Alibaba Founder and Chairman Jack Ma coined the term “New Retail” in a letter to Alibaba’s shareholders in October, 2016. Ma said, “In the future, pure e-commerce will be reduced to a traditional business and replaced by the concept of New Retail-the integration of online, offline, logistics and data across a single value chain.”
Retail customer interaction has been rapidly changing over the years, from the traditional way of visiting storefronts to shopping in the comfort of our homes via e-commerce, and now to New Retail. Although the integration of Online and Offline (O2O) commerce is not entirely new concept, “New Retail” demands for greater customer-centric engagement seamlessly through leveraging data technology.
Fresh-food focused HEMA (盒马鲜生, which means “Boxed/packaged freshness and liveliness”) – a real example of online-offline hybrid, where carries a curated selection of 3,000 products from 100 countries, ranging from fresh food, grocery to catering and fine-dining. HEMA offered customers to choose order online via HEMA mobile app and receive free delivery within half an hour in a 3km radius, or scan barcodes at the store, pay via HEMA app and set up delivery, blending the online and offline shopping experience. From ordering to delivery, customer shopping behavior is captured all along the way via its mobile app. Accordingly, Alibaba is able to personalize the entire experience such as organizing promotion, offering tailored suggestions based on specific consumers’ wants and needs, and dedicated food booths where customers can easily get the food cooked on the spot.
What value HEMA brings to customers?
HEMA is not only a one-stop shop, but also its entertaining layout and display is definitely a game-changer, especially at fresh seafood section. HEMA has a pop-up “Seafood Exhibition” in Shanghai, in an aquarium-style glass house, where consumers are able to check out expensive and live seafood products such as Boston lobster and Alaskan king crab, and can choose to have it cooked right away for carry-out, delivered to assigned places, or eat it on the spot at the store’s dining area.
Secondly, with the technology of Cainao delivery and logistics business under its belt, HEMA itself is able to do pre-packaging and electronic tagging, so that staff can sort out goods from different food sections through scanning codes. HEMA is using algorithms to solve problems concerning sorting time, binning, combining bills and logistics route. The stipulation so-called “arrival within 30 minutes” is the superlative service achieved through the operations management and data technology.
Thirdly, Alibaba takes its dedication to building customer trust. China is considered as a comparably low-trust society, especially with regards to food issue, which raised great concern since 2008. It was precisely because of the poor transparency in China and society’s lack of trust in the government. HEMA’s transparency provides multi-level reassurance, such as easy access to all the information via a QR code, which reveals the origin of every product as a guarantee of quality, price comparison, personalized product recommendations, etc. In addition, HEMA’s advertising is also more adventurous than other supermarket brands. For example, HEMA redefined the “Home Kitchen” as a liberation campaign for the housewives. This has boosted HEMA’s high reputation among women with hectic lifestyles.
How to make HEMA more efficient?
With the usage of HEMA App and Alipay as the only accepted payment method at HEMA stores, Alibaba successfully engages consumers into its ecosystem. While customers gained convenience, Alibaba benefits from an increase in users. The new comers joined the steady stream of its customer data and can provide customer insights from different perspectives. Alibaba further boost its data and smart logistics technology to enhance greater consumer experiences; meanwhile, the database of customers insights will apparently enable Alibaba to market its products to consumers better.
With two years store operation, statistics cited by Alibaba look relatively promising at first glance. On average, customers make 4.5 purchases per month and 50 times a year, and among users who have HEMA app, the conversion rate for making a purchase is as high as 35%. Online orders account for more than 50% of total orders and in some premium locations, online orders are as high as 70% of total orders. For now, HEMA opened more than 20 locations in major commercial districts in Shanghai and Beijing, focusing increasingly on the lucrative fresh-food retail sector.
However, HEMA’s expansion continues to incur high operating costs due to the prime locations of its supermarkets. The exorbitant cost of expansion may discourage its growth in the future. In the long run, it could be more profitable for Alibaba to expand its delivery network or partner with existing partners, merging quality brands to open up more supermarkets around the urban areas. Above all, Alibaba can keep encouraging the adoption of “New Retail” concept amongst partners with existing online stores, for that will minimize the need to invest in more supermarkets.
In conclusion, HEMA presents a “New Retail” model to redefine commerce by enabling seamless engagement between the online and offline world. Nevertheless, it’s not all about converting online users to offline customers or vice versa. It’s about building a retail ecosystem that combines online and offline channels in a cohesive way that features the consumer at its core. While Amazon Go is calling its strategy as a “Just Walk Out” shopping experience, I’d like to propose that HEMA is creating a “Just Be There” strategy to increase customer stickiness, offering a more efficient, flexible and fun shopping experience.