China Business: Blurring online with offline (NZ Herald)

Tim McCready visited Alibaba’s supermarket chain Hema, to understand what the future of retail has in store.

Alibaba’s ambition is to blur the boundary between shopping online and offline — so much so that last year’s Double 11 shopping festival was themed around it.

Nothing showcases this “new retail” convergence of bricks and mortar retailers with online shopping better than Alibaba’s new Hema supermarkets. They offer a fascinating insight into where the company is heading, and, for those of us living outside China, a peek into what the future of retail shopping might look like.

Fresh focus

The first thing you notice when stepping into a Hema supermarket is how remarkably tidy it is. The store is reminiscent of walking into a high-end department store instead of a supermarket.

Alongside with cleanliness, Hema is rigorous about the freshness of its products. In order to keep stock moving quickly off the shelf, items are packaged in very small qualities — enough for a single meal or for a family (bearing in mind Chinese families tend to be small).

My visit to the Hema supermarket was on a Saturday, and all bags of salad were branded ‘SATURDAY’ — indicating they had arrived in-store that day. Fish, crabs and shellfish are kept alive in large tanks. Cartons of eggs are labelled to show they were laid less than 48 hours ago. Butchers prepare cuts of meat for display, fill packs with ready-to-cook family-sized portions, and perform cooking demonstrations.

Hema’s app can be used by customers, allowing them to scan QR codes that accompany every product with their phone and receive details about the product, including its provenance, how to prepare it, and recipe ideas.

Prices are reasonable by New Zealand standards. A small pack of bok choy is 12.80RMB (NZ$2.81), a tray of Tim Tam’s 19RMB ($4.16), and a pack of six Zespri golden kiwifruit sets you back 29.91RMB ($6.55).

The Hema stores include a dining area that encourages customers to “eat as you shop”.

Along with regular food-court cuisine, an in-store chef cooks up seafood that customers have hand-selected.

Dispatch

One of the most fascinating aspects of the Hema supermarket are the chains whirring high up in the ceiling, carrying green canvas bags across the supermarket like something out of Willy Wonka’s chocolate factory.

This is all part of the secret behind Hema’s ability to get products out the door quickly.

Hema’s mobile app allows customers to browse the aisles of the supermarket from home and add items to a virtual shopping basket. If you live with a 3km radius of the store, they aim to have products delivered within 30 minutes of ordering — if you realise you’re missing an ingredient for a recipe, it can be delivered before you finish cooking.

There are 25 Hema stores spread across seven Chinese cities: 14 in Shanghai, five in Beijing, two in Ningpo, and one each in Hangzhou, Shenzhen, Suzhou and Guiyang.

Hema’s rapid growth continues, with Alibaba expecting to open 30 new stores in Beijing by the end of the year, and expand into Fuzhou, Chengdu and Guangzhou — opening up rapid delivery of fresh produce to millions more customers.

Alibaba’s use of smart logistics technology ensures the inventory inside your local store matches exactly with what is shown online — meaning all products are immediately available and ensure Hema’s supply-chain management system runs efficiently.

The supermarket doubles as a warehouse, and dozens of packers (Alibaba calls them “order-fulfilment specialists”) rush around each department armed with reusable shopping bags and scanners. When an order for home delivery is placed, they receive a list of those items that fall within their area of responsibility, scan the items, fill the basket, and place it on a hook attached to the conveyer belt system.

Items from various departments are collated in an area at the back of the supermarket and packaged — ready to go on the back of a motorbike and to the customer’s door — or perhaps to their car in the nearby carpark, timed to coincide with when the customer’s movie wraps up.

Alibaba says the first two years of Hema’s operations have yielded promising results.

Online purchases account for more than 50 per cent of total orders. For mature stores this number can be as high as 70 per cent.

By linking to a customer’s Alibaba account, the Hema supermarket allows Alibaba to learn more about its shoppers. Collecting data on every move a customer makes means Alibaba can leverage shopping habits and product inquiries to hyper-optimise its offering.
Payment

The supermarkets run almost exclusively on cashless payment. Alibaba’s Alipay technology uses facial recognition at self-service checkouts to identify the customer and charge their account.

Payment is made in seconds, and means the customer walks out with their goods without ever reaching for their wallet or a phone — let alone speaking to a real person.

I asked a shop assistant what happens if an elderly customer doesn’t have a mobile phone or an Alipay account, or — as in my case — if a foreign tourist wanted to buy a bottle of water to rehydrate.

She was surprised by my question — mobile phones and AliPay have become so ubiquitous in China. But after checking with store management she was able to confirm there was a counter in the corner of the store that could accept cash.

The Future

In China, innovation and competition follows fast. Already this year, JD.com — one of the other major ecommerce players in China — has followed Alibaba’s lead and opened its first bricks and mortar supermarket in Beijing.

Like Hema, JD’s 7Fresh supermarket offers a mobile app, digital payments, and 30-minute delivery. It also offers smart shopping carts, which follow a shopper around while avoiding obstacles (and other customers). JD says it plans to open 1000 supermarkets in China over the next three to five years.

American ecommerce giant Amazon has recently opened Amazon Go — a supermarket with no checkouts — in Seattle earlier this year.

Instead, cameras and sensors identify customers and keep track of the items they select.

Amazon calls this “grab-and-go” shopping, where customers can walk out of the store without any human interaction. They are emailed an electronic receipt as they leave.

If this convergence of innovation tells us anything, it’s that those pesky “unexpected item in the bagging area” self-service machines — and the queues we all dread — could soon be a thing of the past.

Fonterra partners for milk supply

Fonterra announced earlier this year that it has partnered with Alibaba’s Hema, to supply a new Daily Fresh milk range to the supermarkets. The fresh milk comes in 750ml bottles, sourced directly from Fonterra’s farm hub in China’s Hebei province.

The New Zealand dairy giant says initial volumes of its fresh milk are around three metric tonnes a day, with plans to scale up over time and expand with Alibaba as it progresses its rapid expansion of stores across China.

In addition to fresh milk, Fonterra also offers Anchor UHT milk products and its range of butter, cream, and cheese products in Hema. The in-store bakery uses Fonterra’s Anchor Food Professionals products in its items.

Hema Fresh’s CEO and Founder Hou Yi says he is excited by the strategic co-operation between the two companies.

“This co-operation between two powerful companies is set to redefine the concept of fresh milk in the new retail era. As a global leader in the dairy industry, Fonterra is well-known for quality milk pools, world-class breeding techniques and advanced experience in food safety and quality, which matches well with what we advocate.”

President of Fonterra Greater China Christina Zhu says the new product highlights how Fonterra’s business in China is leveraging the strength of its local milk pool, spread across three farming hubs.

“No other multinational dairy company in China has a local milk pool to draw from, so we are in an advantageous position.

“This milestone with Hema is a sign of things to come and indicates that our push to shift more of our local milk into higher-yielding consumer and foodservice products is well-and-truly under way.”

Disclosure: Tim McCready was a guest of Alibaba in China.