Alibaba's Hema Supermarket Concept Merits A Longer Look at BABA Stock

I used to own a lot of shares in Alibaba Group (BABA). Now I only own a few after vastly reducing my exposure to the name once the trade war kept getting ratcheted up. I know it's likely to be a strong "throw the baby out with the bathwater" sort of story (Alibaba doesn't have much business in the US really), but I still don't like the look of massive inexplicable selloffs due to a bunch of retail freaking out and selling their China ETFs, which tend to hold a lot of BABA stock due to its name recognition, liquidity, and large market capitalization. But now I'm starting to reconsider my stance.

At last part of my reevaluation is based on Alibaba's new stores. I recently took my first trip to Alibaba Group's New Retail concept for grocery stores. It's called Hema (盒马), which means "Hippo" in Chinese. It often gets translated into Freshippo in the Western press. In actuality, the literal translation is he ma xiansheng, which means "Box Horse Fresh." The first two characters just kinda sound like the word for hippo, hence the logo. I had ordered from them dozens of times already before I entered their shop, which finally piqued my interest to venture into the malls of Shanghai that I generally loathe.

And boy was I impressed!

Just walking around the relatively small urban store (especially when compared to a Walmart Supercenter), you can see how offline integrates with online & warehouse integrates with retail in an almost seamless manner.

After a web order comes in to the store, individual shoppers fill cloth bags from the retail floor, then place them on this crazy overhead trolley to return the bag (and the freshly picked items within). I posted a video of that experience here. You can also get a sense of the innovation just by seeing how nonchalant the shoppers are about bags of groceries flying above their head!

The hanging bags zip through the retail space and onto a distribution point outside the retail footprint that delivery drivers on electric scooters can easily access. There's even a bunch of battery packs that drivers can access to make sure they are always on point. No need to stop for gas!

The result is mesmerizing.

And incredibly efficient.

They seem to have engineered an innovative picking & packing technique at Hema powered by Alibaba's penchant for 020 and New Retail concepts.

The retail footprint is really quite small, much of which is dominated by fresh seafood offerings, like this 1100-yuan King Crab.

But there is still enough room for a restaurant (they'll cook the crab for you there!), a bakery, fresh fruit & vegetables, produce, and aisles and aisles of fast moving consumer goods (FMCG) thanks to the removal of cumbersome cash register aisles that are replaced by 4 face-scanning self-checkout kiosks.

Warehouse workers are constantly walking through the store, grasping cloth bags that they are always filling to satisfy online orders. Once full, they place them on a conveyor belt to a delivery point in the rear of the building.

At Hema, electric scooter drivers are available to take the order (for free!) anywhere within a 3-km radius.

When people talk about how far behind China is in terms of AI and logistics, just tell them about Hema. If you're anything like me, you will be amazed at the efficiencies all these technologies brought together by one single team hath wrought.

All in all, it’s quite an operation to observe first-hand! The wife and I even bought some eggs & bread whenever we went the. We now are considering purchasing a 288-yuan annual membership (think Amazon Prime), which unlocks daily deals and discounts via the Hema app. But definitely the next time we buy eggs & bread from Hema, we are doing it online!

Which leaves us with some worthy questions:

How often do you think you would shop at Hema - either online or offline?

Question for the spreadsheet set: How much of Alibaba's recent boffo quarter has to do with the increasing traction of Hema, do you think?

Please let me know what you think in the comments below!