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China: Hard Discounter Hema NB - from Incubation to Independence

Discount retail chain Chao He Suan (formerly Hema) NB, owned by Alibaba, has launched its first store in South China. This move also marked the moment when the core team defined their product and expansion strategy. Chao He Suan NB has grown to a point where its organizational structure, product development, and supply chain operate largely independently.


"The notion that 'premium fruit goes to Hema Fresh (Freshippo) while mid-grade fruit goes to discounter Chao He Suan NB' is no longer accurate," said a representative from Chao He Suan NB.


To expand into South China, the brand established dedicated large-scale warehouses in Humen and Machong (Dongguan) supporting three temperature zones — ambient, chilled, and frozen — rather than relying on Hema’s existing infrastructure. Hema has now transitioned to a "Group" operation, with Hema Fresh and Chao He Suan NB acting as two independent business units driving growth.


1. "Pragmatic" Over "Down-Market": Positioning as a Community Value Supermarket

While the industry previously viewed Chao He Suan NB as Hema’s "hard discount" format for lower-tier markets, the brand has clarified its positioning: it is a community value supermarket for "pragmatic families."

  • Target Audience: Families who cook daily, are price-sensitive but quality-conscious, and refuse to pay for brand or packaging premiums.

  • The "NB" Identity: NB stands for "Neighbour Business," focusing on the "Neighbour" logic — rooted in the community to serve daily high-frequency needs.

  • Store Format: 600–800 sqm stores located primarily in "Community Malls" or neighbourhood storefronts.


2. The "3 Highs, 3 Lows" Business Model

Operating on the hard discount principle, the brand follows a "Three Highs, Three Lows" model:

  • High: Labour efficiency, Sales per sqm, and Product efficiency.

  • Low: Retail price, Gross margin, and Shrinkage/Loss. The store aesthetic is minimalist, featuring "Original Box Display" (selling directly out of shipping cartons) to strip out all unnecessary costs.


3. Product Logic: "Product First, Then Merchant"

The brand's core logic for Private Label (PL) development is "Product → Merchant → Supply Chain":

  1. Define the Product: Based on user research, determine exactly what the product should be.

  2. Find the Merchant: Identify OEM factories that can meet the quality and price standards.

  3. Tailored Supply: Create a dedicated, closed-loop supply chain. Currently, Private Label products account for nearly 60% of total sales.


4. Localization of Fresh Food vs. Scalability of Private Label (PL)

In the new South China stores, localized products account for over 40% of SKUs.

  • Local Taste: Includes Cantonese roast meat counters (Siu Mei) and local brands (Morning Star milk, Five Rams ice cream).

  • Local Supply: Leafy greens are sourced within 24 hours from farms in South China and Yunnan to meet the "freshness" demands of the local market.

  • PL Scaling: For non-perishables (laundry pods, snacks, craft beer), the brand leverages its national scale to improve quality while keeping prices flat. For example, their laundry pods upgraded from 3-chambers to 5-chambers with improved ingredients at the same price point.


5. Strategy: Offline-First and High Density

Chao He Suan NB prioritizes offline foot traffic over online delivery.

  • Why Offline? As platform subsidies disappear, online delivery becomes more expensive. Pragmatic customers are returning to physical stores for better "value-for-money."

  • Community Traffic: The brand focuses heavily on private traffic (community WeChat groups) and high-frequency repurchasing to ensure high inventory turnover and "daily clearance" of fresh goods.


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