ALIBABA’S HEMA (FRESHIPPO) ACHIEVES FIRST FULL YEAR PROFITABILITY

In the early days of Alibaba’s supermarket chain, Hema (Freshippo), used to boast about its sales per square meter being 2-3 times that of other supermarkets. But it was always very tight-lipped about its profitability. Now, nine years after its launch, it has finally achieved its first full year of profitability, spanning from April 2024 to March 2025.

Hema is still evolving. It has left many of the former experiments of retired founder Hou Yi behind and focused on two main concepts: the original Hema Fresh (Xiansheng) and the discount community store Hema NB (formerly Hema Outlet). While it has closed three of its eight remaining (Sam’s Club-like) Hema X membership stores (which, according to a recent report in Chinese media, faced serious cost and demand miscalculations), it has also shifted gears on Hema Cloud Supermarket (盒马云超).

This online-only store was initially set up for people who had heard about Hema but were living outside its service area for home delivery. Hema Cloud Supermarket now delivers to 90% of cities in China, and 80% of orders are delivered the next day. Hema Cloud Service has become a vital element of the Hema strategy and helps it to create higher volumes for 800 private label SKUs of the Hema MAX brand, which used to be exclusive for Hema X customers, and mainly offers larger packages for families. Over its different formats, Hema’s private labels now account for 35% of sales.

Last year, Hema opened 72 new stores, bringing its total to 430. This fiscal year, it plans to open 100 more in a dozen cities. However, according to some cynics, Hema might be pushing the boundaries of what is feasible. The spending behaviour of consumers beyond first and new-first-tier cities is very different.

Besides the stores and cloud supermarket, Hema has also started operating front-end warehouses (a.k.a. cloud warehouses) to expand the service area for home delivery. This approach mimics Sam’s Club's strategy of having large stores and satellite warehouses in residential areas where many members with sufficient income live. From these warehouses, Sam’s Club deliver a selection of its 4,000 SKUs within one hour. Besides Hema, JD’s 7Fresh has also started copying this model.

Overall, many reports have shown that various concepts of instant retail (q-commerce) have become profitable in recent years. Dingdong Maicai makes a small net profit and according to Goldman Sax, Meituan’s Flash Shopping has reached profitability in 2024 Q3. With Hema now showing positive figures, instant retail is emerging as the clear winner of China's new retail movement that began a decade ago.

Meanwhile, besides Hou Yi, co-founder Zhao Jiayu also recently retired. However, under the new CEO and former CFO, Yan Xiaolei, Hema remains as ambitious as always: it aims to reach RMB 100 billion in sales and become China’s number one retail brand.

Source: 36Kr Future Consumption and others