New retail revolution in China failing?

We wrote about Alibaba controlled Hema and China’s dawn of new retail that it, along with its competitors, is ushering in. 

In comparison, Carrefour, which ran mega stores in China, threw in the towel. 

The challenges the likes of Carrefour are facing go far beyond Hema, but a holistic revolution of the retail sector and consumer touchpoints. 

Super Species

In the meantime, Hema and its competition are making huge losses as well – not entirely unpredicted but nonetheless casting doubts about the ‘new retail’ business model. 

Earlier this month, Super Species, a ‘new retail’ chain controlled by (Tencent-invested) Yonghui Superstores, shut down its first store in Shanghai. 

The store, located in the popular Wujiaochang area, was frequented by a lot of young people thanks to its proximity to universities and tech parks. 

However, it seems to have struggled to make the mix right for the crowd. Theoretically, the combination of fresh grocery shopping and live cooking eatery would become more sticky for the audience – however, when the choices for the latter abound around the area, the appeal of eating in a supermarket seems to be not very strong. 

Of course, the company claimed that it was a normal business decision – any retail chain open and shut stores all the time. 

7Fresh 

Tencent backs Yonghui, Alibaba launched Hema – and of course, JD did not want to be left behind. It was slightly behind Hema, but the ambition was there: in 2018 the company announced that it would open more than 50 stores. 

The person running 7Fresh was also in charge of JD’s grocery e-commerce business – hence the synergy is there. Also, it had struck a partnership with Super Species (since both count Tencent as an ultimate shareholder) to work together especially on global procurement. 

However, 7Fresh does not seem to be smooth either. Recent rumours from JD’s internal folks are that 7Fresh is deadweight – costing a lot of money with no sight of either strategic value to JD’s core or profitability. 

The key challenge here, we have learnt, is not only about the business of 7Fresh per se, but also how much strategic attention/resources JD as a whole puts on the business. 

This is the same challenge facing JD’s global expansion efforts, and a number of high profile incidents this and last year certainly did not help the company focus. Ultimately, we believe that closing certain outlets that are not performing is necessary, as long as the company did a proper analysis and learnt from the experience. 

Promising, but long, journey

The cost structure of running offline retail, however efficient, is not the same as just online grocery delivery. 

Grocery retail is complex, and new business models take probably years of trial and error and tonnes of learning to mature. Amazon can attest to that. 

On that note, it was no surprise that rational investors found it hard to back Honestbee.