Produce-delivery service Misfits Market has raised $85 million more from investors and will add a “new, state-of-the-art warehouse” across the river from Philadelphia in Delanco to supplement the cold-storage warehouse at its Pennsauken headquarters, the company said Wednesday.
Like a food equivalent of Big Lots, Misfits prides itself on shipping “ugly” produce — lumpy apples, many-rooted parsnips — and mislabeled pantry items, but at budget prices, instead of premiums.
Investors are betting on a rapid expansion across the United States for the firm, which says it hired 400 since March to ship “organic, affordable” groceries to customers’ homes.
The company employs 560 full-time warehouse workers, 70 temps it expects to add full time, plus 100 boss, tech and other staff who mostly work remotely, and plans to double staff by year’s end. Chief executive Abhi Ramesh says he boosted pay $3 an hour in March to meet demand, and kept wages at the new level while Acme and other grocers ended the practice. Ramesh did not disclose current pay; New Jersey’s minimum wage is $11 an hour.
Ramesh said the company staffed up for a surge in home-delivery demand after restaurants were closed under coronavirus restrictions in March.
Chicago-based Valor Equity Partners (”Your Partner in Disruptive Growth”), which is also an investor in Philadelphia-based national snack delivery service GoPuff, leads the new investor group.
Others betting on Misfits include San Francisco-based Greenoaks Capital, one of the firms that sold Flipkart to Walmart in 2018; Third Kind Venture Capital of New York; plus a Hollywood cash infusion from Sound Ventures, founded by actor Ashton Kutcher and Guy Oseary, who manages pop singer Madonna.
Misfits, founded by Ramesh, a graduate of the University of Pennsylvania’s Wharton School and an alumnus of the Philadelphia-founded DreamIt Ventures entrepreneur program, raised an initial $16.5 million from Greenoaks and other firms in 2018.
Investors hope the rapid growth in local-delivery services such as Misfits will bring fat takeover offers from national giants such as Walmart or Amazon. Amazon cut back on its own local delivery service earlier this spring to concentrate on surging demand for warehousing, shipping and distance hauls.
Ramesh at first said he wanted to base Misfits in North Philadelphia. In a statement posted on the company web site, he called Philadelphia “the poorest of the country’s 10 major cities, with a poverty rate double the national average,” and said he wanted “to employ a lot of people in the North Philadelphia area. There are few jobs in the area with decent pay.”
But Misfits has moved its initial Philadelphia warehousing to the Jersey suburbs, leasing a 140,800-square-foot facility in an industrial neighborhood of Pennsauken.
Why the move across the Delaware River? “We’re proud to have originally put down roots in North Philly and founded the company there. However, demand for our product quickly outpaced the size of industrial facilities available in the city proper. By building a new facility in close proximity to the metro area, we’re able to scale efficiently and create jobs for more residents of Greater Philadelphia,” the company said in an email.
The company also said it will be able to “more than double its order capacity across the East Coast, throughout the South and into the Midwest” from the Delanco and Pennsauken warehouses. Misfits says it recently added Louisiana, Arkansas and Mississippi to its delivery area, and plans Michigan and neighboring Midwestern states next.
Misfits Market said it buys produce of unusual size and brand-name products with packaging errors at discount prices. That prevents “food waste,” Valor partner Jonathan Shulkin said in a statement. He will join the Misfits board as part of the deal. He also praised Misfits’ “tech-forward approach” to matching food that other companies don’t want with individual consumers.
“This investment will help us reach more people for whom our product will be essential,” said Ramesh in a statement.
In a May CNBC interview, Ramesh described Misfits’ products as “funny-looking produce, things that are too big or too small to fit on a shelf, pantry-stable items, things that are mislabeled or mispackaged, things supermarkets are not stocking.” He said such niche buying enabled his company to offer “30 to 40 percent discounts compared to regular retail prices,” and that coronavirus demand had accelerated his business plan by 18 months.
The company also said it plans to expand its online sales, including special deals “from brands like Bob’s Red Mill, Taza Chocolate, Minor Figures Oat Milk, Teatulia, and Ceremony Coffee at an average of 25-50% off retail prices.” And there will be a smartphone app.
In a statement, Taza founder Alex Whitmore called Misfits " a rescuer” that prevented waste by buying his company’s surplus when coronavirus closings shut retailers who used to sell his products.
Before starting Misfits Market, Ramesh was a co-founder of Horizons School of Technology, a San Francisco-based software education platform;, of DreamIt-backed Altair Prep, an online SAT tutoring service; and of StoreTok, a Los Angeles firm that sought to enable retail purchases through social-media comments. He was also an analyst at private-equity giant Apollo Global Management LLC.