(Yicai) Nov. 23 -- Alibaba Group Holdings's Freshippo, also known as Hema Fresh, will open new stores at a faster pace and price its goods more competitively next year, according to the grocery chain’s chief executive officer.

Freshippo had its fastest expansion last year, opening more than 60 physical stores, Hou Yi said at a company event yesterday. The Shanghai-based firm will further raise efficiency by re-building its vertical supply chain and making organizational changes as it focuses on competitive pricing, he added, without disclosing how many outlets will be opened next year.

The operating costs of brick-and-mortar stores are fixed and limited, Hou noted. It is inevitable to see online traffic and logistic costs increase proportionally with the growth of scale, he said.

Earlier this year, Freshippo kicked off a price war against membership-only warehouse retail chain Sam's Club in China after introducing 'mountain-moving' low prices to attract consumers. It also adjusted various product pricing strategies to entice shoppers to its physical stores. 

Freshippo is advancing its partnerships with suppliers, including original equipment and original design manufacturers, joining their production processes to squeeze inflated costs by driving operational efficiency and product strategy changes. But faced with more powerful key account brands, the firm’s control and bargaining power is inevitably weaker.

Key account brands such as Coca-Cola will remain at Freshippo, said Zhang Yu, director of the supermarket’s finished products division. The firm will lean toward more OEM tie-ups, with these goods given a higher priority, he added, noting that all of its products will likely come from OEMs in the future, beginning with fresh items before gradually expanding to more categories. 

Demand highly cost-effective products is growing among China's middle class, said Zhang Yibo, a managing director at Boston Consulting Group. This group is becoming more rational in its buying behavior, so discounted goods will become a crucial blue ocean area for retailers, he pointed out. 

Editors: Shi Yi, Martin Kadiev