How to succeed in today’s grocery delivery market

Misfits Market CEO Abhi Ramesh thinks we’re in a ‘normalization period’

The instant grocery delivery market has been on a roller-coaster ride over the past few years, and recently the ride has been down.

For example, Dunzo, a hyperlocal delivery startup in India, reportedly postponed employee salaries for a month and plans additional layoffs, with a strategy on “streamlining our cash flow so we can build a more sustainable business for the future,” it wrote to employees in an email.

Then over in Europe, Getir, the delivery giant there, said it was pulling out of Spain, Italy and Portugal as it was finalizing a new round of investment. That announcement came a month after Getir exited France.

Not everything is doom and gloom in this market, though. Misfits Market acquired Imperfect Foods at the end of 2022, and JOKR raised additional funding earlier this year. Meanwhile, Misfits Market is finishing up the integration of the two companies. Granted, Misfits Market had its own brush with layoffs earlier this year, but founder and CEO Abhi Ramesh told TechCrunch+ that he has seen “meaningful positive improvement” in operation.

But in broader terms, he also said that “it is hard times for the industry.” We sat down with Ramesh to chat about how to succeed in this sector, the key to driving unit economics and what’s next for Misfits Market.

The following was edited for length and clarity.

TC+: How do instant grocery delivery companies succeed in this environment?

AR: One of the strategic mistakes folks in this category made was they assumed that the growth rate and demand in 2020 and 2021 would stay for the next three, four or five years. In reality, what happened is some of the demand was simply pulled forward, but not as much. Now it’s more like a normalization period.

For companies to do well right now, it requires a few things. One is you have to have scale. It’s tricky because this is also a time period where every company is trying to push profitability. When you’re pushing profitability, the first thing companies try to do is pull back on marketing spend to save dollars. But in e-commerce, that’s actually a vicious cycle where you pull marketing so you don’t grow as much or get the leverage in your finances to burn more.

Two, the way to get profitable is to drive unit economics. For many years, this category had so much venture capital, which had been sort of subsidizing unit economics. However, if you dig under the hood a little bit and take out the VC subsidies, you essentially find that the unit economics were — best case — breakeven, and more likely negative in a lot of cases. Smart companies in this space have been right-sizing unit economics and very quickly trying to figure out how to actually make money per order because only then can you scale and get profitable.

How have you found unit economics for Misfits Market?

We’ve been looking at that now that we’re six months into the Imperfect Foods acquisition, and reflecting on some of the numbers. We have more than 4x our profit per order.

I’ll give you a tangible example of how we got there. We were shipping our boxes on a truck, and Imperfect was shipping on a second truck. We now have consolidated that into a single truck. It sounds like a very small, obvious strategy, but when you multiply that consolidation across hundreds of trucks and vans across the country, the marginal cost of delivery drops dramatically, and you get tremendous cost savings. Also, instead of ordering four different boxes, we’ve consolidated into a much smaller number, and we get packaging cost synergies. All of these things add up and help drive unit economics increases for us.

Some companies haven’t been able to make it work, especially those trying to do 15-minute deliveries. Among the companies that are left, what changes will we see happen in the industry?

There are still companies with capital on the balance sheet and runway. There won’t be a single wave of changes, but a couple of waves. For those who make it out of 2023 with a business model that works and unit economics in a good place, a question will be, how do you make that model long-term viable, for three, four or five years, so you can grow and be profitable? That’s the new benchmark.

For 15-minute delivery, there’s got to become a more intentional conversation among those companies on what the customer value proposition is and then what the cost of that value proposition is. We’ve had some small changes to our proposition around order minimums. We used to ship boxes to very rural parts of the country for $15 or $20, and had to be very transparent with our customers that we couldn’t make it work with a $15 order minimum, but we might be able to with at least $35.

You’ve raised over $500 million to date. Are you looking to raise any additional funding in the near term?

We’re not actively looking to raise right now or in the very near term, either. We’re constantly thinking about capital markets broadly, like private capital and the public markets. I’ve talked in the past about taking this business public at some point. But we want to be very intentional about when we do that. There are some interesting, positive developments in the IPO market right now, like the Cava IPO.

I’ve heard from investment bankers and cautious optimism is the sentiment right now around technology, e-commerce, food and grocery delivery. I don’t think we’re fully there yet. The market still has to open up a little bit more, and we probably want to see another couple of successful IPOs. We have capital on the balance sheet, so we’re not worried about being super rushed to go do anything.

What’s up next for the rest of the year or into 2024?

We’re continuing to be laser-focused on expanding our assortment. There’s still a tremendous amount of inefficiency across the food supply chain. I was just in California at the Organic Produce Summit meeting with farmers and growers, and it was shocking to me how much inefficiency they still have.

Our goal needs to be expanded assortment, both to help serve that role in the food ecosystem as being the sort of company that people can partner with when they have stuff that cannot sell to traditional retailers, but also to provide consumers with a lot more options. When we started five and a half years ago, we had a dozen or so items on the platform, and we now are nearing 1,000 soon and growing from there.

The second piece is we are excited to step on the gas pedal when it comes to growth. We’re finishing the integration with Imperfect, so we can move forward and grow as a combined entity and combined brand. That is something we’re really excited about: leveraging the best of both brands. We’ve been thinking more about that growth being organic growth via customer acquisition, and then how much that comes from strategic partnerships, even M&A. There are other opportunities within the D2C space within e-commerce for continued M&A.

To our earlier conversation, my hypothesis is that there will be a lot of other companies that will need to figure out some type of exit. They can’t raise capital, so it would be perfect to acquire in the space and consolidate some of the category further.