooked up and ready for them to eat in the restaurant area when they complete the rest of their shopping.

Store as a Fulfillment Center

Hema’s innovative fulfillment model is what allows it to deliver orders within a half-hour. The store doubles as a warehouse. Order-fulfillment specialists can be seen moving up and down the aisles with a scanner, reusable shopping bag and a special barcode for each order. They scan and pack up goods, putting the bags on a conveyor belt that carries orders over the heads of shoppers to a delivery center adjacent to the store.

Using Alibaba Technology

Customers pay through their accounts on Taobao or Alipay, the online payment platform from Alibaba-affiliated Ant Financial. At select Hema stores, customers can even pay by scanning their faces at kiosks.

Alibaba knows everything a customer has purchased, so it offers users the option in the future to quickly order the same goods to be delivered to their home.

Future Growth Plans

As of June 30, 2018, there were 45 self-operated Hema stores in thirteen cities in China, according to the company’s first quarter earnings announcement. The company plans to open up to 2,000 branches over the next five years, according to Business Insider.

Hema is the chief component of Alibaba’s other category which made up 10% of fiscal 2018 revenues, up from 2% of revenues during fiscal 2017, according to the company’s 2018 earnings release. Revenue in the other category grew over 1,000% during fiscal 2018.

Summary

Alibaba’s Hema stores represent the centerpiece of the company’s new retail strategy. It blends elements of both offline and online shopping to provide products and services to customers in the form that they prefer.

EMQQ – the Emerging Markets Internet and Ecommerce ETF – held shares of Alibaba as of 11/30/18.

Disclosure: I am/we are long BABA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.