China’s Booming Online Grocery Market

There are red-uniformed staff laced around the store busy making their way through the crowd of shoppers, picking out fresh seafood, food items and ready-to-cook meals for online shoppers, packing them in insulated bags and hooking them onto an overhead conveyor belt, which transports them to the backend logistics and distribution area. This is where they are whisked away by drivers who blast off on electric scooters to take them to customers. Shoppers can order from Hema by mobile app at home; the company offers free 30-minute home delivery of its fresh produce and meal solutions for addresses within 5km of a store.

China’s Booming Online Grocery Market hema xiansheng

The company’s official name is Hema Xiansheng, which in Chinese impresses the idea of “freshness in a box.” The once pureplay company, available to shoppers online via mobile app, it opened its first bricks-and-mortar outlet in 2016, and has now expanded to a total of eight outlets, with six based in Shanghai.

While many retail experts in the past had their doubts about whether or not an O2O (online to offline) business model would take off, Hema Xiansheng has turned naysayers around with its bricks-and-mortar stores.

The company doubles up its supermarkets as warehouses and logistics hubs, which also serves as a shop window to reassure customers of its products that are available online, but also to lure nearby consumers in the neighbourhood who’ve “heard of” Hema online.

At the heart of Hema Xiansheng’s business model is e-commerce and technology. Hou Yi, the founder of HEMA, is an expert in supply chain, he sees a major opportunity to supply a fresh meal solution and to Chinese consumers.

As one of its key initiatives to reinvent traditional supermarkets, in 2015, Alibaba Group, bought into Hema, investing US $150 million in its subsidiary Taobao Software to develop the O2O fresh food e-commerce brand. Alibaba founder Jack Ma has been strong about online to offline businesses to be combined with logistics in the next 20 years to nurture a “new retail” model.

Hema has linked up with Gfresh, a seafood export platform, that can provide fresh seafood to shoppers from around the world within a 24 hour window. For Hema, its business model would not be feasible without a partnership with a company like Gfresh, which it needs in order to sustain a reliable supply chain.

When fresh, not frozen seafood, is in high demand from the other side of the world, it takes a company that can clear customs fast, owns its own fleet of refrigerated trucks and uses video inspection to ensure that produce is quality.

Fresh salmon is exactly the kind of juncture that makes the partnership between the two e-commerce companies successful. Gfresh supplies some of the freshest salmon in all of Shangai, specifically because its just-in-time business model is paired with its ability to provide efficiency and accountability at every step along the way. And, when Hema Xiansheng is able to provide the freshest salmon to its Shanghai customers at a tap of a finger, within 30 minutes of ordering, it not only delights its customers, it sets a new precedent and expectation for consumers.

Hema says up to 80 percent of its customers are born in the 1980s and 1990s and are “internet natives.” The company says millennials have grown up in an increasingly affluent China, therefore caring more about quality and are less sensitive to prices.

Hema Xiansheng does not accept cash or credit card – all payments at the store are made through Alibaba’s Alipay app. Using a cashless payment system not only means saving time; the food retailer can also gather valuable consumption data from both physical and online supermarkets to track and analyse consumer behaviour. As a result, it is continually ironing out kinks to refine and better its business model and practices – and as it does so, it builds customer loyalty.

And that’s the key for Hema’s long term success, that is, using technology to bolster customer loyalty. It’s well known that Chinese consumers are amongst the most curious in the world, so it’s easy to entice them into a trial. Freshness, convenience (including timeliness) and taste are some of the key factors when it comes to customer loyalty in food, while in China price isn’t the top issue. So, in an age when consumers have grown to the idea of buying meal solutions online and offline, and if Hema Xiansheng can continue to satisfy its customers, that’s where its growth and real profits will kick in.

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