The Future of Grocery Has Arrived; Key Takeaways From the Success Of Alibaba’s Freshippo Supermarket

Alibaba’s founder Jack Ma poses with shoppers on a visit to a Freshippo store in Shanghai (Source: Alibaba Group)

When Amazon completed its acquisition of Whole Foods in 2018, people immediately began speculating about how the deal could revolutionize the world of grocery shopping. Amazon’s logistics and fulfilment capabilities combined with Whole Foods’ physical locations and grocery expertise could provide the company with the opportunity to develop a powerful omnichannel ecosystem and usher in the future of retail. However, while Amazon has been struggling to integrate Whole Foods in the race to this new paradigm, a brand in China has already crossed the finish line.

Hema Xiansheng, also known as Freshippo, is a futuristic grocery chain started in 2016 by ecommerce giant Alibaba that has already grown to over 100 locations across China and is raising the bar on what grocery shopping should look like. The brand is part of the “New Retail” movement, a term coined by Alibaba to describe a truly omnichannel shopping experience that blends digital and physical with a focus on the customer journey.

Freshippo stores have self-checkout kiosks that are fully integrated with the mobile app.
Freshippo stores have self-checkout kiosks that are fully integrated with the mobile app. Shoppers scan their personal QR code to initiate a customized checkout experience (e.g. being shown promotions they are eligible for). They can then scan their items at the kiosk and pay digitally through the app with a single click.

All product labelling at Freshippo is standardized, and a mobile app allows shoppers to scan any item and see product details in addition to value-added information like recommended recipes. From there, customers can check out and pay digitally through the app. Shoppers can also schedule a delivery rather than line up with their groceries in-store, and Freshippo locations double as distribution centers for local orders. Conveyor belts run along the ceiling and allow employees to pack delivery orders efficiently without disrupting the flow of foot traffic in the store. Adhering to the promise of a quick and easy experience, Freshippo uses the powerful Alibaba logistics network to guarantee free 30-minute delivery within a 3-kilometer radius.

Freshness is very important to Chinese consumers, and Freshippo uses this as a key element of its brand. Produce and meat are sourced from local farms on a daily basis—the store is full of signs that proudly announce that it never sells fresh food left over from the previous day, and the product barcodes allow shoppers to access detailed information on the origin and expiration date of each item. Each store also has an on-demand kitchen and dining area where shoppers can take their freshly selected ingredients to be cooked the way they want it and consumed on the spot.

This sign reads, “We do not sell meat that is left overnight.”
This sign reads, “We do not sell meat that is left overnight.”

Through the digitization of the entire shopping process, Freshippo can easily aggregate purchase data to predict customer demand and adjust its inventory balance on a daily basis. This addresses a major pain point in the grocery shopping experience, as customers never encounter a situation where their favourite product is out of stock. Meticulously managing inventory levels also allows Freshippo to maintain its practice of daily restocking, as it only has one day to sell fresh meat and produce before it is no longer considered fresh. This active inventory management reduces waste from unsold inventory and enables the brand to uphold its value proposition of providing the freshest foods on the market.

The success of Freshippo can provide several key takeaways for not only grocers but businesses in nearly every industry:

1. Think like a customer
Brands need to apply a customer journey lens to everything they do. The so-called battle between physical and digital channels represents a false dichotomy, as both fit into the bigger picture of making a customer’s experience as easy and valuable as possible. Taking on a customer journey-driven view rather than an internal process-driven one can uncover hidden pain points and key moments of truth that make or break the experience for customers.

2. Operationalize your brand
Delivering a brand’s promise through operations is crucial—Freshippo’s complex behind-the-scenes operating model is what enables it to make the shopping experience so simple and convenient for customers. At Level5, we refer to this as managing your brand as a business system™. Without building out the required operational capabilities, any amount of marketing investment will result in nothing but an empty promise.

3. Recognize the power of cultural differences
Cultural differences hold significant influence over behaviour, and customer journeys should be designed around these insights. These impacts are not only found overseas—visible minorities already comprise nearly a third of Canada’s total population. People tend to hold onto their cultural norms when they emigrate; for instance, many Chinese-Canadians continue to prioritize freshness by making high-frequency, low-volume grocery trips. Trying to fit all your customers into a cookie-cutter journey that does not factor in segment-specific nuances is a sure-fire way to drive them away.

There is no denying that this case study holds significant implications for the future of grocery, but what may be more important for managers are the broader business lessons it highlights. In a world that is becoming increasingly customer-centric, it is crucial for any brand to quickly adapt or risk becoming yesterday’s produce.

By Hua Yu, Managing Partner, Frank Zhang, Senior Consultant and Richard Wang, Analyst

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