Meituan's Xiaoxiang Supermarket to Open Offline Stores, Potentially Competing with Hema Fresh's Large-Store Model | Exclusive

Text | Ren Cairu

Editor | Qiao Qian  Yang Xuan

36Kr has learned from multiple independent sources that Meituan's Xiaoxiang Supermarket has restarted its offline business. Initially, the exploration direction of the store format was benchmarked against Hema's community store brand "Hema NB". Recently, a large - store model similar to "Hema Fresh" has also become a possibility. This business is still in a relatively high - level confidential state within the company.

According to 36Kr, Xiaoxiang Supermarket has currently launched the recruitment for relevant positions such as engineering and operation for its offline business. Among them, the person in charge related to the middle - platform for "outputting the operation SOP of national chain stores" is required to have a background as a headquarters staff member in national chain formats such as catering, convenience stores, and delivery stations.

36Kr verified the above information with Meituan, and the other party said it would not respond.

This is Meituan's second foray into the offline market after nearly eight years.

Meituan's exploration of offline retail initially went hand in hand with the general trend of "new retail". In 2016, Alibaba launched "Hema Fresh". To understand its business model and analyze its cost structure, Meituan sent more than a dozen teams to Shanghai for inspections. After their return, Meituan invested heavily in fresh produce and opened its first offline store, "Zhangyu Fresh", in July 2017.

About a year later, as the new retail boom became more intense, "Zhangyu Fresh" was upgraded to "Xiaoxiang Fresh", and a total of seven stores were opened in Beijing, Wuxi, and Changzhou. Other players in the same period included JD Seven Fresh, Yonghui Super Species, and BBK Fresh Food, etc. They all used high - end seafood products such as live Boston lobsters as an attraction to draw consumers into the stores, and also provided online ordering and delivery services. Their eye - catching stores also served as "traffic entrances".

At that time, Meituan was also optimistic about Xiaoxiang Fresh and planned to open 20 stores in a year. However, the reality soon hit the brakes - in April 2019, five Xiaoxiang Fresh stores in Wuxi and Changzhou were closed.

From this attempt, Meituan learned that "high - end fresh produce is a gimmick but not a rigid demand and difficult to scale up". Without large - scale orders, it also means that high costs are difficult to spread. This might have been a "common problem" in the new retail era at that time, and the other players mentioned above also experienced significant declines or announced failures during the same period.

"Xiaoxiang initially just 'copied Hema'," a former Hema employee summarized to 36Kr. "But at that time, there was no mature supply chain for goods, and it didn't combine with the traffic advantage of food delivery. Relying solely on offline traffic was not their strength."

The lack of offline management ability, combined with the "misjudgment of demand" in the hot external market, made Meituan quickly adjust its direction after the offline setback. It targeted categories with more definite rigid demand attributes such as fruits and vegetables, meat and eggs, and grains and oils, and returned to the online market. In 2019, it launched "Meituan Grocery" in Beijing and Shanghai, positioning it as the "mobile shopping basket" for community residents. This business has gradually expanded beyond the fresh produce category and become today's "Xiaoxiang Supermarket".

Today, when Xiaoxiang Supermarket goes offline, the situation has changed. "Both the external market environment and Xiaoxiang itself have changed greatly," a former Xiaoxiang Supermarket employee said. "Xiaoxiang has achieved its current status in instant retail. It leads in terms of market share, product capabilities, and user recognition in the online channel. Why not expand further?"

One way to expand is to horizontally "open new cities". Beyond the mature Beijing - Tianjin - Hebei, Pearl River Delta, and Yangtze River Delta regions, Xiaoxiang Supermarket recently officially opened in Changsha and further expanded to Central China. Another way is to vertically "go offline", and breaking the boundary between online and offline is what various players are doing. JD's "JD Seven Fresh" announced that it will comprehensively speed up the construction of warehouse - stores. By the end of June this year, it will add 20 warehouse - stores in the Tianjin area, and there are also plans for areas such as Beijing. Hema restarted its front - warehouse business in August last year because "in cities where Hema stores are already very dense, there are still some areas that the fresh stores cannot cover for the time being".

Seven Fresh, Hema, Sam's Club, etc. are all leveraging their offline store advantages to expand online, while Xiaoxiang Supermarket is doing the opposite.

Looking at the current market environment, offline retail is in a new reshuffle period. Traditional supermarkets such as Walmart, Carrefour, and Yonghui have either faded out of the Chinese market or are struggling to make adjustments. These former "benchmarks" now regard Sam's Club and Fat Donglai as new learning models. They are no longer just simple "channels" but are reconstructing their product capabilities and supply chains, returning to cost - effectiveness, and clarifying their target customers and positioning.

"But there isn't a particularly mature 'new king' emerging yet, and the online competition is also becoming increasingly fierce, with costs not lower than those offline," a person close to Meituan said. "The main categories online are still fresh produce and FMCG, and these categories don't have much profit margin. If this continues, the overall gross profit will be relatively thin."

In terms of actual figures, it's indeed not easy for front - warehouse models to make a profit. After years of cultivating user awareness and consumption habits, Dingdong Maicai finally achieved full - year profitability under GAAP standards for the first time in 2024. Pupu Supermarket also achieved annual profitability for the first time in 2024. Xiaoxiang Supermarket is currently on the verge of break - even or making a small profit. The above - mentioned person said, "If Xiaoxiang doesn't go offline, the only source of growth will be opening new cities, and expanding into all categories will take longer."

Beyond the external environment, in terms of capabilities, Xiaoxiang Supermarket has formed a "sky net" based on the Meituan/Xiaoxiang app and a "ground net" based on front - warehouses and the delivery system. Its supply chain is also mature enough, which can be "backed" by its business scale. At the supply chain conference in March 2023, Zhang Jing, the then - person in charge, revealed that Xiaoxiang Supermarket's sales had increased 50 times in four years. According to media reports in 2024, Xiaoxiang Supermarket's annual GMV was close to 30 billion yuan. According to "Business Observer", in terms of order volume, Xiaoxiang Supermarket is already the number one player in China's self - operated front - warehouse fresh produce home - delivery market.

"But there are also drawbacks or risks," the above - mentioned person close to Meituan said. "Meituan doesn't have a gene for offline operations over the years. Whether it can find the right 'people' and whether the people it finds can successfully integrate are important variables." In addition, it's more difficult to break even with large stores.

However, there is hope when looking at its benchmark, Hema. At the end of 2024, Hema CEO Yan Xiaolei issued an internal letter announcing that Hema had achieved double - digit growth on the basis of nine consecutive months of overall profitability. During this year, Hema's business direction became clearer. It cut off various business formats and store types with low user recognition and focused its strategic priorities on two major formats: Hema Fresh and Hema NB.

Among them, Hema Fresh added 72 new stores throughout 2024. Most of the stores that have been in operation for more than a year have achieved positive cash flow and are currently continuing to penetrate the market as the main format. Hema NB is positioned as a "community supermarket", with a smaller area and generally cheaper products. Its goal is to expand market share. According to Jiutian Middle - platform Minutes, "Both store types adopt a centralized procurement supply - chain model, but the product grades are different. First - and second - grade products enter standard stores, and third - and fourth - grade products enter outlet stores."

Regarding the specific store type, why does Xiaoxiang Supermarket look at Hema Fresh in addition to Hema NB?

It is reported that Hema NB currently only has stores in Shanghai and Zhejiang, and most of them are located next to vegetable markets or mature residential areas. "The customer base of Hema NB is too 'niche', and Xiaoxiang hopes to target a different customer base and is still wavering," an employee of Xiaoxiang Supermarket told 36Kr. "Moreover, some Hema NB stores with good locations have good business, while those with poor locations are still losing money."

"This community - supermarket format has higher requirements for the supply chain and truly requires large - scale volume to drive down prices," a former Xiaoxiang Supermarket employee told 36Kr. "Hema NB has a high proportion of private - label products and stronger bargaining power in the supply chain. Its supply chain is actually not inferior to that of Hema's large stores. Relatively speaking, this is Xiaoxiang's disadvantage." In addition, it's relatively easier for large stores to expand into community stores, while the opposite is more difficult. "The customer bases of the two store types are different. Occupying the high - end customer base first will offer more possibilities in the future."

The last time Meituan benchmarked against Hema, it didn't succeed. During the internal review, Meituan's senior management unanimously believed that "the conclusion drawn from the early inspections was too hasty, and the model of Hema Fresh's Shanghai Jinqiao store was too optimistic and difficult to replicate." As time has passed, Hema has survived through continuous self - adjustment, and Xiaoxiang's rapid growth has verified the fit between its products and current consumer demand. Perhaps this second attempt will have a different outcome.