Deal focus: Miss Fresh showcases future of e-commerce

Jeneration Capital is pinning its hopes on China's millennial e-commerce players, a collection of companies founded in the past 5-10 years that use technologies and business models to deliver a higher level of service as well as a more sophisticated range of products.

"We are strong believers in the e-commerce industry in China, which has now entered into its second generation. While the first generation of winners, giants like Alibaba and JD.com, focused on selling nonperishable goods, the second generation offer services and online-to-offline innovations that give consumers access to items with shorter expiration dates," says Tony Zhang, a partner at Jeneration, a growth investment firm with around $2 billion in capital.

Miss Fresh is a case in point. Jeneration was suitably convinced by the fresh food e-commerce specialist to co-lead a $450 million funding round with Goldman Sachs, Tencent Holdings, and US-based Davis Selected Advisers. It follows a $330 million round in September of last year that featured Tiger Global Management and Genesis Capital, among others.

Whereas the likes of Alibaba gained traction through a combination of simplicity and scale – providing a marketplace for small merchants to sell low-end goods in large volumes – Miss Fresh prioritizes flexibility over size. Operating in 20 Chinese cities, the company guarantees within-one-hour delivery for a range of grocery items, supported by a network of more than 300 front-end warehouses, each of which covers a radius of 3 kilometers. 

There are plans to increase the number of facilities to 10,000, in part by signing up independent warehouse operators as franchise partners to reduce costs and maximize flexibility. These operators would be responsible for the goods on site – not sourcing and delivery – and receive a share of the revenue.

This approach contrasts that of Alibaba-backed Hema Fresh and JD.com's fresh goods channel, which prefer centrally managed warehouses. They also focus more on offline retail, a move investors say could impair growth due to the challenges of running physical stores. Pure online players like Miss Fresh may benefit. 

"We see Miss Fresh as a next generation e-commerce winner," said Zhang, "Its business model can scale nationwide." He notes that the fresh food and groceries market is China is worth RMB3-4 trillion ($437-582 billion) but the penetration rate is less than 2%, compared to 15-20% for other e-commerce channels.

 "We are betting that in the next three to five years, the company will reap rewards from the maturing young middle class who were born in the 1980 and 1990s and have huge demand for fresh produce sold online," adds Zhou Liang, a managing director and head of private placements at China Renaissance. "They want to be presented with carefully categorized goods"

China Renaissance advised on the most recent round, while Huaxing Growth Capital, a direct investment arm under the boutique investment bank, contributed capital to the deal.   

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• Topics
• Greater China
• Expansion
• Technology
• Consumer
• China
• Growth capital
• Jeneration Capital
• TMT