Alibaba ramps up grocery chain biz with 3 new stores

Freshippo, the grocery retail chain of Chinese e-commerce giant Alibaba Group Holding Ltd, is adding three new membership stores next month, taking the total number of such stores to seven since debuting its membership-only warehouse chain in October 2020.

Dubbed Freshippo Business Group-X Wholesale Store (X store), the three stores will be set up in Shanghai, as well as Suzhou and Nanjing in neighboring Jiangsu province. This follows a recent addition in early December in Shanghai.

The slew of new openings features coverage from 16,000 to 20,000 square meters, each with around 3,000 stock keeping units－a rough calculation of items for sale in the retail lexicon, according to Freshippo, also known as "Hema "in Chinese.

Over 40 percent of products in the membership-only X store are the company's exclusive products, including those from Hema MAX, a private label of Freshippo that is loosely equivalent to Costco's Kirkland Signature and Member's Mark of Sam's Club.

"The proportion of merchandise carrying the 'Hema MAX' marquee has surpassed 30 percent in these new stores, up 10 percentage points from half a year ago," said Zhao Jiayu, vice-president of Freshippo and general manager of procurement and merchandising.

In the past few years, foreign retail giants like Costco and Sam's Club－both forerunners of the membership-only warehouse chain model－are flocking to set up a physical presence in China, riding the wave of the country's rapidly-expanding middle-income consumers aspiring for premium quality products at reasonable prices.

Continuous improvements have been made in the string of new stores, such as adding space for toys and apparel sections. But Zhao said Freshippo's competitive edge lies in its position of being "the membership store for Chinese".

"We emphasize sourcing locally, which not only satisfies the needs of Chinese customers but also helps merchants and even peasants in remote areas from the supply side," said Zhao, citing the example of cherry-picking premium agricultural produces from the nation's less developed regions.

It also gives full play to its strength in fresh seafood offerings, something that is iconic of the Freshippo system which debuted in 2016 and largely fills the void of wholesale chain outlets by Western brands.

Goods bought in the X store can be delivered within half a day to customers living within a 20-kilometer radius of the store. Products bought in other Freshippo stores can be delivered to customers living within a 3 km radius of another store and the delivery time can be as short as 30 minutes.

"Even in the bulk-buying model, we tend to market and pack products in a way that is more consumer-friendly," said Chong Xiaomeng, a director for public and client communication at Freshippo. "For instance, unlike our competitors selling cheese in large chunks, we roll out cheese bars, flake-lets or slices that can go with instant noodles and hot pots, making it something that can be simply consumed as a snack."

A crucial touch point is the employment of data to keep abreast of consumption trends and profiles of members, in which the X store system has amassed nearly 2 million in just over a year's time.

"For instance, we discovered in the latest trial runs that the average clientele in Suzhou is around 10 years younger than that of Shanghai," said Zhao. "This would in turn impact our daily operations from sourcing to product displays to service."

Retailers need to build holistic value propositions for high-value shoppers via membership programs. The membership-only model is still in its infancy in China, with more growth prospects expected not just from metropolises like Beijing and Shanghai but emerging first-tier cities such as Hangzhou over the next two to three years, said Jason Yu, general manager of consultancy Kantar Worldpanel in China.

"The competitive edge of Freshippo's X Whole Store is still embedded in its bespoke sets of solutions to meet local customer needs－represented by the half-day delivery and its sourcing strategy－while keeping customer sentiment as a marketplace that offers 'good value for money'," said Yu.