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Business

China's revolutionary O2O supermarket chain

Hema Xiansheng stores a hybrid of online and brick-and-mortar

Overhead conveyor belts carry goods for delivery at Hema Xiansheng’s supermarket in Hongqiao, on the outskirts of Shanghai.

Hema Xiansheng, a Chinese online-to-offline, or O2O, fresh food startup is racing ahead amid reports of slumping sales at general merchandise stores in the country.

The company has steadily expanded its network of brick-and-mortar supermarkets since it opened its first outlet in early 2016, and is doing so while pursuing a revolutionary, cost-conscious O2O business model.

Hema Xiansheng was founded by Hou Yi, a former top official at JD Logistics. Chinese e-commerce giant Alibaba Group Holding bought into the company soon afterward and it currently operates seven outlets in Shanghai, one in Ningbo and plans to open a new store in Beijing this year.

As soon as you walk into the Hema Xiansheng supermarkets in the Shanghai suburb of Hongqiao, you hear an unfamiliar metallic clanging and rattling.

In addition to shoppers, employees hurry around the store with mobile devices, picking up vegetables and other products from the shelves and stuffing them into shopping bags.

The employees then put the shopping bags on hangers and at the touch of a button, the bags are lifted toward the ceiling and swept off by overhead conveyor belts.

Effectively, the company's offline stores double as the warehousing, sorting and delivery centers for its online supermarket.

Shoppers at the physical stores can also have their purchases delivered to their homes. If they live within a 3km radius, their shopping can reach their home in as little as 30 minutes.

Hema Xiansheng stores do not accept cash. Payments have to be made through Alibaba's Alipay app. Using a cashless payment system means the company can gather consumption data from both physical and online supermarkets to track and analyze customer behavior.

Price tags at the stores are also digital, meaning prices shown at brick-and-mortar stores and on the app can be changed simultaneously.

Perhaps the most eye-catching section of each store is the fish counter. Shoppers can purchase live king crabs, lobsters and just about any other kind of fish from the tanks, have them cooked on site and eat them in the dining area.

Kosuke Okame is a Shanghai-based business and market research consultant.

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