Pure-play online grocers are redefining value, curating their offerings to address more need states, prioritizing sustainability in all forms and investing in diverse fulfillment models to win on convenience.
What do price-sensitive, sustainability-minded, mobile-first grocery shoppers want?
That’s the quandary on the minds of many North American grocery retailers today, no matter how large or small their footprint.
But it’s pure-play online grocers that are eagerly leveraging the opportunity to answer this question by redefining value, curating their offerings to address more need states, prioritizing sustainability in all of its forms and investing in diverse fulfillment models to win on convenience.
“The pandemic highlighted our broken food system and lack of innovation in grocery,” says Kai Selterman, chief strategy officer of Philadelphia-based Misfits Market, an e-grocer that delivers produce, meat, seafood, plant-based proteins, dairy, bakery, wine and other grocery items to nearly every ZIP code in 48 states.
Founded only four years ago, Misfits Market has been busy luring shoppers and more than $525 million in venture cash to its innovative business model focused on three pillars of “ability”: affordability, accessibility and sustainability.
“While COVID pulled forward the grocery industry, it also highlighted the challenges many incumbents faced. They tried to adapt quickly by partnering on delivery logistics, building apps and more, but the reality is it was analogous to putting lipstick on a pig,” Selterman says. “These large grocers are not able to adapt quickly to shopping trends that Americans are looking to address, like reducing food waste and being more sustainable. We are the only grocer that leverages sustainability to create affordability. By virtue of our opportunistic buying strategy, we can deliver high-quality products at a great value while fighting food waste, and we deliver it all in a delightful customer experience that’s becoming increasingly personalized.”
Misfits Market is one of several e-grocers showing everyone what grocery shopping could (should?) look like in the future, and successfully persuading shoppers that buying their groceries online is the way to go in any economic environment.
Misfits' Chief Strategy Officer Kai Selterman says his company can deliver high-quality products at a great value while fighting food waste.
They Want Value
Last month, NielsenIQ gave a presentation at The NGA Show detailing how grocery e-commerce sales have slowed since the peak of the pandemic, but are still continuing to grow. According to James Hunt, SVP of North American retail for Chicago-based NielsenIQ, total grocery e-commerce sales increased 11.2% in 2022, with food accounting for 15% of that increase. Broken down by category, health and beauty care e-comm sales were up 10%, household care was up 20%, pet care was up 19% and baby care was up 16% in 2022. Overall e-grocery sales are expected to increase to a 13.6% share of the market by 2027, according to the 2023 Brick Meets Click/Mercatus 5-Year Grocery Sales Forecast.
Not only are inflation-battered consumers still attracted to grocery e-commerce, they are also re-defining “value”; instead of seeing online grocery as a luxury service that costs more, they see it as a way to save money by avoiding trips to the store, eliminating impulse buys and sticking to their budgets.
In fact, a February online grocery report from retail media platform Chicory showed that e-commerce is now more important than ever to consumers.
According to a survey conducted by New York-based Chicory of more than 1,000 U.S. consumers, 56% said that they order groceries online more frequently now than one year ago, and more than 72% had purchased groceries online in the past 90 days. Additionally, online grocery shoppers who spend the most on e-grocery orders — more than $201 — place orders the most frequently.
Misfits Market says that it’s delivering value to shoppers via its unique supply chain focused on reducing food waste.
"Our North Star is ‘We save consumers money by saving food,’” Selterman notes. “From day one, we knew we needed to build a differentiated supply chain if we were going to be successful. We built Misfits Market because of the inefficiencies in the food supply chain that existed in produce, and we’ve expanded that into all of the inefficiencies that exist in every grocery category. We call it our food value supply chain. Some examples of how we do this is partnering with suppliers to bring upcycled products to market. We also work with vendors to rescue food that would otherwise end up in the landfill.”
According to Misfits Market, it rescued 55 million pounds of food in the past year alone; the company also gobbled up one of its competitors, another e-grocery startup called Imperfect Foods, in 2022.
“The strengths of the Imperfect Foods organization, from its in-house delivery fleet and robust private label program to its sustainability commitments and innovation, add immediate scale and depth to what we’re building at Misfits Market,” Selterman says. “Already, we’ve been able to leverage Imperfect’s delivery network to improve the customer experience across a large portion of our delivery area, with features such as free shipping, lower order minimums and a packaging return program.”
In fact, Misfits Market notes that the combined business is on track to cross $1 billion in sales and reach profitability by early 2024.
“Combining forces will exponentially accelerate the ability to address a broken food system and create a formidable online grocer that’s focused on delivering value by fighting food waste,” Selterman observes. “The growth of Misfits Market over the past year proves that customers are looking for this new type of online grocery store, and customers are already changing the way they shop and eat.”
Weee!, founded in 2015, sells more than 15,000 products, mostly ethnic foods.
They Want Curation
Another way that pure-play e-grocers are distinguishing themselves from competitors operating on- and offline is by curating assortments that speak to what shoppers want today: a fun, immersive and multicultural offering at a great price. San Francisco-based startup Weee!, which has raised more than $800 million in VC funding, says that it has the recipe for grocery success in an increasingly multicultural world: a diverse assortment and lots of social media.
Weee!, founded in 2015, sells more than 15,000 products, mostly ethnic foods. The company delivers fresh groceries to 18 states and shelf-stable products to 48 states. From Korean beauty masks to frozen green onion pancakes to freshly cut stewing beef from Mexico, Weee! caters to U.S. consumers, some multicultural and some not, who got comfortable cooking chicken biryani and pork pozole during the pandemic. Many of these same consumers are also looking to save money on meals and still find that cooking at home is cheaper than eating out — despite elevated grocery prices — which is why at-home food spend remains strong, with sales up 8.7% in Q4, according to Chicago-based IRI.
“Weee! is the largest Asian and Hispanic e-grocer in North America,” asserts Larry Liu, CEO of the company “However, there is still a huge opportunity for growth. Our focus on meeting the needs of underserved ethnic communities has the potential to encompass many different categories. We encourage our merchants to be customer- and ethnicity-focused, rather than simply thinking about traditional industry categories. We have the capability to handle and deliver all temperature regimes, and our assortment will expand to reflect the specific needs of each customer group.”
Weee! encourages merchants to be customer- and ethnicity-focused, rather than simply thinking about traditional industry categories.
Since the pandemic, Weee! has expanded rapidly while staying focused on addressing the needs of underserved ethnic communities in the United States, according to Liu. That segment continues to grow, with the grocery market for ethnic customers expected to surpass $464 billion by 2030.
“That demand has fueled our growth while we’ve continued to expand our offerings to address additional ethnic communities and expand the scope of our offerings to other areas such as health and beauty,” Liu says. In 2021, Weee! acquired RICEPO, an online Asian food delivery company. Liu describes the acquisition as “a major step forward as we look to solve the larger food-at-home problem.”
Last year, the company hired Jon M. Chu, director of “Crazy Rich Asians” and “In the Heights,” as its chief creative officer. With Chu in charge of creative strategy, the company aims to make shopping on Weee! as fun as watching a movie, with experiential elements such as videos explaining the history of an ingredient, and features allowing customers to post videos of recipes on the retailer’s app. Liu notes that the retailer thinks of itself as a grocery business that’s enabled by technology, rather than as a technology company that happens to sell groceries.
“It’s a very important distinction for us, given the highly differentiated nature of our assortment,” he points out. “That said, we continue to develop new ways to improve both the experience for customers and the efficiency of the operations. Product search and discovery, network planning, and warehouse picking are all areas of high focus for us this year.”
Misfits Market started out as an "ugly produce" grocer but now delivers groceries across almost every category.
They Want Sustainability
Sustainability isn’t just a buzzword at every industry trade show — it’s also a business imperative for every retailer in 2023. More than 90% of shoppers today say that sustainability is important and 50% say that it’s very important, according to NielsenIQ data. But e-grocers are moving the needle on sustainability in more innovative ways by integrating principles related to food waste and DEI across every aspect of the business.
E-grocers such as Misfits Market and Weee! live and breathe sustainability through their business models and work cultures, moves that are deeply attractive to today’s shoppers.
“Weee! is an extremely diverse employer, and our employees come from a wide range of backgrounds and cultures, including many first-generation and second-generation immigrants,” Liu observes. “This is an asset in addressing the needs of our equally diverse customer base, but also means we must be constantly working to develop an inviting culture where all employees feel valued and are excited to be a part of the Weee! story.”
Misfits Market says that it plans to keep building a truly differentiated and unique food value supply chain by investing in building proprietary technology, from inventory management systems to warehouse management systems, as well as in customer experience and new co-branding opportunities and food categories, including upcycled food, as areas of major growth. Last year, the retailer launched a mobile app, customer self-service refunds, and a loyalty program, Misfits Perks.
“We make it easy for customers to embrace the future of food through discovering upcycled products and other sustainably sourced foods,” Selterman affirms. “We’ve become a destination for emerging, sustainable brands, and that kind of treasure-hunt experience is valuable for customers and suppliers alike. Our customers are excited to try new items and be introduced to alternative quality products that you can’t find everywhere.”
According to Selterman, as his company matures, it will continue to drive sustainable innovation.
“One key theme we are tackling immediately to begin the year is packaging,” he adds. “With the acquisition of Imperfect, we are the only grocer to take back packaging for reuse, and this is a program we plan to scale in 2023. And by leveraging our own delivery fleet, we can cut down on the number of ice packs and amount of packaging needed to deliver cold items.”
In 2021, Misfits Market held a pop-up mobile tour throughout the United States to celebrate the summer season.
And They Want Convenience
Approximately 74% of respondents in the Chicory report said that convenience is a top driver of their decision to order groceries online, with price being the second most important factor. Chicory also found that food blogs and recipe sites, along with social media platforms, are the top sources of online meal inspiration. Both Misfits Market and Weee! excel at offering these immersive experiences to shoppers.
Among preferred retailers for e-commerce, most respondents’ top choice was Walmart. Amazon Fresh, ALDI, The Kroger Co. and Costco Wholesale rounded out the top five, respectively. Since “smaller players such as ALDI also fared well,” that suggests “a strong digital experience can go a long way with consumers,” the survey noted.
Selterman says that innovators such as Misfits Market company have a unique advantage as consumers get even more comfortable grocery shopping online and the e-commerce market matures.
“Luckily for us, we don’t have 10, 20 or 50 years of technical debt,” he contends. “From day one, we built a differentiated supply chain with purpose-built custom technology. Our company was built around being a delivery-first organization with a core focus on logistics and operations. We believe we are setting the pace of change while the incumbents are playing catch-up.”