Teardown | Misfits Market

Founded in 2018, Misfits Market has raised over $500M to eradicate food wastage by selling fresh food that has been rejected by retail buyers

Jun 14

By Sarah Pariwush. These briefs are produced by leveraging publicly available data sources and information. If you notice a mistake or see an area for improvement, please let us know through this typeform.

Snapshot

Founded in 2018, Misfits Market is a D2C online grocer that buys leftover or surplus produce directly from farmers and sells it to consumers at a discounted cost. These are fruits and vegetables which normally cannot be sold in regular stores due to aesthetic issues. Aside from farm produce, the company also sources meats, seafood, and staple foods to sell at discounted prices, all of which are packaged and sold in the form of subscription boxes. Recently, the company has diversified into wine and dairy products.

With headquarters in Pennsauken, New Jersey, Misfits has raised $526.5M in funding and was last valued at $2B after its latest funding round of $225M held in September 2021.

About Misfits Market: Website, LinkedIn

Business Overview and Products

Misfits Market operates as an online grocer, buying unwanted produce from farmers, producers, and suppliers across the US and selling at reduced prices to willing consumers. Other than organic produce, the company sources categories such as meats, seafood, staples, and other groceries. The food is affordable and high quality and the company gets to make a positive impact on the food waste cycle. In November 2021, the company forayed into dairy products like cheeses and butter while in February 2022, the company expanded into the wine category produced from sustainable farming.

Customers sign up for a subscription through which they receive grocery items weekly in a box according to their preferences. The company also brings in recyclable or compostable packaging for its products in its bid to be an eco-friendly company.

Unlike CSAs (Community Supported Agriculture, a model where consumers can buy portions of any farm’s harvest in advance), Misfits Market directly buys produce from the source, combines it with other healthy grocery options, and directly delivers to subscribers’ doors.

How It Works

Misfits Market cultivates relationships with farmers, producers, and suppliers to obtain millions of pounds of food that is typically expected to be wasted. The company gets direct access to fresh grocery items at the source, and due to its ability to cut out the middleman, can offer these items at reduced prices.

The food options supplied by the company include pantry staples, fresh organic produce, as well as high-quality seafood and meat that may be available at more expensive rates from other grocers. The company gets its hands on any produce (fruits and vegetables) that doesn't meet the aesthetic criteria of a grocery store or is simply in surplus amounts. For staples, it works with food brands and buys off excess inventory from them, which is in surplus amounts or is short-dated (i.e., having “best-before” dates less than 6 weeks). Meat and seafood are also directly sourced from suppliers. In the case of wine, the company sources categories such as red, white, rosé, and sparkling. The focus is on sustainable farming methods, like less grape pruning and little use of water and pesticides.

Hundreds of items are offered on the company’s platform at up to 40% off grocery store rates. Every week, refrigerated trucks from Misfit Markets reach farmers and collect the food. This is brought to the company warehouse, and a new assortment of grocery items is added to the platform weekly. On a weekly basis, each subscriber can choose what grocery items they want in their subscription boxes.

In the process, farmers and producers can prevent waste at the source while the business improves access to underserved communities to food. Instead of focusing on urban markets where delivery services are common, the company caters to suburban and rural markets. It delivers food to almost all zip codes in the states that it serves.

Business Model and Pricing

The company makes revenue by charging a weekly subscription fee based on box sizes (small and large). For example, in November 2021 the price for two of its base boxes were $22 and $35. Any additional items that the customer wants to add have an additional cost. Wine comes in curated bundles of three and six bottles, at prices of $35.99+ and $92.99+ respectively.

Every week, subscribers get a 3-day shopping window where they can log in to their account and build the order they want for the week. The minimum order size is $30. Once the shopping window ends, the customer is automatically charged for the order they have built if it exceeds $30. The order is then home-delivered in 2-3 days for a flat shipping fee of $6.99.

According to the company’s claims, it offers price reductions of up to 40% off grocery store rates, and customers get to save an average of $21.49 each week. For example, meat and seafood are offered by the company at roughly 20%-40% lower prices than at traditional grocery stores.

Traction

Since its launch in 2018, the company has crossed the Billion threshold in annual revenues. From 2019 to 2020, it experienced 5x year-on-year growth in its active customer base and order volume. In 2020 alone, the company shipped about 77M pounds of food to 400,000+ homes across the US.

By April 2021, it had already rescued the same amount of food it had rescued and shipped in 2020 and was serving 400,000 customers per month spanning over 37 states in the US. At this point in time, the company was offering almost 0.5M square feet of refrigerated space across the US.

In May 2021, the expected sales for 2021 were released to be $350M. In September 2021, the company revealed its average order size had more than doubled to $52, since its launch. By the end of 2021, Misfits Market doubled its SKU count to 500 and aims to double it again in the next 6 months. It also expanded to California, delivering to nearly 40M residents across the nation and catering to 44 states in total.

By November 2021, the company had saved a total of 225M pounds of food, 70% of which became additional revenue for farmers and producers who had no other avenues to make money from.

Founder(s)

Abhi Ramesh: Founder and CEO. Prior to Misfits Market, Abhi has co-founded Horizons School of Technology and StoreTok. He has also worked as an investment analyst at Apollo Global Management.

History and Evolution

Misfits Market was built on the foundation of being an eco-friendly company that could help reduce the food waste cycle. According to the website, almost 1/3rd of whatever is grown in the US is rejected and never harvested because of not meeting superficial standards set by traditional grocery stores. For this reason, upon its launch in 2018, the company was hyper-focused on rejected produce which would be a ‘misfit’ for traditional grocers.

Through the years, the company has now expanded its assortment to include regular grocery store items such as cooking supplies, staples, and different meats. Having started off by partnering with farmers, the company now partners with a variety of food makers that are looking for a solution to their surplus stock.

Up until September 2020, Misfits Market followed a mystery box model where customers would receive an assortment of surprise foods. But upon noticing that many customers were simply discarding the surprise food items they didn't like, the company discontinued this model on the basis that it was still contributing to food wastage rather than solving it. It changed the model to one where customers could choose their own selection of food items from the company’s virtual food aisles.

By April 2021, the company was already operating two warehouses where it stocked and packaged all the food it sourced, and was aiming to launch a 3rd warehouse.

With its latest funding round in September 2021, the company doubled its valuation overnight from $1.1B to $2B and announced its plans to expand its distribution network to 5 more states, essentially covering the entire continental US.

In November 2021, Misfits Market forayed into the dairy category, including 25 different kinds of cheeses and butter, with both organic and plant-based options. In upcoming months, the company would include milk, yogurt and eggs in the mix.

In February 2022, Misfits Market expanded into the wine category, offering selections with an emphasis on sustainable farming methods. It also focuses on lesser known wine producing regions such as Sicily and South Africa. The company may later expand to other alcoholic beverages like beer and cider. Upcoming category expansion also includes frozen and prepared foods, and staples in the form of canned items.

3 key elements of the model used by Misfits Market typically resonate with customers: sustainability, convenience of ecommerce and availability of high quality products at low prices. With increasing awareness of the environment around the world, such models generally appeal to people looking to reduce their carbon footprint and waste. It also appeals for the reason that it combines lower price point of products with sustainable ecommerce. One other thing that stands out about the approach taken by Misfits Market is that it not only focuses on the well-being of end customers, but also makes things easier for food suppliers by providing them a very viable solution.

Additional Learnings

The company opts for unique, eco-friendly packaging depending on whether it's available in the market. This includes packaging options like compostable clamshells, ice packs, protective dividers, and various forms of insulation inside a customer’s recyclable box.
The $225M funding it raised in September 2021 is to be used to fund Misfits Markets hyper-focused nationwide expansion and increase the assortment of grocery items it can offer to its customers.
Food deserts in America are areas where residents have limited access to affordable and healthy food options. Nearly 20M Americans reside in these regions, and Misfits Markets has shared its active goals to eradicate food deserts in America by 2025.
The company optimizes its distribution centers through in-house technology that enables delivery of large volumes of food shipments to 3rd party logistics providers. This ensures timely deliveries.
In November 2021, the company announced that for every order placed in California during November, it would donate money equivalent to one meal at food banks in California that are members of Feeding America.

Market Snapshot

In 2018, a study by BCG revealed that annually 1.6B tonnes of food worth$1.2T are wasted. This is 1/3rd of the total amount of food produced around the world. It is estimated that food waste will increase in the next 10 years to 2.1B tonnes by 2030, worth 1.5T.
Just as eCommerce businesses have largely witnessed growth during the pandemic, online grocery sales in the US rose to $8.6B in August 2021. This was a 4.7% increase from last year.
Furthermore, in a survey in August 2021, it was revealed that retail contributes 43B pounds of food waste every year. The same survey also found that typically, 60% of consumers are concerned about food waste and would buy from a retailer who works on reducing food waste. Once a consumer knows of such efforts, 63% of them feel obligated to shop there while 52% would simply shop there more frequently.