Nasdaq-listed retailer Missfresh , one of the new faces of Chinaʼs e-commerce sector, collapsed on Thursday with a dramatic announcement that it was dismissing most of its employees and leaving hundreds of suppliers unpaid.
The meltdown of Missfresh, which has raised at least US$2 billion from big-name investors including Tencent Holdings and Tiger Global, is another cautionary tale for investing in China-focused internet services, as the world's No 2 economy quickly loses momentum with Beijing's "dynamic zero" Covid-19 policy contributing to lower consumer spending.
Missfresh's stock price on the Nasdaq had fallen to just 14 US cents on Thursday, about 1 per cent of its initial public offering price of US$13 last June, as its key business of delivering fruit and vegetables had largely ceased operation. The company said in a statement that services were facing a "temporary shutdown" amid "staff optimisation".
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For its suppliers, employees and consumers, however, the Beijing-based firm's story is over.
Missfresh employees were told to stay at home on Thursday. In the afternoon, they were called into an online meeting and told that it would be their last day on the job. The company said it was not sure when June and July salaries would be paid, according to an online meeting record shared with the South China Morning Post.
All executives, including its CEO and chief financial officer, have remained out of public view while a number of employees complained about their disappearance, according to the recording.
Missfresh said on Thursday that the company ran out of money after a coal miner failed to deliver 200 million yuan (US$30 million) in investment in a deal reached between the two.
However, Missfresh has also been operating in an increasingly tough environment. Social retail spending, a general measure of consumer spending, contracted in China in the first half of 2022.
Missfresh, known for its promise of 30-minute deliveries, has also seen its operations, which rely on extremely efficient logistics, severely disrupted by quarantine requirements, mini lockdowns and other policies designed to control the spread of Covid-19.
The 8-year-old company recently notified users through its app that the half-hour delivery promise would be changed to next-day delivery.
When Missfresh went public in New York last summer, it raised US$273 million. Its SoftBank Group Corp-backed rival Dingdong Maicai listed days later, raising US$95.7 million. Both companies had lowered their initial IPO targets, reflecting concerns among investors about their growth outlook amid intense competition in the mainland's on-demand delivery market.
China's online-to-offline grocery segment started to take off in 2020, the first year of the pandemic that saw tech giants including Meituan, Pinduoduo and Didi Chuxing expand into the booming industry.
The companies competed for market share by offering massive discounts, leading to scrutiny from China's market regulator. Missfresh, Didi and Meituan, among others, were all fined for unfair price competition.
In March, Dingdong was summoned by the market regulator in Beijing over food safety issues, including selling dead fish while marketing it as alive and offering vegetables past their sell-by date.
The online-to-offline grocery industry "has long been mired in unhealthy competition and price wars that result in losses", said Li Chengdong, CEO of e-commerce consultancy Dolphin Think Tank. "In addition, strict regulations have dampened the capital market's outlook for the industry."
Missfresh reported a loss of US$151 million in the third quarter of 2021, widening by 58 per cent from a year earlier, according to its latest financial disclosure.
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2022 South China Morning Post Publishers Ltd. All rights reserved.
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