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2019-05-28

Inside Hema: A look into the cornerstone of Alibaba’s New Retail Strategy

Digitized aisles, farm-to-store food tracking, service robots, and cashless check-outs, Alibaba’s plans to re-invent offline retail are already well underway

 

Ever since Jack Ma coined the term “New Retail” at an investor briefing in 2016, you would be remiss not to notice the phrase at every subsequent briefing, presentation and correspondence from the company since. That’s because Alibaba, who built their reputation in online commerce, have identified New Retail as a core pillar and launching point for their “New Five” strategy, areas of strategic importance the company believe will allow them to continue to spread Alibaba’s ecosystem of services not just in China but globally.

While many praise Amazon for their attempts to blend offline and online retail through Amazon Go, in more ways than one they are playing catch up to Alibaba. The company’s internet powered supermarket, Hema Xiansheng first launched in 2016, and is now rapidly scaling throughout China. Despite this, many are not aware of its existence and (more so) its features and functionality — a recent trip to Shanghai brought an opportunity to show Hema and all its inner-working up close.

HEMA

WHAT IS NEW RETAIL?

For the unfamiliar, New Retail refers to the fusion of e-commerce with brick & mortar retail through integrating both online and offline experiences and services across a single value chain. Often associated with, but different to, the original term “O2O” (Offline to Online), New Retail looks to change the engagement paradigm we have with retail by bringing the best of both worlds together, including logistics, data, payments, smart hardware and more.

It may seem like an odd space for an online titan like Alibaba to get involved in. After all, online sales penetration in China is the highest in the world, and the company operates the country’s largest e-commerce platforms, already serving over half a billion customers. Despite this, brick and mortar retail still astoundingly accounts for over 80% of total retail sales in China. We see a similar narrative in the US — offline retail still dominates.

If Alibaba wants to increase share of wallet among consumers, and continue to evangelize its services (cloud, logistics, payments etc.) then getting a strong foothold in the offline retail world is going to be of critical importance.

HEMA

One of Hema’s Shanghai locations

“We believe the future of New Retail will be a harmonious integration of online and offline, and Hema is a prime example of this evolution that’s taking place”

Daniel Zhang, CEO of Alibaba Group

As of October 2018, Alibaba already has 87 Hema stores in China, with plans to open 2000 more in the next 3–5 years. These 87 stores are not scaled down or sandboxed projects — they are live, fully functioning and equipped to serve the mass-market. In a time where tech giants across the world have thrown their name in the hat to re-invent offline retail, the sheer number of market-tested stores that already exist give Alibaba a significant advantage over everyone else.

The store serves 3 core functions:

  1. Supermarket
  2. Restaurant
  3. Fulfillment Center

What ties these functions together is Hema’s own native app. It enables virtually everything for the customer. The entire experience from payments, product discovery, in-store research and more is bound together by mobile. If you are a customer of any of Alibaba’s services such as Alipay or Tmall/Taobao, your details, preferences, and spending history can all be linked directly, allowing the app to understand the type of customer you are and what you could be looking for, based on your activity across these platforms and services.

DIGITIZED AISLES AND BARCODES

Every product in the store is equipped with a price tag and a corresponding barcode and QR code. These price tags are actually internet connected “e-ink” tags that allow pricing to change dynamically depending on supply and demand. This comes into use for fresh/new/in-season goods (particularly seafood) and for popular goods that are also available on the Hema app.

Most aisles are also equipped with large touchscreens. These touchscreens give an overview of the products in that aisle, show recommendations for similar products, suggest pairings, and show which products are the most popular — they can even be segmented by popularity among age group.

SCAN FOR INFORMATION

Scanning the code on the price tag with the Hema app takes the customer to an individual product page that contains all the information recorded for that product (this goes a step beyond for fresh food, more on this below).

Chinese consumers take fresh very seriously, and so does Hema. In a country where food safety and transparency is such a contentious issue, this was an area that had to be built out thoughtfully. Virtually all fresh food has a feature that unpacks the entire farm to store journey of that particular item. As you can observe above, for items like fresh meat, vegetables, seafood, you as a customer will be able to scan every product barcode and see:

Farm to store tracking

Chinese consumers take fresh very seriously, and so does Hema. In a country where food safety and transparency is such a contentious issue, this was an area that had to be built out thoughtfully. Virtually all fresh food has a feature that unpacks the entire farm to store journey of that particular item. As you can observe above, for items like fresh meat, vegetables, seafood, you as a customer will be able to scan every product barcode and see:

The product origin

The producer/company name and background

For meat, the life of that animal (what date and time it arrived at the farm or when it was born, what date and time it was slaughtered, when and where it was transported to and from). The timestamps for some products are accurate to the second

Transport information such as the license plate of the truck, or the temperature inside the truck for items that need to travel under cold storage

Official scanned copies of food safety certificates and business licenses complete with an official government seal

Arrival date in-store so customers can assess freshness

Me stamped produce information including the farm/factory and official food safety certificates.

COOK YOUR GROCERIES

One of the standout attractions at any Hema is the fresh seafood section. Built across a large open area, customers can openly browse, research and inspect their seafood up close, something that is very important to Chinese consumers. Despite seafood being flown in from all over the world, if it is in the store, it was caught within the last 72 hours — guaranteed.

Produce from the seafood area can be purchased normally or even delivered to your home. However, you also have the option to have it prepared and cooked on the spot according to your liking by one of the various restaurants in the store and enjoy it there.

RESTAURANT (WITH ROBOTS)

Every Hema store comes equipped with customer dining areas, however this Hema in particular is the first one to launch its very own robot restaurant, Robot.he. Access is simple, scan with your phone to get a table number, go to that table, scan another QR code at the base of that table and access the full in-store menu. There you can place your order, including with the fresh produce from the seafood area.

When ready, food is placed on robots that resemble Roombas by chefs, and make their way directly to your table. It is a coordinated and efficient process that frees up time spent with waiters on ordering and paying. With the automation of the front end of restaurant service already in motion, one wonders how long before this will start encroach into the back-end of food preparation.

FULFILLMENT CENTER

Hema stores do have staff like regular supermarkets, but you will quickly notice most of them keeping busy, zipping around the store filling bags with various goods. This is because every Hema store also serves as a distribution center that collects, fulfills and delivers customers online orders.

For customers that live within a 3km radius to a store, Hema enables delivery to the customer within 30 minutes. Staff fulfilling these orders in store look to gather items ordered in 7 minutes or less. Recently, Hema expanded its 30-minute delivery service to operate almost 24 hours a day — with service being added between 10pm and 7am. Also, cooked meals are available for delivery until 1am.

After orders are picked by staff they are placed on conveyor belts that run across the store’s ceiling, transporting them in full view (and above customer’s heads) to the back of the store. The back of the store is where the orders are packed into boxes and sent to customer’s doorsteps.

CHECKING OUT

Self-Service checkout stations are the norm at Hema. It’s a quick, easy and seamless process that even allows customers to “pay by face”, leveraging Alipay’s facial recognition payment technology. The entire experience requires no cash.

 

An interesting tidbit we noticed was actually how little check-out counters there were despite the size of the store. There were also no signs of lines or people turning to in-store staff, it seems the lack of checkout counters is a deliberate tactic to encourage shoppers to order online and go deeper into their ecosystem of services, particularly logistics. This was referenced at Alibaba’s latest investor event where they cited 60% of all orders in Hema stores are placed online.

A FEW LAST THOUGHTS

Hema in many ways serves a fourth, less obvious function — that as an experiential retail platform. Alibaba’s vision for New Retail goes beyond Hema but what Hema provides is an excellent testing bed for future products/services. I expect a multitude of different services to make its way through Hema, including: computer vision cameras, in-store social plus experiences, personalized subscription based deliveries, and more.

Alibaba’s Tao Cafe is another new retail store currently operating, albeit at a much smaller scale than Hema. Much of Tao Cafe is similar to the Amazon Go approach of no cashier, walk in and out by being automatically charged- leveraging cameras and sensors as well as real-time customer data to power the experience.

Starbucks and Alibaba inked a partnership earlier this year that looks to supposedly “Transform the coffee industry in China”. One of these partnership outlets includes Starbucks is bringing its own “Starbucks Delivery Kitchens” to Hema, which will feature robots combined with mobile-based orders, and deliveries.

Hema is certainly a transformative experience compared to the current retail paradigm. However, in many ways its mission is not to create shock and awe among consumers, but demonstrate how technology that we already see being used in the world today can seamlessly integrate into a practiced experience and make that experience infinitely better.

 

The future of retail is already happening, it’s in China — and Alibaba is leading the way.

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