June 11, 2021
Photo: Costfoto/Barcroft Media via Getty Images
Chinese grocery delivery startups Missfresh and Dingdong Maicai both filed to go public in the U.S. on Wednesday, racing to be the first Chinese public e-grocer to do so. Both IPOs would offer investors an opportunity to place a bet on China's fast-evolving fresh grocery delivery industry.
The Beijing-based Missfresh plans to list on Nasdaq under the stock symbol "MF." The Shanghai-based Dingdong intends to list on the New York Stock Exchange under the ticker "DDL." Both companies have yet to disclose the financing sizes in their preliminary prospectuses, but according to Bloomberg, Missfresh could raise at least $500 million. Dingdong aims to raise $500 million in its IPO, according to Reuters.
China has witnessed an increasing demand for fresh grocery and daily consumer products delivery over the years, especially during the COVID-19 pandemic. According to China Insights Consultancy, a market research firm, the size of China's fresh groceries and daily necessities retail industry has grown at a compound annual rate of 7.2% from 2016 to 2020; the industry is estimated to grow 6.5% annually to $2.4 trillion by 2025.
Founded in October 2014, the Tencent-backed Missfresh delivers fresh produce and everyday necessities. It boasts an average 39-minute delivery time on each order, and its active users numbered at 7.9 million in the 12 months ended March 31, 2021, according to its prospectus.
The Beijing based e-grocer invented the so-called "distributed mini warehouse" (DMW) model, or the "pre-warehouse" (前置仓) model, which integrates storage and distribution functions in order to solve the "last kilometer" problem. As of March 31, 2021, Missfresh operated 631 pre-warehouses in 16 cities in China. As one of the top players in the fresh grocery ecommerce industry, Missfresh accounts for 28% of the Chinese market, according to iResearch.
Missfresh achieved a total net revenue of $935.7 million in 2020. In the first three months of 2021, its revenue was $233.6 million.
The company has failed to turn a profit since 2018. It incurred a net loss of $251.7 million in 2020 and a net loss of $93.2 million in the first three months of 2021.
The proceeds from the IPO will be mainly invested in business expansion. Specifically, Missfresh intends to invest half of the funds raised in the IPO in expanding and upgrading its pre-warehouse infrastructure, including sales and marketing, technology capabilities and supply chain. About 20% of the proceeds would go into expanding its intelligent fresh market business and developing technology platforms. Another 20% would be spent on its retail cloud business, including R&D.
Missfresh warns investors in its prospectus that if it fails to continue to innovate its technology or develop new technologies and offerings, its growth might be hindered. The company may continue to fail to turn a profit as it increases investment into its intelligent fresh-market business and retail cloud business.
Missfresh also notes that it could be subject to government or regulatory investigation as a result of competitors' "anti-competitive, harassing or other detrimental conduct." It acknowledges that such "aggressive marketing and communications strategies" could harm both its reputation and business.
Here's what we know from the prospectus:
The Shanghai-based Dingdong Maicai, backed by investors that include Sequoia Capital and Tiger Global Management, is a competitor of Missfresh's. Its market share in the on-demand ecommerce industry measured by GMV was 10.1% in 2020, according to CIC.
While Missfresh ranked as the top e-grocer in North China in 2020 by GMV, Dingdong was No.1 in the wealthy Yangtze River Delta megalopolis. Founded in 2017, Dingdong boasts a 6.9 million-strong active monthly user base and a 319.2% compound annual growth rate in GMV, making it the fastest-growing on-demand e-grocer in China. Like Missfresh, Dingdong has also mastered the pre-warehouse model. It counts over 950 pre-warehouses across 29 Chinese cities.
Dingdong's total revenue in 2020 reached $1.7 billion. In the first quarter of 2021, its revenue was $580.3 million. Dingdong booked a net loss of $484.9 million in 2020. In the first three months of 2021, its net loss reached $211.4 million.
Dingdong plans to put 50% of the proceeds from its IPO toward increasing penetration in its existing markets and expanding into new markets. About 30% of the funds would be used for investment in its upstream procurement capabilities. Another 20% would be spent on its retail cloud business, including R&D.
Dingdong cited its short operating history and possible continued incurring of net losses as two major risk factors. Industry competition is a concern for the company. Ordering errors or product supply disruptions, or disruptions to the storage and distribution network can also negatively affect the company's business.
On the regulation front, Dingdong cites uncertainties with harsher antitrust laws and regulations, as well as evolving laws and regulations regarding data privacy.