Yummi77 1) Many companies have tried and failed at online grocery ordering and delivery. Is there grounds to think Yummi will fare more favorably. Why? 2) Yummi’s approach is more aggressive than prior attempts by others. Consider rapid deliveries, short delivery windows, and perishable merchandise. Do these features increase or decrease Yummi77’s chances of success? 3) The case offers two operational models for Yummi77: the original delivery stations and subsequent neighborhood stores. Is there room for further improvement in the company’s approach? How? Please answer these questions (and any other issues
you wish to consider) as part of your report, providing detailed analysis
and/or discussion. Be as specific as appropriate,
but be careful of unsubstantiated decisions or sweeping generalizations. Key
criteria for evaluation are the logic, application of concepts, and depth of
thought in arriving at the decisions. Be concise (2- 3 pages of single-spaced
text, with up to 3 additional pages for tables or figures. 1 “ margins, 12
point font). For sake of brevity, do not
provide a review of the case at the beginning of the case analysis.
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REV: DECEMBER 4, 2015
BENJAMIN EDELMAN
Mission Impossible? Yummy77 Delivers Groceries
within the Hour
Shanghai bustled with the energy of 24 million people. As 150,000 bus drivers plied the roads and
50,000 teachers taught their lessons, a modest staff of about 500 sought to make each day more
convenient for interested customers. Yummy77 ran an online grocery store which, by summer 2014,
allowed consumers to place an order by phone or computer and receive delivery to their home or office
as soon as an hour later. In some ways it was the pinnacle of online shopping—delivering items of
modest value, assuring temperature control and delicate handling to protecting perishable fruits and
vegetables, and doing it all with exceptional speed that made overnight delivery decidedly passé.
On one hand, key indicators were reassuring. Reviewers were positive, and customers kept coming
back. Yet Yummy77’s model had proven more capital-intensive and more complicated than the
founders had initially expected. Meanwhile, well-funded competitors were drawing near. Yummy77
had built 53 small stores around the city, both to showcase goods and to facilitate quick delivery almost
anywhere—but the costs and complexities of these stores ran counter to the capital-light ideals some
people associated with tech startups. Would further growth spread fixed costs more efficiently—or
push inefficiencies to the brink? What if competitors copied Yummy77’s approach or expanded even
faster?
The White Whale of Grocery Delivery
For a string of tech startups, grocery delivery had been a tempting opportunity but, for most,
ultimately an insurmountable challenge. Beginning in 1999,1 a dozen firms had attempted to serve this
market, and most had failed. The first US “dot com” cohort had a particularly tough run. Webvan was
first to enter the market and set a high bar, promising home delivery of groceries within 30 minutes.2
A rival, Homegrocer.com, quickly followed in March 2000, boasting a nearly identical model.
Anticipating high returns, both companies scrambled to build brand new warehouses and fleets of
dedicated trucks.3 A few months later, Homegrocer’s still-small customer base could not support the
company’s infrastructure, and Homegrocer was sold to Webvan, which accumulated over $800 million
in losses and itself collapsed a year later.4 Meanwhile, competing delivery service Kozmo used bicycles
when delivering games, videos, and even Starbucks coffee in addition to food, but soon suffered a
similar fate when mounting losses ultimately forced it to cease operations.5 Collectively, these and
other early grocery delivery services lost approximately one billion dollars.6
Professor Benjamin Edelman prepared this case with the assistance of Nancy Hua Dai of Harvard Center Shanghai and research assistant Vivian
Rong. It was reviewed and approved before publication by a company designate. Funding for the development of this case was provided by
Harvard Business School and not by the company. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve
as endorsements, sources of primary data, or illustrations of effective or ineffective management.
Copyright © 2015 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685,
write Harvard Business School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu. This publication may not be digitized, photocopied,
or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School.
This document is authorized for use only by Surender Reddy in 2017.
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916-025
Mission Impossible? Yummy77 Delivers Groceries within the Hour
Beginning in 2014, a new generation of grocery delivery services sought to succeed where others
had given up. Amazon Fresh, offered in select neighborhoods in Seattle, Southern California, Northern
California, New York, and a few areas of New Jersey, and Philadelphia,7 touted the cheapest new
model for groceries but required a minimum of $50 per order. Amazon also repeatedly threatened to
require a $299 Amazon Fresh Prime membership for customers to use the service, though Amazon
repeatedly delayed imposing that requirement for fear of losing customers, instead offering a $7.99
delivery fee so long as a customer was a member of Amazon’s standard Prime shopping service ($99
per year).8 Separately, Amazon’s Prime Pantry offered dry goods and other household stables at a
delivery fee of $5.99 per box.9
Meanwhile, Google Express offered lower prices—unlimited free deliveries for $95 per year or $4.99
per delivery10—but reduced the range of available products by excluding perishable and temperaturecontrolled goods. While Google maintained some warehouses, the service primarily relied on retail
partners to store the goods, which reduced launch costs and allowed for faster expansion.11
In comparison, Instacart’s model was in some respects less ambitious, as it facilitated the delivery
of groceries from existing stores rather than dedicated warehouses. Yet, its model was scalable in a way
that made it unique: it could operate anywhere with demand and with available workers willing to
pick up items and make deliveries. Its service was also speedy: Like predecessors a decade earlier,
Instacart promised the delivery of goods within the hour. 12 As of 2015, Instacart’s $99 annual
membership fee waived all delivery fees for orders over $35.13 That said, critics had questioned the
company’s pricing, alleging that, in addition to charging for delivery staff time (for customers without
annual memberships), the company marked up grocery prices above actual store prices. In a Wall Street
Journal test purchase, Instacart marked up the prices of some items by as much as 26 percent. 14 Some
analysts questioned whether Instacart could overcome an apparent cost disadvantage: Relying so
heavily on existing retailers, Instacart had to pay standard retail prices for every item, including a share
of rent and overhead, plus additional amounts for delivery staff.
In some respects, grocers’ own efforts seemed to be most successful. As early as 1989, grocery
delivery service Peapod offered an early online ordering system in partnership with Chicago-based
Jewel Food Stores. (Because this implementation predated consumer Internet access, Peapod provided
modems and special software to help customers place order.) By 1995, Peapod had expanded to include
Safeway in San Francisco and Kroger in Columbus, Ohio.15 In 2000, the company became a fully-owned
subsidiary of Royal Ahold and began to work instead with Ahold USA grocers Stop & Shop and Giant
Foods. Affiliated solely with these stores and operating only in five states, Peapod used Ahold’s buying
power to make high-volume, low-cost purchases, which reduced distribution and transportation costs
and lessened pressure to mark up products above in-store prices. Between 2001 and 2012, Peapod
added coverage of much of the East Coast, and as of 2015 the company reported having made more
than 20 million deliveries. In the company’s understated style, Peapod’s web site promised more to
come: “Peapod certainly has plans to grow.”16
The Dawn of Yummy77
Yummy77 founder and CEO Ping Mi began her career as a software developer at Bank of America
as well as erstwhile telecom giant MCI. After studying at Berkeley’s Haas Business School, she took
product management roles at Oracle and Siebel, building ERP and CRM systems. Noticing rapid
developments in China, she elected to return to her homeland, initially as CTO of PPG Direct Merchant,
an e-commerce platform specializing in clothing.
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Mission Impossible? Yummy77 Delivers Groceries within the Hour
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After nearly twenty years in the United States, Ping felt reverse culture shock—lacking certain
produce that had become routine in the US. Her personal desire for distinctive fresh fruits and
vegetables led her to found Yummy77 in Shanghai in May 2013. She explained the objective: “I started
Yummy77 to help office workers prepare warm, delicious meals for their families at a touch of their
fingers.” Ping’s vision emphasized the proletariat: “Our goal is to provide convenience, freshness, and
value for average people.”
COO Roger Wu explained Yummy77’s strategic choice of products and focus. Looking at other ecommerce platforms, Roger noted that “everyone else was doing standard merchandising, like cell
phones and televisions, with mass quantities at factory-standard quality. But no one was doing fresh
groceries, nonstandard items, or agricultural items. Even two apples grown on the same tree could
have different sizes and tastes, and there are so many factors affecting the quality that gets to customers’
hands, so competitors ran away from this space. It was a blue sea opportunity, and we were drawn to
it.”
Yummy77 began by launching a billboard advertising campaign that featured classic art juxtaposed
with food. One billboard featured the Mona Lisa smiling as she received a platter of fish. The company
simultaneously launched a set of early promotions waiving delivery fees. Furthermore, Yummy77
touted special prices for featured products. For example, one early offer touted 12 Chilean gala
examples for 31 yuan (about US $5). (Exhibit 1 presents the marketing to consumers.) As Yummy77
added new products from new manufacturers, it often offered free samples when a user bought related
products. For example, as Yummy77 added grapes from a new grower, an order of oranges might
include a free portion of grapes. All told, Yummy77 found that it spent approximately 100 yuan (about
US $16) to attract a customer who placed one order per week.
The company’s initial service provided next-day delivery for orders placed by 4 pm. Deliveries were
scheduled within four-hour windows from 9am to 6pm each day. For deliveries in Shanghai, Yummy77
also offered later options, 6pm to 9pm, for an additional fee of 5 yuan (less than US $1).
Focusing solely on food, Yummy77 offered some 2,000 items, including fruits, vegetables, meat,
poultry, fish, seafood, milk, eggs, grains, oils, and snacks, though notably foregoing household items
such as cleaning supplies. Exhibit 2 presents the 20 most popular items as of summer 2015. Yummy77’s
“About Us” page emphasized “premium” items, which included imports from nearly twenty
countries. COO Roger Wu explained the rationale: “We knew we were serving office workers who are
prepared to pay for quality goods. We focused on imported foods and premium foods based on the
preferences of these customers.” For example, Yummy77 featured cherries imported from the United
States or Peru, Zespri Kiwi from New Zealand and avocados from Mexico—high-end fruits which
these customers were thrilled to obtain.
Yummy77 sought to offer prices similar to standard retail stores. With the company’s focus on
premium items, competitive pricing required simplifying supply chains to reduce costs. Indeed, many
Chinese customers had found high-end fruit an unreasonable luxury at the prevailing prices charged
by other retailers. But by buying directly from suppliers, Yummy77 avoided the brokers, forwarders,
and other intermediaries that inflated the price of this product at other retailers. Seeing lower prices,
customers then bought much more, and for China’s growing upper-middle class, cherries, kiwi and
avocado could be increasingly routine indulgences.
On top of item pricing, Yummy77 added a small delivery charge of 10 yuan (US $1.62 at the
prevailing exchange rate as of January 1, 2015), though orders of 99 yuan (about US $16) waived the
delivery fee. Customers were not expected to tip delivery drivers.
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Mission Impossible? Yummy77 Delivers Groceries within the Hour
Yummy77 implemented deliveries through a three-step process relying on a single central
warehouse, 30 delivery stations each serving roughly a ten kilometer (6.2 mile) radius, and scooters for
final delivery. The process began at the central warehouse, a 120,000-square-foot facility located in
metropolitan Shanghai. In addition to holding inventory, the warehouse provided a staging area for
“pick-and-pack” gathering the goods for each delivery. Next, delivery trucks transported each day’s
orders to each of 30 delivery stations throughout Shanghai. These delivery stations, open only to
Yummy77 staff, were about 800 square feet (roughly the size of a two-bedroom apartment), with
oversized refrigerators to preserve fresh meat and produce. Finally, delivery staff loaded a few orders
into the back of a scooter (with foam insulation and ice packs for temperature control), delivered the
goods to customers, then returned to the delivery station to pick up more. For final delivery, Yummy77
favored scooters, not full-size trucks, because traffic regulations limited the use of large vehicles in
many neighborhoods. In some places, minivans supplemented scooters for customer deliveries.
Because delivery stations were located near customers’ neighborhoods and because only a scooter was
required to make deliveries, Yummy77’s last-mile costs were modest; the company paid delivery staff
approximately 3 yuan (about US $0.50) for each order delivered to a customer.
With reasonable prices for imported goods previously viewed as unduly expensive, customer
reaction was positive—in emails, customer interviews, low return rates, and high repeat purchases.
Yummy77’s customers tended to be internationally oriented, whether from having spent time overseas
(often to study or work), or from movies and other media presenting international cuisine and
practices.
While customer response was favorable, there were some notable limits. For one, many Chinese
customers preferred to buy live fish and shrimp, as seeing the creatures still alive confirmed their health
and freshness. To keep the seafood alive required tanks and staff attention, neither of which Yummy77
was prepared to provide in the delivery stations. Furthermore, a 10 kilometer journey from delivery
station to a customer’s location might be too long for seafood to survive in a bag. And if a customer
was not home to accept the order in person (a possibility with four-hour delivery windows), the
customer would be unable to confirm the item’s condition upon arrival.
Meanwhile, some delivery stations became increasingly hectic. With 100 orders per day at a single
delivery station, it was usually workable for staff to track what went where and to organize efficient
deliveries. But when a delivery station reached 500, packages became cluttered and errors were
inevitable. Yummy77’s standard response was to split popular regions into two or more delivery
stations, both to reduce distance to customers and to increase capacity. But each split also meant added
cost. The company estimated that opening a delivery station cost about 60,000 yuan (about US $9,500),
and operating costs were about 20,000 yuan per month ($3,150). More stores also meant more
complexity, including more stops for delivery trucks coming from the central warehouse.
Competitors
The market for electronic ordering of fresh food in China more than doubled from 2013 to 2014,
reaching 2.89 billion yuan in total.17 This increase was embodied in the rise of a number of competitors.
1mxian. Founded in October 2014, 1mxian offered delivery of fresh fruit in Beijing, Shanghai,
Wuhan, Nanjing, Hangzhou, Tianjin, Shenzhen, and Chengdu.
Beequick. Founded in May 2014, Beequick provided one-hour delivery of fresh produce, snacks,
beverages, liquor, coffee and other products from preexisting community convenience stores.
Membership was open to all interested convenience stores, though each store had to provide its own
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Mission Impossible? Yummy77 Delivers Groceries within the Hour
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delivery drivers and vehicles. By November 2015, Beequick had served over 250,000 customers in
Beijing, Guangzhou, and Shenzhen, and had made plans to expand to other major cities in China.
Customers could place orders both from Beequick’s mobile app as well as via the popular social app
Wechat.
Benlai. Founded in July 2012, Benlai delivered groceries to 22 cities including Beijing, Tianin, and
Shanghai. First, customers made orders on Wechat or the Benlai mobile app, including choosing a
nearby store. Next, the store received the order and prepared it. Finally, the store delivered the order
through Benlai’s logistics service or a third-party delivery service. As of November 2015, Benlai did
not charge either customers or stores for the service, though the company indicated that it might charge
in the future. A separate source of revenue came from Benlai’s supply chains providing goods to stores.
Dmall. Founded in April 2015, Dmall provided fresh products as well as daily consumer goods. It
began operation in Beijing and, as of 2015, had elected to perfect its implementation before expanding
elsewhere. Dmall collaborated with established grocery stores including Buddies, Metromall,
NGS1685, and Wumart, which hold inventory. When a customer made an order on the Dmall app and
chose a nearby grocery store, a Dmall staff person gathered the items in the specified store, then
delivered the order to the customer’s home. Dmall’s grocery store partnerships followed two models.
For some grocery stores, the partnership was exclusive for some period, meaning that the grocery store
would not sign up with any other delivery service. For others, the grocery store became a shareholder
in Dmall, thereby assuring a long-term relationship. Dmall leaders summarized the company’s
approach: “no purchase, zero storage, asset-light, one-hour delivery.”
Epermarket. Launched in 2012, Epermarket helped Shanghai’s foreign residents find high-quality
and safe food from their homelands. Founder Jean Yves Lu had worked for 18 years in the food and
beverage industry. As of 2015, Epermarket charged 30 yuan for standard delivery and 50 yuan for same
day, with delivery fees waived for orders over 300 yuan. The company covered almost all of Shanghai
and boasted delivery in special vans with three separate temperature zones. In addition to touting
competitive pricing and discounts, the company supported customer service in English, French,
German, and Chinese.
Farmlink. Founded in June 2014, Farmlink supplied restaurants with food products including
vegetables, fruits, oil, rice, eggs, frozen and fresh meat and seafood, seasonings, drinks, dry goods,
drinks, and even restaurant supplies and appliances. As of November 2015, Farmlink provided
deliveries to Beijing, Shanghai, and Chongqing. Farmlink emphasized the efficiencies of focusing on
restaurants only, and it sought to offer special savings to small and medium-sized restaurants that
might be unable to negotiate the best prices on their own.
Fields. Founded in 2009 by Sun Art Retail Group (a leading food retailer in China), Fields was
known for unique products like gluten-free quinoa milk as well as organic produce, though it also
offered a full complement of meat, poultry, fish, seafood, dairy, drinks, alcohol, and more. Fields
charged delivery fees of 50 yuan for orders less than 100 yuan, 20 yuan for orders 100 to 200 yuan, and
no charge for orders above 200 yuan. Fields covered Shanghai (excluding Chongming District) and its
five surrounding cities. Fields’ web site offered service in five languages.
Fruit …
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