EXCLUSIVE: Membership and More at Misfits Market
Misfits+/Imperfect+ (M+) is e-grocer Misfits Market’s new shopping membership program, under which members pay an annual $69 fee to get access to exclusive discounts and reduced shipping fees. The Misfits+/Imperfect+ Deals aisle gets updated with new deals weekly, with products up to 50% off, as well as everyday savings of up to 30%. Further, for each Misfits+ order placed, 25 cents will goes to Feeding America through Dec. 31. To find out more about the program, Progressive Grocer spoke with Abhi Ramesh, CEO and founder of Delanco, N.J.-based Misfits Market.
Progressive Grocer: I’ll start off with something really basic – why was the program created?
Abhi Ramesh: The short answer is, we wanted to figure out ways of delivering more value to customers, and because at the end of the day, value is still paramount to our model. Over the years, we’ve done a lot of things. We’ve expanded the assortment, we expanded delivery areas, we’ve gotten sharper at pricing. But as we thought about the next couple years in our product roadmap, we were like, “What else can we do to deliver more value to our customers?” And we came up with this idea of a paid membership program, because our view was, it is a very compelling way for us to continue to push value to our customer base with a few different levers.
So, first and foremost, the way the program works is customers pay $69 a year. Today it’s an upfront annual fee. We at somewhere in the future may offer a monthly version of that as well, but today it’s a $69 annual fee, and in return, customers get meaningful members-only discounts on a lot of our best-selling produce items, a lot of our really popular private label items [sold] under the Odds & Ends [brand]. A lot of the rescued produce items that are popular – all those are even more discounted than you’d find on Misfits today, and the Misfits items are already discounted 20%, 30%, so when you add this additional 20%, you’re talking about 40%, 50% savings on items. So that’s one huge pillar.
The second one is customers get lower shipping costs, so if you’re in one of our first-party delivery networks, you get free shipping – period. There’s no minimum order to get free shipping. If you’re in one of our third-party geographies, you get a discount. You get $3 off your shipping. So, it’s another way of pushing value.
Then there’s a lot of other perks on top of that. You get extra loyalty points, and then we also donate meals to folks facing hunger with every M+ order, which is the philanthropic angle to M+. Ninety percent of those meal donation dollars stay local to where the customer is located.
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So that’s kind of a summary of the program. But again, if I take a couple steps back, it’s another way for us to offer compelling value to our customers, and especially in this environment, right? There’s a lot of talk about inflation coming down, which is great, [but] food prices are still elevated, and a lot of customers are still looking for a way to get that grocery bill down every week. And yes, there’s an upfront fee that folks pay, but that they make back that fee pretty quickly. So, in general, one order per month pays back that $69 fee for the average customer.
So, that’s sort of the M+ program in a nutshell. We started piloting it earlier this year with a small group of customers. The traction we’ve seen has been incredible, and so we ended up rolling it out to the entire customer base recently.
PG: If you don’t mind me asking, how are you able to offer these additional savings, because you’re already offering products at a discount? How do you make profit off that?
AR: it’s a very valid question. There’s two parts to the model. One is, we are basically taking the dollars we get from the membership fee, and we’re reinvesting it in the customer experience. So when someone’s paying us that $69 up front, we’re taking that $69 and essentially reinvesting it in lower shipping fees, better prices on those products. That’s a big part of what’s enabling us to do it, is the customer is giving us those fees up front, and then we’re giving them back a better deal on every order. That’s a huge part of it.
The other part is something that I think the case for most successful membership models, but customer ordering behavior also changes. Customers tend to order more when they’re paying for membership, because they feel like since they’re paying upfront for us, they might as well use it. You see this in the Costco model, with Amazon Prime – a lot of the really successful retail memberships – and so when customers order more, it actually makes sense for us as a business to give back more discounts per order, as long as the net order amount is more over the course of a year. How the math works for M+ is we give back a portion of the fee, and then we’re hoping for incremental order frequency or customer retention, which helps us, even if it’s at a slightly lower cost profile.
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What’s critical for our model is we’re actually okay making a little less on every order if people are ordering more frequently or more often or over a longer period of time. That is the fundamental principle of this membership program: If you were to join tomorrow, we’re actually going to make less money from you per order, but hopefully, you place more orders, hopefully, you last as a customer, and that’s actually worth it for us.
PG: You mentioned the possibility of maybe doing a monthly payment scheme in the future. Do you have any other refinements or changes to the program that you would consider?
AR: We’re very focused on keeping the value propositions very clear and just saying, “Hey, better prices, better shipping deals, and we’re giving back food to families facing hunger for every order you place” – those are the three fundamental pillars. And we were actually discussing adding more, but to be honest, we realized [it was better to keep] the program very simple from the get-go, so people really understand it.
Over time, we are we are likely going to add more parts to the program. We’re talking to external partners, for example, and other membership programs where, for example, using DoorDash [as an] analogy, if you have a JPMorganChase credit card, then they pay for your DashPass, right? And there’s additional perks you get between those two. There are things like that we’re going to be looking at, and we’re in early discussions, so it’s too early talk publicly about any of those. But the hope is this is the starting point of a very compelling program, and over time, we will add more and more to make it even more compelling to customers [with] additional perks, but today we’re just super-focused on better product prices, better shipping and giving back for every order.
PG: Are there any other new programs or company developments?
AR: This year, a huge focus for us was category and SKU expansion. The DNA of our company was we started with ugly produce in boxes. This year, we officially expanded to past 1,000 items available on our platform. That’s a milestone for us. At end of 2023, we were at about 600-700 that we offered. We scaled that by more than a third and got to 1,000.
The reason I think that's important is because [shoppers can use] Misfits as a primary source, [since] we now offer a very robust assortment of meat, seafood, deli, dairy. Our center store – pantry staples and snacks – has grown tremendously. So, category expansion, SKU expansion – that's been a very big priority for us this year, and we've seen some pretty incredible opt-in from our customers as we’ve expanded categories and expanded items. Our basket size has grown – call it about 15% this year, from the beginning of the year till now. … Customers are ordering more and more and reacting to that broader assortment. That expansion to 1,000 SKUs has been a critical one. You can even buy pet food, baby and children's items, vitamins and supplements. These are categories that didn't exist on our platform a few months ago that do now. That's been a huge focus area for us.
When you think about our assortment, there are a few pillars. There is, of course, the rescued produce, where we’re going out and buying products that farms or manufacturers are throwing away. That’s the first pillar. The second pillar is our private label. We have a private label called Odds & Ends. … We are very intentionally leaning into the private label program and expanding that more. That’s the second pillar. The third pillar is fresh produce, which is mission critical to us. The fourth one is emerging brands. It’s this idea that we can be a place for you to discover up-and-coming newer brands that are better for you and better for the world. Today, when you go to other e-commerce platforms, they don’t curate that for you, right? It’s hard to find that. And at a lot of grocery stores, too, unless you have access to the best health food stores around you.
For a lot of folks, access is hard, especially online, and so that pillar of our assortment is really important, these better-for-you, better-for-the-world emerging brands. So we’re leaning very heavily into those. Our category management teams spend a lot of time meeting these brands, trying the products and then bringing them onto the site. And because our assortment is curated, we’re very selective about what we bring on and hope that everything we bring on is really high quality and people enjoy them.
PG: How has the acquisition of Imperfect Foods changed things, if at all, in terms of how you how you operate?
AR: I would say there are some things that have changed, [while] some things have completely stayed the same. I'll start with the latter: Misfits and Imperfect shared the same vision for the food system, for e-commerce, for grocery shopping, and each company had a slightly different mission statement, but they both revolved around this idea of making high-quality better-for-you foods more accessible to folks around the country while rescuing food and building better food systems. We shared that ethos and that vision. So bringing the two companies together and rallying the organization around that was very straightforward, and nothing really changed around those focus points.
What did change was a lot of the operational infrastructure under the hood that powered our platform, such as when, through the imperfect acquisition, we acquired a whole new set of fulfillment centers. We acquired a fleet of 400 vans. We acquired 50 line haul trucks. So a lot of what we've done over the past couple of years is we merged the fulfillment, distribution and supply chain aspects of the companies to make them more efficient, drive a better customer experience, all those things. I think a lot changed on that side.
We had to consolidate some of our warehouses. We had to move a lot of our logistics from prior third-party logistics to first party, [which led to a] significantly better delivery experience for customers, because our employee drivers are delivering those orders. A lot changed there, but the mission to vision stayed the same, and then we ended up consolidating a lot around the website experience, the mobile app experience, things like that.
PG: How much does consumer (user) input have to do with your product assortment, or the way you deliver product, or anything else?
AR: We conduct a ton of user surveys, and it would be shocking to you, if you look at how much user data that we have. There’s a few different buckets of it, there’s indirect and direct. What I mean by that is, the direct is we’re asking customers things like, what do you not see on the website that you’d like to see? And on the website, there’s some pop-ups that will pop up from the bottom and ask you, “Are we missing anything?” We collect that information directly from customers, and that’s going to our category managers. … The other week, we were looking at dairy and saying: “Hey, a lot of people are picking Lactaid milk, because we don’t offer that, so let’s go figure that out.” That’s directly from customers.
Then there’s the indirect customer data – we actually collect even more of that – and that’s looking at customer behavior. We’re looking at search trends. How many people are searching for Lactaid milk in the search bar, how many people are searching for other brands that we don’t carry in the search bar? We have all of that data, and we’re making purchasing decisions and expansion decisions based off that data.
We’re also looking at periodic surveys that we take. We do quarterly surveys that we send out to our active customer base, and we pull that data in, so all of that information helps drive assortment expansion decisions, and our category managers look at that pretty much every single week.
PG: What plans do you have with regard to Odds & Ends and any private label innovation or expansion?
AR: We’ve been hard at work on the private label side of the house, and it is a big investment area for us over the next couple of years. The reason we are so excited about it is twofold. One is we believe that through private label, we’re going to be able to offer even more value to customers. We’re going to develop products that are very high quality, that we can offer at better price points than the mainstream brand competitors. We’re doing a lot of new things with private label development as well. A lot of our new private label items are upcycled, so there’s some component of the manufacturing process where we’re going in and essentially getting a waste stream in the food manufacturing process and using that to create our own product.
For example, [snack brand] Pipcorn and Misfits have partnered, and we have a co-branded private label item, upcycled onion twists. They’re absolutely delicious. I highly recommend them. We found that during [Pipcorn’s] manufacturing process, they have certain wasted products when it comes to these upcycled twists. We essentially created a new item and co-branded it with them – part Odds & Ends, part Pipcorn.
We see a ton of opportunities with these sustainability-forward, upcycled private label items. … We’re creating new products that didn't exist in the market before, and we’re seeing a ton of excitement and momentum from customers around those. Then, of course, there’s traditional private label, where we’re just going be able to create a super high-quality peanut butter that is a better deal than some of the other brands you’d buy. So we’re doing both [of] those [kinds of products] for private label.
Today we have close to 100 private label items across the assortment. There’s another 70 that we’re currently developing as well. We [just] launched our own private label Odds & Ends fresh pasta SKUs. These aren’t like pastas you’d find in the pantry section. These are fresh pasta SKUs. We partnered with a family-owned and -operated pasta manufacturer in New Jersey. We ended up actually creating a couple of ravioli SKUs and a fettuccine SKU, so these are all brand-new items just launched recently.
Also, we partnered with a private label cheese supplier that had a whole order canceled on them for pecorino. It was massive, and we were able to incorporate that into two of the new raviolis. So not only are we getting to work with a family-owned and -operated pasta company, but there’s the upcycle and rescue component – those are opportunities for us. It sounds weird, and I don’t say it often, but we get to play that Superman role a little bit, right?
PG: And, in the process, live your company’s values.
AR: Yes, it’s been really nice to see.
PG: Is there anything else you want to add?
AR: There’s an organization called Sharing Excess. They’re originally Philadelphia based. They’ve expanded quite a bit across country, but they help redistribute fresh produce to food banks and to a lot of other food insecurity organizations in cities that they launch in. We’ve had a partnership with them for multiple years now, and we [recently] announced a significant expansion in that partnership. We gave a $200,000 grant to sharing access to help them launch and expand in Hunts Point [in the New York City borough of The Bronx], which is a huge food hub. There’s a tremendous amount of waste that happens at various transit points coming out of Hunts Point. What Sharing Access is doing with that $200,000 grant is they’re taking food that would have gone to waste out of these hubs. They’re then redistributing it to organizations all across New York City and communities in New York City that need access to that food.
We did a huge kickoff event in The Bronx, in Co-Op City. I think it’s going to be one of the most impactful partnerships to date that we’ve done like this. That grant is going to support distribution of over 10 million pounds of rescued nutritious food that is going to communities, all because, for us, food waste and food access are linked, and Sharing Excess has attacked it from the nonprofit side of the house. It’s an organization we have known and respected for a very long time. The founder, Evan [Ehlers], and I have been talking for four years. We’ve partnered with them in small ways and donated food here and there, but this is a significantly larger way for us to make an impact together.
