Misfits Market thinks it has found a unique way to tackle the difficult business that is online grocery.
The company, which acquired Imperfect Foods over a year ago, has a pretty simple premise. It partners with farms and brands, and sells products that otherwise wouldn’t hit major retail shelves. The name of the game for this type of business is scale, which is something COO Corey Farrell is constantly thinking about. But the ethos behind Misfits is sustainability.
“We wanted to be able to offer the consumer more complete shopping experience, to help us ultimately reduce more food waste,” Farrell said on this week’s Modern Retail Podcast.
The Imperfect acquisition has helped with growth. With the two companies combined, Misfits has a large presence on both coasts, and is growing both its first-party and third-party fulfillment. With this comes other areas of expansion — namely, private label.
Misfits does not bill itself as a competitor to Walmart. “Our assortment is limited,” Farrell said. Right now, it sells around 700 items, compared to the over 20,000 most grocery stores contain. But, by working with the right partners and being able to create new private-label products that wouldn’t otherwise be sold, Misfits is generating new revenue streams. Farrell pointed to a product Misfits sells that consists of broken pretzels that would otherwise be thrown away, which are dipped in chocolate.
“That’s an example of part of what we’re trying to do with our private-label assortment that’s very aligned with our mission,” he said.
Ultimately, the idea is to grow Misfits so that it’s available in the entire country and continue to work with companies that want to offload otherwise unsellable products.
“As we expand our assortment. We want to make the shopping experience more seamless for consumers,” he said.
Here are a few highlights from the conversation, which have been lightly edited for clarity.
The farms Misfits works with
“We do have large conglomerate farms that we work with. We also do have smaller farms that we work with. As you can imagine, the economics for freight — inbound logistics costs — are a big component of our overall cost structure. And so we do want to make sure that, as we’re procuring the goods from the farms, that we do have a low-cost means of getting them to our fulfillment centers. But we do have a wide variety of sizes of farmers that we do work with.”
Why Misfits acquired Imperfect
“You take two companies who are offering a very similar value proposition to the consumer and you put them together, you immediately get volume through your fulfillment center network and through your logistics network, which is incredibly important to online grocery cost structure. Delivering fresh grocery to customers is really challenging. It’s challenging from a quality perspective, it’s challenging from a cost perspective. And it really requires volume in order to get your cost structure low and to be able to offer good competitive prices to the consumer. And so, as part of the acquisition, we were able to combine our full supply chain. I’d say probably within three to four months, we had combined our end-to-end supply chain — so we put all of the deliveries on our first-party network; combined or third-party network; we were able to consolidate our fulfillment center network; get all of our inbound logistics consolidated. And that allowed us to pass some of those cost savings onto the consumer through lower shipping fees or free shipping in some cases as well.”
Misfits’ private label strategy
“Our assortment is limited. So right now we offer around 700 SKUs to the customer. And traditional grocery stores have 20,000 — Walmart Supercenter [has] 40,000. So, what we’re trying to do is we’re trying to curate our assortment to offer really high-quality products that meet our sustainability ethos, that are mission aligned. In many cases, we can find upcycled products that are aligned with our mission. And so we’re trying to find the balance. I’m not saying we’re perfect at it, but we’re trying to find the balance of: Hey, where do we think we need to offer the consumer good value with a private-label product versus a branded assortment?”