Missfresh Limited (NASDAQ: MF), a leading neighborhood retail company in China, today announced its unaudited financial results for the third quarter ending September 30, 2021. The report showed that net income increased 47.2% year-on-year to RMB2.12 billion (US$329.3 million); GMV rose 41% year-on-year to RMB2.57 billion (US$399.3 million); gross margin jumped 480 basis points (BPS) from Q2 to 12.3%. Both the total revenue and the gross margin exceeded the top-end of the guidance range (which was growth of 40-45% for total revenue and growth of 250-350 BPS for gross margin). The total number of orders fulfilled as well as the average order value grew year-on-year, with the average order value swelling to the industry highest of RMB88.4 (US$13.80), representing a 5.2% increase from RMB84.0 (US$13.10) for the third quarter of 2020.
GAAP loss from operations as percentage of revenue narrowed by 39 percentage points quarter-on-quarter, while non-GAAP adjusted net loss as percentage of revenue narrowed by 5.2 percentage points quarter-on-quarter.
The results indicate that Missfresh’s revenue growth accelerated in Q3 2021 while gross margin soared – defying expectations, as companies often struggle with improving revenue growth and gross margin at the same time. This success was driven primarily by the increase in the number of orders fulfilled as Missfresh grew its high-value user base in Q3, leading to a corresponding rise in next-day delivery sales. Missfresh notably improved several areas of its operations in the third quarter of 2021, including expanding its supply chain network and quality control, upgrading its membership program for high-value users, and cementing itself as a leader in the digitalization of China’s retail industry.
Since its launch in 2014, Missfresh has built an established customer base of quality-conscious young shoppers in China who are willing to pay higher for convenience and ease as they lead busy lifestyles and seek a higher quality of life. This group of users is especially beneficial to gross margin expansion, as they prize quality over price.
With a strong focus on these high-value consumers, Missfresh has upgraded its membership program, boosting the retention of existing consumers and attracting new high-value users. For just RMB88 (US$13.77) a year, members enjoy a suite of online services, customized product recommendations, exclusive offers, and complimentary delivery. These perks encourage members to increase their shopping frequency as well as increase their average order value, which in turn converts them into high-value users. Revenue from paying members increased 800% year-on-year for the third quarter of 2021, contributing significantly to Missfresh’s rapid growth and higher gross margin.
Missfresh’s pioneering Distributed Mini Warehouse (DMW) network is the cornerstone of the company’s operations, integrating multi-temperature storage, picking, packing and distribution to streamline the retail distribution chain across 17 first- and second-tier cities including Beijing, Shanghai, Guangzhou, Shenzhen and Hangzhou. The platform offers a range of more than 5,000 products available for delivery in as quickly as 30 minutes. In Q3, Missfresh was able to shorten its average delivery time per order to 36 minutes, as compared to an average time per order of 37 minutes in the second quarter of 2021.
Missfresh has enhanced its end-to-end supply chain to include direct sourcing from 200 farms as well as 350 factories and processing facilities to give the company greater control over the quality of goods sold on its platform, while also lowering cold chain transportation costs, delivery time, and ensuring a stable supply. Missfresh also uses Big Data to predict sales and set production targets for agricultural output. Under this model, orders can be sent directly from Missfresh to farms, avoiding losses caused by surplus produce and inaccurate forecasting.
Missfresh’s in-house brand Fresh Joy (Xiang An Xin) offers customers value for money across a range of more than 200 products, including meat, eggs, vegetables, and baked goods. Sales for Fresh Joy jumped 250% in Q3 2021, as compared to the same quarter last year, reflecting the industry trend of in-house brands becoming a new driver for retail growth.
Digitalizing the neighborhood retail industry with business innovation
Missfresh bridges traditional markets with contemporary demand by transforming these markets into Intelligent Fresh Markets and providing customers with access to local, fresh and safe groceries. Missfresh is accelerating its Intelligent Fresh Market business expansion by already being contracted to digitalize 73 markets across 18 cities, 52 of which are already in operation across 13 cities in China.
Missfresh transforms these markets through making upgrades to their infrastructure and market layouts, and providing merchants with AI-powered digital retail tools and services such as omnichannel integration, smarter product procurement, sales management, and access to valuable data on customer demands.
Through a new collaboration agreement with Tencent Smart Retail, Missfresh offers clients improved services through its Retail Cloud initiative such as omnichannel marketing, private domain traffic operation, merchandising, last-mile delivery, and more. Tencent Smart Retail offers B2B assistance in improving customer engagement through digital services. As a result of this successful collaboration, Missfresh has already signed on 11 supermarket clients.
With these strengths and ongoing operational enhancements in mind, Missfresh expects to sustain its stable revenue growth, supported by strong revenue performance in 2021, and continue margin expansion. Looking ahead to Q4 2021, Missfresh expects that the company’s net income will be between RMB2.23 billion (US$348 million) and RMB2.32 billion (US$362 million), a year-on-year increase of about 35%-40%, and the company’s gross margin will increase by 100-150 percentage points on a quarter-over-quarter basis, with non-GAAP operating margin improving by 800 to 1,000 basis points on a quarter-over-quarter basis.