Demand for online grocery may have skyrocketed in the past 20 months, but many hurdles for eGrocers remain.
Consumers are still wary of buying high-consideration goods like fresh meats and produce without seeing them firsthand, and cost remains prohibitive for many consumers used to the prices they would find at their local Walmart or Kroger.
Misfits Market, a Delanco, New Jersey-based online grocer focused on sustainability and affordability, started with these pain points and built out from there. The service, which began by selling visually unappealing but otherwise fine produce, now sells a wide range of groceries, misfit and otherwise.
“It was definitely easier [for us to sell perishables] because of our brand, because of what we stand for,” Misfits Market Co-Founder and CEO Abhi Ramesh told Karen Webster in an interview. “Today’s consumer values transparency a lot, especially with food … From Day One, we cared a lot about transparency in the supply chain. We told the story of the apple … And I think that allowed us to build trust with the consumer.”
He added that the brand gives information ranging from where the item was picked to why it might look misshapen to why it could not be sold through the typical channels to details about the farmers themselves. With this storytelling, the brand can circumvent the usual mistrust about perishable groceries.
As of last year, according to PYMNTS data from the 2020 Omnichannel Grocery Report, created in collaboration with ACI Worldwide, fewer than half as many consumers purchase fresh fruits and vegetables online as purchase nonfood grocery items digitally.
“That’s kind of been our motto internally — let’s build all the operational infrastructure for the hard stuff first,” Ramesh said. “Once we figure that out … getting the rest of the shop becomes a lot easier.”
Most recently, following a $225 million Series C-1 fundraise in September that brought the eGrocer’s valuation to $2 billion, Misfits Market arrived in California Nov. 10, launching in every ZIP code in the state.
The Future-Proof Audience
One threat to grocers both online and traditional is the rise of digital ordering, with consumers getting more of the meals that they eat at home from restaurants than they used to. Research from PYMNTS’ How We Eat Playbook, created in collaboration with Carat, from Fiserv, which surveyed more than 5,200 U.S. adults, found that consumers now are 31% more likely to purchase restaurant food for pickup or delivery than they are to dine on-site.
However, by targeting the lower-income consumers who have been left out of the fold by many leading online food marketplaces, Misfits Market is less vulnerable to the impacts of this shift. Ramesh recalled that, in his own lower-middle-class upbringing, food spending was carefully tracked, and restaurant meals were an occasional luxury.
“That ends up being the reality for a lot of folks that we cater to as well,” he said.
Given that the cost of on-demand delivery and even of pickup can keep these consumers from shifting their food spending to restaurants, Misfits Market is, to a certain extent, protected from these shifts in food habits, he argued.
Additionally, Ramesh noted that while the target audience has historically shopped primarily at brick-and-mortar grocers, the grocer has the advantage of being able to harness data to personalize the experience in ways that brick-and-mortar shops cannot.
“We’re starting to play a lot with machine learning and personalization and [artificial intelligence (AI)], where, when you come to our site, you may see an entirely different experience and set of items than I would,” he explained.
Ramesh noted a shift in purchasing behavior from a time when consumers would buy different categories of groceries from different eTailers to a desire to purchase everything at once.
“We’re seeing a consolidation of spend,” he said. “Now [they’re] combining sources and saying, ‘I want to buy from a single online supermarket.’”
The move to take on more categories comes with additional challenges for Misfits Market, given the misfits factor. Even now that the grocer has expanded beyond ugly produce, it continues to sell products that, for various inconsequential or cosmetic reasons, cannot be sold at traditional grocers.
Ramesh cited the example of olive oil with labels printed upside down and of cookies with the Olympics logo on them. He added that Misfits Market gives these food brands the opportunity to move the product quickly at a higher price than they would be able to with a traditional liquidator. While this model leads to a degree of unpredictability for the grocer, Misfits Market balances this out with other products that are more predictable.
“Over time, our plan is to also develop a private-label offering that kind of bridges the gap between the two [the predictable and the unpredictable,” he said.
Taking on Goliath
The largest grocer both in the United States and internationally is Walmart, such that all smaller players must contend with Walmart’s sizable share of the total grocery market (roughly one-fifth in the U.S., per PYMNTS data from earlier this year). Conversely, to maintain its lead, Walmart would be well served to keep an eye on quickly growing smaller players such as Misfits Market.
“I imagine Walmart spends most of their time thinking about their battle with Amazon,” Ramesh said. “You have two dueling titans over here, but then there’s so much white space everywhere else. But I do think there’s a decent amount of customer overlap … We’re taking brick-and-mortar customers from places like Walmart onto our platform, so I don’t know if they know about us yet, but they will soon.”