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COVID-19 Headwinds Lead Freshippo To Cut Valuation

July 25, 2022

Alibaba-owned supermarket chain Freshippo has cut its fundraising valuation to $6 billion, down from $10 billion earlier this year, Reuters has reported, citing unnamed sources familiar with the company’s efforts to raise capital.

Freshippo, which is called “Hema” in Chinese and widely referred to as Hema or Hema Fresh in English, is known for its delivery-centric business model. Every store offers delivery, usually in less than 30 minutes, to customers living within a few kilometers. Driven by substantial investment from its parent company, Freshippo has grown into one of China’s largest supermarket chains since it was founded in 2015. The company now has over 300 stores in dozens of cities across China.

But Freshippo is also widely thought to be a lossmaking operation, with only certain high-volume locations turning profits, which are offset in the aggregate by losses from the majority of stores. According to Reuters, the recent drop in valuation was driven by the impact of COVID-19 in China — and particularly by the monthslong lockdown in the economic hub of Shanghai this spring. Shanghai is Freshippo’s largest market.

Freshippo is seeking to raise $400 million to $500 million from outside investors, according to the unnamed sources. Other sources stressed that the fundraising was not finalized and the terms were subject to change, while another indicated that the company had adequate cash flow and was not under immediate pressure to raise new capital.

In January, Freshippo CEO Hou Yi sent an internal email laying out a strategy for moving from single-store profitability to comprehensive profitability. Then, in May, the company announced a round of layoffs mainly aimed at trimming regional purchasing and operations staff. Freshippo has also continued to close outlets of its Freshippo NB (Neighborhood) small-format, self-checkout concept. At the same time, the company has pushed forward with other new concepts, such as its discount-focused Freshippo Outlet brand, of which 40 stores have already been opened around China.

According to industry analysts, Freshippo’s most profitable brand is its Freshippo X membership stores. However, the growth of this business model has not been as fast as anticipated.

Image: Hema

This article was translated from Chinese. Read the original article.

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