Overview of Missfresh

From a distance, the main distinguishing factor among instant grocery delivery services appears to be their branding, with Missfresh's signature color being hot pink. The company shares similarities with its Western counterparts like Getir, GoPuff, and Jokr.

Founded in May 2015, Missfresh operates numerous mini-warehouses in urban areas of China, each housing approximately 4,300 stock-keeping units (SKUs). These locations are designed for rapid delivery within a limited area, focusing on fresh produce and essential consumer goods. The aim is to achieve quick delivery times of about 35-40 minutes, hoping to encourage repeat purchases. However, the industry has struggled to achieve profitability without resorting to heavy promotions.

With over 620 mini-warehouses in 17 major Chinese cities, including Beijing and Shanghai, Missfresh primarily targets a younger urban demographic, with half of its clientele aged 26-35 and a third between 36-45. Being publicly traded offers a transparency that private firms like Getir and GoPuff lack, allowing for scrutiny of its financials.

The Financial Struggles

Similar to its Western peers, Missfresh saw rapid growth but failed to achieve profitability. Founded by former Lenovo executive Xu Zheng, the company benefited from a venture capital environment favoring rapid scaling over sustainable practices. After raising over $1 billion, Missfresh went public on the Nasdaq in June 2021, debuting at $13 per share, which quickly fell by over 25% on its first day. By late July 2022, shares were trading for less than a quarter of their IPO price.

The grocery delivery sector is notably capital-intensive, requiring substantial investment to build and maintain a network of mini-warehouses and delivery fleets. The need for high volumes to offset slim profit margins complicates the situation. Missfresh struggled to find the necessary scale and efficiency, joining the ranks of many failed ventures in this sector.

In late July 2022, Missfresh shut down its same-day delivery service, which represented about 85% of its revenue, leading to mass layoffs. By early August, the app ceased taking orders, leaving suppliers and former employees protesting unpaid invoices and wages. Amid mounting issues, the CEO vanished from the public eye.

The Final Stages

Missfresh's financial troubles were exacerbated by its reliance on external funding. A crucial $30 million investment from Shanxi Donghui Group fell through, leading to a further decline in operations. Since 2019, the company had been shrinking its footprint, reducing its number of mini-warehouses from over 1,500 to 631 by the time of its IPO. In early 2022, they downsized corporate staff significantly and relocated to cut rental costs.

Due to questionable accounting practices, the company has not reported earnings since Q3 2021. At that time, Missfresh's liabilities exceeded $500 million against a mere $337 million in cash, with a cash burn of $120 million in one quarter alone.

Understanding the Margins

An examination of Missfresh's income statement reveals persistent troubles. The company has consistently struggled to generate enough revenue to cover its operating costs, including the purchase and delivery of groceries. In 2018 and 2019, it spent over $120 for every $100 in revenue, and even with some improvements in 2020, the figures remained unfavorable, highlighting the challenges of the business model.

Physical vs. Digital

The term "tech" is often misapplied, as evidenced by the stark differences between software companies and grocery delivery services. Software businesses enjoy high margins and the potential for scalable revenue, while grocery delivery entails significant fixed and variable costs. Missfresh faced high operational costs and struggled with the limitations of physical logistics.

Comparative Landscape

The Chinese instant delivery market is crowded, with competitors such as Dingdong Maicai and Meituan Maicai. While e-commerce is more penetrative in China and labor costs are lower, regulatory hurdles and economic challenges have made the environment difficult for Missfresh.

The company's struggles resonate as a cautionary tale for startups like Getir and GoPuff, which face similar pressures amid a cooling investment climate. As the focus shifts to capital efficiency, many firms are now retrenching operations.

Conclusion

The grocery delivery sector poses significant challenges, requiring both scale and efficiency. As the landscape evolves, the industry may soon lose its vibrant colors.

Further Reading

• Stratechery: What Defines a Tech Company?
• Quartz: Retention Strategies in Instant Delivery
• Below the Line: Lessons from Webvan, the Original Grocery Startup