Chinese Grocery Startup Missfresh Faces Cashflow Crisis As Suppliers Protest

Missfresh, a Chinese grocery delivery startup that had previously been valued at nearly $3 billion, is now struggling to survive amid mounting reports of employee layoffs and supplier protests.

The reversal of fortune comes just over a year after its initial public offering on the Nasdaq, when the Beijing-based company raised $273 million at a valuation of $2.8 billion. But the company’s shares, which had already lost 98% of their value since their debut, plunged another 43% yesterday to just $0.14 a share after announcing that it would temporarily shut down its main business line.

The unit in question, which Missfresh calls its on-demand distributed mini warehouse (DMW) service, involves placing smaller-sized warehouses closer to residential neighborhoods, so that orders of food and other daily essentials can be delivered within a shorter time span. The DMW business accounted for 85% of Missfresh’s total net revenues for the nine months ending in September 2021, according to the company. Missfresh, which had counted Tencent and Tiger Global among its investors, says it will “make every effort” to keep operating the company’s other business units including its retail cloud and next-day delivery service.

But doing so may prove to be a tall order. Angry suppliers have been protesting outside Missfresh’s headquarters to demand delayed payments, according to multiple local media reports. On Maimai, a Chinese career and social-networking platform akin to LinkedIn, dozens of posts by users claim the company has already laid off most employees and stopped paying salaries.

Missfresh didn’t respond to repeated requests for comment. Zhang Yi, chief analyst at Guangzhou-based consultancy iiMedia Group, says the beleaguered firm appears to be facing a high probability of having to shut down entirely. “A grocery-delivery startup needs to buy from suppliers on a daily basis, ” Zhang says. “But as this crisis of confidence spreads, upstream suppliers will get increasingly worried and wouldn’t dare to sell to the firm.”

To Missfresh, this means running out of products to sell at a time when it most urgently needs to generate more cash. According to its third-quarter results, Missfresh needed to pay off $500 million in current liabilities that were come due within the next 12 months, against cash and cash equivalents of $337 million.

Founded in 2014 by former Lenovo executive Xu Zheng, Missfresh was supposed to benefit from the pandemic, which led more consumers to stay at home and order groceries online. But costs and losses had unexpectedly ballooned, and the company was unable to publish its 2021 annual reports on time after discovering what it later described as “questionable transactions.” It had estimated in April that the company’s net loss could have more than doubled to as much as $558 million in 2021.

An internal review of the transactions completed in July found that they involved previously undisclosed relationships between suppliers and customers, different customers sharing the same contact details, as well as a lack of supporting logistical information. The company said that the employees involved in the apparent misconduct had already resigned, but the news wasn’t able to arrest the slide in its shares.

The U.S. Securities and Exchange Commission had warned Missfresh in June that it no longer met the Nasdaq’s listing requirements because its shares had traded below $1 for the last 30 consecutive business days. The company, which has until the end of November to achieve compliance, is also contending with several class-action lawsuits alleging that it made false financial statements in its prospectus.

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