A Study on Differentiation Strategies Adopted by Hema Fresh Under

the Impact of Community Group Buying

Xuchao Yang

School of Economics and Management, Beijing Jiaotong University, Weihai Campus,

Modern Road, Wendeng District, China

Keywords: Community Group Buying, Hema Fresh, New Retail, Differentiation Strategy.

Abstract: In recent years, the emerging retail model-community group buying is rapidly rising, relying on the “pre-sale

+ self-pickup” low-cost mode of operation to expand the market, gradually posing a threat to traditional retail

enterprises. This paper takes Hema Fresh, a representative of the new retail industry, as the research object,

and discusses how it can maintain market competitiveness through a differentiation strategy under the impact

of community group buying. This study combines case study and comparative research methods to compare

the differences between Hema Fresh and community group buying in terms of business model, user

positioning, and cost structure. It is found that Hema Fresh has built a unique supply chain through the

business model of “fresh food + catering”, scenario-based layout of commodity services, global direct picking

and order agriculture, as well as precise operation and membership grading system relying on big data, which

has effectively improved user stickiness and brand value, and avoided the dilemma of price war. This paper

provides feasible strategy suggestions for the adjustment of the business model of new retail enterprises in

the new industry environment.

1 INTRODUCTION

Under the background of the retail industry entering

into deep digital operation and consumer upgrading,

the traditional retail model industry is undergoing a

profound structural reform. Since Alibaba first put

forward the concept of “new retail” in 2016, China's

retail market has begun a new exploration of the deep

integration of O2O online and offline, a

comprehensive layout of the supply chain, and the

scenarioization of user experience in offline stores

(Zhang, 2016). At the same time, with the continuous

differentiation of public consumption demand and the

rise of the sinking market, a new retail model based

on community-wide, Internet-based group ordering -

community group buying has rapidly risen in China,

becoming an important part of the current retail

consumption. Community group buying greatly

compresses the cost of sales through the form of “pre-

sale + self-pickup” and relies on the community

group leader model to obtain users with low-priced

goods, which has rapidly captured the market in third

tier cities and especially ushered in an exponential

https://orcid.org/0009-0005-7386-7486

growth during the COVID-19 epidemic (Zhang and

Luo, 2023).

However, the rise in community group buying has

not only brought about the diversification of retail

channels but also posed a huge impact on traditional

new retail brands. As a representative of Alibaba's

new retail brands, Hema Fresh has been established

in first- and second-tier cities since 2016, creating a

new era of fresh food supermarkets with the model of

“fresh food supermarket + in-store catering + high-

speed delivery”. In the face of the low price of

community group buying platforms and wide

coverage of marketing weapons, Hema Fresh how to

maintain its own market share and brand value

through differentiation strategy, has become a

question worth exploring in depth. In this paper,

under the title of “Research on Differentiation

Strategy of Hema Fresh under the Impact of

Community Group Buying”, we analyze Hema

Fresh's coping strategies in terms of supply chain

mastery, user experience development, and data-

driven operation by using a case study and

comparative study method. At the same time, this

Yang, X.

A Study on Differentiation Strategies Adopted by Hema Fresh Under the Impact of Community Group Buying.

DOI: 10.5220/0013847400004719

Paper published under CC license (CC BY-NC-ND 4.0)

In Proceedings of the 2nd International Conference on E-commerce and Modern Logistics (ICEML 2025), pages 471-476

ISBN: 978-989-758-775-7

471

study analyze the differentiation strategies of famous

global retail brands such as Whole Foods in the

United States and Aldi in Germany in the context of

overseas markets, and discuss the transformation

logic of traditional retail enterprises in the new wave

of consumption.

Looking around the world, differentiation strategy

is a must for every retail enterprise. Differentiation is

an important means for enterprises to cope with the

challenges of price wars and increasingly diversified

consumption patterns. Take Whole Foods in the US

as an example, the brand targeted its sales at the

organic and healthy food market, strengthened its

supply chain control and customer experience, and

successfully established a high-end supermarket

brand image, which was eventually acquired by

Amazon to strengthen its fresh food distribution

network (Kumar and Steenkamp, 2022). German

discount retailer Aldi has gained significant market

share globally through its minimalist SKUs, efficient

supply chain synergies, and seldom-experienced low-

price strategy, and has developed solid brand loyalty,

especially among price-sensitive groups. In the

Chinese market, Hema Fresh has chosen a

differentiated path of not directly participating in

price competition in the face of a community group

buying model with significant price advantages and

lower selling costs. The essence of new retail is to

reconstruct “people, goods, field”, Hema Fresh is

precisely through the scenario-based consumer

experience (such as “ready to buy, ready to process

and consume” dine-in dining area, parent-child

interactive experience), self-built supply chain, and

global direct sourcing (such as the “Hema Village”),

Hema Fresh has become the most popular brand in

China. “Hema Village” model and direct sourcing of

Norwegian salmon and Thai durian, etc.), and data-

driven accurate membership grading system, to

establish a strong consumer barrier (Zhang, 2016).

Meanwhile, in order to cope with the sinking market,

Hema Fresh has explored a variety of business

layouts, such as “Hema mini”, which covers the

community, and “Hema X”, a warehouse-type

members' supermarket, to flexibly cover different

consumption levels and living radii.

The explosive growth of community group

buying after the epidemic shows that consumers'

demand for convenience and price sensitivity has

risen, while also exposing problems such as difficulty

in controlling the quality of goods and unstable

fulfillment experience (Zhang and Luo, 2023). This

provides room for Hema Fresh, which takes

advantage of high-quality goods and an efficient

supply chain, to differentiate itself from the

competition. Hema Fresh has further strengthened

user stickiness and repurchase rate through full

supply chain control, differentiated SKU creation and

digital inventory management (Zhang et al., 2024).

In summary, this paper will focus on the

development status of community group buying, the

competitive environment and challenges faced by

Hema Fresh, analyze the implementation of its

differentiation strategy, and put forward strategic

recommendations for the sustainable development of

future-oriented new retail enterprises.

2 DEVELOPMENT STATUS OF

COMMUNITY GROUP BUYING

With the rapid development of mobile internet and

social media, as well as the continuous advancement

of supply chain management technology, China's

retail industry has experienced radical changes in the

past decade. In this process, community group buying

has rapidly emerged as an emerging retail model and

become an important force in retail channel

innovation. Community group buying is mediated by

microblogging groups and social networking tools,

with “group leaders” acting as nodes, organizing

community residents to make collective reservations,

and greatly compressing the logistics and distribution

costs of traditional retailing through centralized

purchasing, distribution, and self-pickup modes

(Zhang and Luo, 2023). This model not only

improves supply chain efficiency and reduces

operational costs but also has high customer

acquisition efficiency and stickiness through word-

of-mouth effects.

Community group buying has shown strong

penetration especially in China's third- and fourth-tier

cities. Because of the relatively weak traditional retail

infrastructure in these areas, high price sensitivity of

consumers, and close community relations,

community group buying has quickly won a wide

range of user groups by virtue of low prices,

convenience, and acquaintance economy. The

essence of this model is the redefinition of the

relationship between “people, goods and venues” -

consumers no longer rely on traditional shopping

malls, but through social networks to achieve online

daily consumption and go to the store.

According to the data released by Avery

Consulting (2023), China's community group buying

market scale has exceeded RMB 100 billion in 2021,

with 646 million users and an annual growth rate of

over 37%. Especially during the COVID-19

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epidemic, community group buying achieved

explosive growth due to the unique advantage of “no-

touch delivery” as offline consumption was restricted

and residents' demand for no-touch shopping surged

(Zhao et al., 2021). At the peak of the epidemic, some

leading community group buying platforms, such as

Meituan Youxuan and DuoDuo Grocery, once

exceeded 10 million orders in a single day,

dramatically changing people's shopping habits and

lifestyles.

However, despite the strong potential and growth

of community group buying, it has also revealed a

series of structural problems. First, due to the fierce

competition in the market, major platforms have

seized users through price subsidies and promotions,

resulting in a profitability model that relies heavily on

capital transfusions and questionable long-term

sustainability (Chen and Huang, 2022). Many small

or emerging platforms were eliminated from the

market in a short period of time because they could

not afford the high customer acquisition and

operating costs. In addition, for the sake of rapid

expansion, some platforms have insufficient ability to

control the quality of goods and lose supply chain

management, resulting in problems such as fresh

goods not being fresh and unclear sources of goods,

which weakened the trust of some users.

Secondly, community group buying is highly

dependent on the organization and mobilization

ability of the group leader. As an important

intermediary linking platforms and consumers, group

leaders' service quality and personal credibility

directly affect user experience (Xu and Deng, 2022).

Once the leader is replaced or his or her service ability

decreases, it is very easy to lose users. Therefore,

platforms have invested heavily in managing, training

and motivating tour leaders, but it is still difficult to

completely solve the contradiction between

standardization and scale expansion. This reliance on

individual group leaders makes community group

buying always have the hidden problems of low

management efficiency and quality fluctuation in the

process of development.

Overall, although community group buying has

gained a large number of users and transaction scale

in a short period of time through the ultimate price

and convenient experience, there are still obvious

shortcomings in supply chain stability, commodity

traceability and safety, brand building and user

loyalty. This provides a strategic opportunity for

traditional retailers, especially the representatives of

new retailers, such as Hema Fresh, who have

advantages in quality, experience and supply chain

control, to realize a breakthrough through

differentiated competition.

3 THE CURRENT SITUATION

AND CHALLENGES OF HEMA

FRESH

Since its creation in 2016, Hema Fresh, as an

important layout of Alibaba Group's “new retail”

concept, has quickly become an important

representative of China's new retail transformation.

The core of new retail is to break the traditional online

and offline split model, using big data, artificial

intelligence and other new technological means to

reconstruct the relationship between “people, goods

and field”, in order to achieve a more efficient and

better quality of consumer experience (Li and Wang,

2021). In this context, Hema Fresh innovatively

integrates fresh food supermarkets, catering

experience and instant delivery service, creating a full

chain consumption scene integrating shopping,

catering and delivery, which greatly improves user

experience and shopping efficiency.

By the end of 2022, Hema had 329 stores in 27

major cities across the country (Alibaba Group,

2022), with store locations mainly in the core

business districts and communities of first tier and

new first-tier cities, forming a network system of 30-

minute high-speed delivery within a radius of 3

kilometers.

Hema's core competitiveness is centered on three

major aspects. The first is the global fresh food direct

supply chain, which ensures the freshness and quality

of fresh goods by establishing direct supply

relationships with overseas farms, fisheries, orchards,

etc.; the second is the highly efficient digital

operation system, which relies on Alibaba's cloud

computing and big data capabilities to achieve

accurate inventory management and intelligent

replenishment; the third is the scenario-based and

diversified consumer experience design, which

breaks the limitations of a single shopping scenario of

traditional supermarkets and makes shopping a

unique experience that combines dining, socializing,

experience, and entertainment. It has become a

lifestyle that combines dining, socializing and

experiencing.

However, in the context of the strong rise of

community group buying, the development of Hema

Fresh has gradually exposed a series of serious

challenges.

A Study on Differentiation Strategies Adopted by Hema Fresh Under the Impact of Community Group Buying

473

The first is cost pressure. Hema adheres to the

instant delivery service, which it greatly improves the

customer experience, but it also brings much higher

fulfillment costs than traditional retail and

community group buying platforms. According to

statistics, Hema's instant delivery and scene

operation-related costs account for more than 15% of

its total revenue (Chen and Huang, 2022), while the

fulfillment cost of community group buying is only

about one-third of that of Hema's, thanks to its “pre-

sale + self-pickup” model. This high-cost structure

creates a huge contradiction between scale expansion

and profit balance, exacerbating Hema Fresh's

response pressure.

Second is the risk of user loss. As community

group buying platforms have attracted a large number

of price-sensitive users through large-scale subsidies

and low price strategies, some low- and mid-range

consumers have begun to flow to group buying

platforms, leading to a slowdown in the user growth

rate of Hema Fresh in the first- and second-tier city

markets where it was originally rooted (Deng and Ma,

2022). Community group buying meets users' high

demand for cost-effectiveness, while Hema is

positioned in the mid-to-high-end market with a high

customer unit price, which to a certain extent

undermines its attractiveness to price-sensitive

consumers and poses the risk of potential user

diversion.

The third is the lack of penetration of the sinking

market. Community group buying has expanded

rapidly in third- and fourth-tier cities and the

following cities with a flexible social network

penetration model, quickly filling the traditional retail

gap area. On the other hand, Hema Fresh, due to its

more asset-heavy model (which requires standardized

store construction and cold chain distribution

system), stores are mainly laid out in Tier 1, Tier 2

and new Tier 1 cities, resulting in its low coverage in

the sinking market (Xu and Deng, 2022). In the face

of the huge consumption potential and growth space

in the sinking markets, Hema has not yet established

an effective localized operation system and

lightweight expansion mode.

Finally, the profit model is limited. Hema sells

high-quality fresh food and instant service, but the

“three highs” structure of high rent, high labor costs,

and high fulfillment costs has put long-term pressure

on its overall profitability (Zhu and Li, 2023). During

the epidemic, consumers' willingness to consume

declined and the fluctuation of offline traffic

increased, further increasing the difficulty of Hema's

store operations in terms of break-even. Although

Hema attempted to reduce costs and increase

efficiency by launching a variety of formats such as

Hema mini and Hema X member stores, the overall

profitability model needs to be further optimized and

validated.

Although Hema Fresh has achieved initial success

in the field of new retail, creating a new model of

online and offline integration and experiential

consumption, in the face of a new round of price wars

brought about by community group buying and the

trend of market sinking, Hema still needs to further

strengthen its own differentiated competitive

advantages through strategic adjustments and

innovative exploration, in order to achieve

sustainable development in the future competition.

4 HEMA FRESH'S

DIFFERENTIATION

STRATEGY

4.1 Scene Experience Innovation:

Enhancing User Stickiness

Hema Fresh has shifted from a single-store format to

a lifestyle experience by constructing consumption

scenarios, creating multiple services such as a

seafood cooking area, a live baking area, and a parent-

child interactive space (Zhang et al., 2024). This

experience-centered strategy effectively raises the

customer unit price and repurchase frequency,

forming a competitive barrier that is difficult to

replicate by community group buying.

Whole Foods in the U.S. has successfully shaped

its image as a high-end supermarket by strengthening

its consumer experience and lifestyle culture,

focusing on its organic and sustainable food supply

chain, creating a “healthy and environmentally

friendly” consumer atmosphere, and enhancing the

user's sense of belonging by means of on-site cooking

and community activities (Kumar and Steenkamp,

2024). Kumar and Steenkamp, 2022). Hema Fresh's

experience innovation is similar to Whole Foods'

differentiation path.

4.2 Global Supply Chain Integration:

Ensuring Commodity Power

In order to ensure the quality of commodities and

supply chain stability, Hema Fresh has built a global

direct sourcing system, establishing direct

cooperation with more than 100 countries, such as

Norwegian salmon, Thai durian, etc., to realize

efficient supply chain control (Alibaba Group, 2022).

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Meanwhile, Hema has built its own “Hema Village”

order agriculture base to promote the standardization

of agricultural products and reduce intermediate

circulation losses.

Similarly, Germany's Aldi supermarket has

achieved both high quality and low cost through

global sourcing and extreme supply chain

streamlining, which has greatly improved operational

efficiency and profit margins by controlling the

number of SKUs (usually about 1,400 items) and

long-term stable supply chain partnerships (Gielens

and Steenkamp, 2019). Hema Fresh is taking a path

to its own efficient commodity strategy through

supply chain innovation.

4.3 Data-Driven Operation: Precision

Marketing and Inventory

Optimization

Relying on Alibaba's powerful big data capabilities,

Hema Fresh has achieved precise analysis of user

consumption behavior, dynamic pricing, intelligent

replenishment and personalized management of

membership rights (Deng and Ma, 2022). By

predicting demand fluctuations through AI, it adjusts

prices and promotional strategies in real time and

discounts in the evening, increasing inventory

turnover by more than 20% and effectively reducing

operational risks.

In addition, the membership grading system is

also the key to its differentiated competition.

Launching programs such as Black Gold Membership

and Hema X Membership Store, giving members

exclusive rights and benefits (e.g., customized goods,

free delivery, and exclusive discounts), effectively

increasing the consumption frequency of high-value

customers (Sun and Zhou, 2023).

4.4 Multi-format Layout: Adapting to

Segmented Market Demands

Hema has flexibly laid out Hema mini (small

community stores) and Hema X member stores (high-

end warehousing supermarkets) for different cities

and consumption levels, forming a multi-level and

wide-coverage retail network (Li and Wang, 2021).

This strategy helps to capture the opportunities in the

sinking market of community group buying, while

holding on to the mid-to-high-end customer base in

Tier 1 and Tier 2 cities. In the sinking market,

community group buying is expanding rapidly due to

its low-price strategy and convenient community

pick-up mode, which is impacting the traditional

fresh food retail. Hema Fresh has keenly captured the

consumption characteristics and needs of the sinking

market and launched Hema mini, a small community

store format. Hema mini is characterized by “small

and precise”, with a store area of about 300-500

square meters, and its location is close to the

community and deep into the residents' living circle,

which greatly shortens the distance to consumers and

meets the high demand for convenience in the sinking

market (Tian et al., 2024a). Facing the middle- and

high-end customers in first- and second-tier cities,

Hema X member stores provide consumers with high-

quality and cost-effective shopping experience by

positioning themselves as high-end warehousing

supermarkets, effectively holding on to the middle-

and high-end market share. Hema X member stores

are large in size, usually over 10,000 square meters,

with spacious shopping space and sufficient

merchandise stock, creating a comfortable shopping

environment (Song et al., 2023).

5 CONCLUSION

To summarize, under the market environment of

explosive expansion of community group buying and

intensified price war, Hema Fresh has successfully

avoided direct low-price competition with

community group buying platforms through scene

experience innovation, global supply chain

integration, data-driven precise operation and multi-

industry layout, and established a composite

competitive strategy centered on quality, experience,

technology and brand. Drawing on the successful

experience of Whole Foods and Aldi and other

international retail giants in differentiation strategy,

Hema's practice shows that traditional retail

enterprises in the process of new retail transformation,

the only way to be invincible in the competition is to

adhere to the simultaneous improvement of

commodity power, experience and digital capabilities.

In the future, Hema Fresh needs to further deepen

the layout of the sinking market, strengthen the

supply chain traceability system, enhance the

stickiness of the membership system, and explore the

new mode of retail + technology + service deep

integration, in order to continue to lead the change in

the evolving retail ecology.

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