How a Chinese e-grocer is delivering fresh foods fast in the world’s most competitive grocery market
Long before concepts like dark stores, e-commerce and micro-fulfillment became top of mind for the U.S. supermarket industry, a technology startup in China developed plans to deliver groceries directly to online customers from compact urban warehouses close to where people live.
That enterprise, Missfresh, today runs a fleet of “distributed mini warehouses” — strategically located fulfillment centers known as DMWs that serve as the foundation for the company’s efforts to rapidly bring fresh fruits, vegetables, meats and ready-to-eat foods to time-pressed consumers — in Chinese cities including Beijing, Shanghai, Guangzhou and Shenzhen.
Missfresh, which opened its first DMW in May 2015, is focused on customers who prefer not to stop at the grocery store to buy food but still want to be able to eat well at home, said Catherine Chen, Missfresh’s co-chief financial officer. The Beijing-based company’s business model centers around providing busy shoppers with on-demand access to ready-to-eat foods and perishables at the peak of freshness.
“In China, we see that in first-tier and second-tier cities the middle class do need this kind of service because they have no time to shop, to go to the supermarket, but they want quality [of] life,” Chen said, noting that Missfresh’s typical customer is between 25 and 45 years old.
As in the U.S., online grocers in China experienced a surge in demand early in the pandemic. Now, these companies are once again serving as a lifeline amid China’s controversial lockdowns as officials in the country look to control yet another wave of the virus.
A strong focus on technology
Missfresh’s approach to grocery delivery centers on its use of artificial intelligence and other technology to maintain close control of its supply chains while also tightly managing its last-mile operations to avoid having products spoil before they can be brought to shoppers, Chen said. Fresh produce typically remains in a DMW for about 1.8 days, she said, adding that the facilities, which average 3,700 square feet, each carry about 5,000 different items and serve customers within a range of 1 to 3 kilometers.
The company delivers products from its DMWs using workers on motorcycles who can transport between six and eight orders at once. Missfresh makes deliveries in an average of 36 minutes, a figure that Chen said is down from the hour it took to get orders to customers when the company began operations.
Chen said Missfresh does not see a reason to speed up its deliveries much further. “For people who want to cook, actually 30 minutes is already good enough,” she said. “Because when they arrive at home they just need [food] to be ready and fresh. So you don’t need to be that fast, like 15 minutes, because it’s not urgent medical or other stuff.”
Missfresh’s typical basket size has been growing and is now worth about $15, Chen said.
Missfresh also aims to help farmers it works with predict demand for their products well ahead of time so they can match the type and quantity of foods they grow with what Missfresh’s shoppers are looking to buy, she said. For example, the company has developed the ability to forecast the vegetables it will need to have on hand 45 days in advance, according to Chen.
“Many times people hear about the vegetables becoming spoiled at the farm because there’s not enough demand, but now we can solve this kind of problem,” she said. “In terms of the technology and business model part, it’s a breakthrough in terms of how people can enjoy groceries as well as how it changes supply chain dynamics.”
Learning from people’s shopping habits
Missfresh adapts the assortment of products it stocks at its DMWs to the buying habits of the people each facility serves, according to Chen.
“For mini-warehouses [near] residential buildings, you will see there is more demand for groceries like fresh meat products, but in a location where there are more offices ... you will see that actually people need [more] fruit and dairy” products,” she said.
The company also faces the challenge of tailoring the selection of products it stocks to reflect varying tastes in different parts of the country. Chen noted, for example, that shoppers in southern China tend to prefer leafy green vegetables, fish and shrimp, while people in northern areas are more likely to want potatoes and carrots along with pork and other meats.
“For some of the categories, you can do nationwide procurement, but you need localized supply chains to better serve the local needs,” Chen said.
Missfresh also recently finished rolling out the first phase of a concierge service aimed at locking in loyalty among its best customers. Early results from the service, known as Missfresh 1V1 Advisor, have been encouraging, with shoppers who use it spending up to twice as much as customers who are not enrolled, according to the company.
In January, Missfresh began a livestream grocery shopping service in Beijing and Shanghai on China’s Douyin social networking platform. Chen said the arrangement has helped the company build its brand and promote its private label business, which has emerged as a key sales driver for Missfresh.
Sales of Missfresh’s Fresh Joy line, which includes more than 200 SKUs such as pork, chicken, eggs, vegetables and baked goods, rose 300% in the fourth quarter of 2021 compared with the first quarter of the year, the company announced in March.
“It’s actually pretty important for a grocer to have private label products because they have better control over the upstream supply chain and have better control of quality, and they can roll out better food,” said Chen.
Chasing success in an intensely challenging market
Like food retailers and e-commerce providers in the United States that are also angling to serve grocery shoppers increasingly focused on convenience, Missfresh faces withering competition as it looks to build its business. The company’s rivals in China include Dingdong Macai and e-commerce giant Alibaba’s Hema, which provides 30-minute delivery using a chain of retail stores that also serve as local distribution centers.
Jordan Berke, a former executive of Walmart in China who is CEO of Tomorrow Retail Consulting, noted that while Missfresh has been able to build a strong association between its brand and fresh foods, it has been less successful at turning its operations into a profitable business in a country he called “the most competitive grocery market on the planet.”
Missfresh reported revenue of 2.1 billion renminbi ($319 million) for the third quarter of 2021 but had a net loss of 973 million renminbi during the period, the last quarter for which the company has released financial results. The loss was more than twice what Missfresh lost during the third quarter of 2020.
“They did a very good job at building a strong sourcing organization, particularly in produce, meat, seafood and private branding. And so that was an early advantage that they were able to build versus the existing supermarket competitors. [But] the on-demand fresh market is the ultimate battleground in China, and they’re right at the center of it,” said Berke.
Missfresh, which like Dingdong went public on the Nasdaq stock market in the United States last year, has had a rough time with investors. The company, which priced its initial public offering last June at $13 per share, is currently trading below $1.
In March, Missfresh said it had arranged a financing agreement worth up to $300 million with Yorkville Advisors Global.
“They did a very good job at building a strong sourcing organization, particularly in produce, meat, seafood and private branding.... [But] the on-demand fresh market is the ultimate battleground in China, and they’re right at the center of it.”
Jordan Berke
CEO, Tomorrow Retail Consulting
Chen said she believes Missfresh is positioned for success despite the headwinds it faces.
“We think that as long as you can provide customer values and if you are able to preserve your loyalty customers, you will have a good growth in China,” she said. “And also in China, this market is large enough … so you can do a lot. There are different players, but each one can have a [part] in that because the take is so big and it’s growing.”
Chen said Missfresh has recently been able to improve its margins, adding that demand for online grocery services caused by the pandemic has helped drive revenue. The company announced in late April that it had tripled its stock of key products such as meat, eggs, vegetables and fruits in response to the rising number of COVID-19 cases in Beijing, where people have been scrambling to buy groceries.
Helping other grocers navigate online
Beyond running its own grocery delivery service, Missfresh provides e-commerce technology and consulting services to supermarket chains in smaller Chinese cities where it does not have a retail presence. The initiative, begun in 2020, has proven successful in helping grocers without experience operating online establish themselves online, Chen said.
Missfresh is using a cloud-based technology platform provided by Tencent, a Chinese internet company that is one of its investors, to serve those retailers, according to Chen. The company is also helping supermarket operators deal with supply chain-related issues, she said.
Chen added that Missfresh has also been in discussions about potentially providing technology to grocers outside China, including “big supermarkets” in the United States, but declined to provide details on those talks.
