🥦 Why HappyFresh failed in Malaysia after 7 years

Hey Founders,

Welcome to The Runway Ventures, a weekly newsletter where I deep dive into startup mistakes and lessons learned to help you become a better founder.

💰 By the way, if you’re building (or plan to build) an AI startup, I’ve got good news for you. As announced by Deputy Prime Minister and Minister for Finance Lawrence Wong in his 2024 budget speech, the Singapore government will invest more than SGD1 billion to support AI development over the next 5 years.

This means you’ll get more resources and funding to support your AI startup if you’re building it in Singapore. In short, Singapore wants to become the leading AI hub in Southeast Asia.

By the way, today’s failed startup was a household name in Malaysia. Let’s get to it! 🚀

☠️ 1 Failed Startup: HappyFresh

🚀 The Rise of HappyFresh

Founded in 2014, HappyFresh, was the first and fastest-growing online grocery platform in Southeast Asia (before Honestbee was launched in 2015). It was an Indonesian-based company that was first launched in Jakarta before expanding to Malaysia and Thailand.

At its peak, the company has supported over 850 employees as well as smaller specialty stores.

• The Problem — Consumers didn’t have time to buy groceries at supermarkets.

• The Solution — HappyFresh provided convenience by delivering groceries to consumers’ doorstep speedily and safely.

  • HappyFresh assigned Personal Shoppers to freshly handpick the best produce and items.

  • After that, HappyFresh’s Riders delivered groceries to consumers.

Guess what? People loved the convenience of having their groceries delivered at their fingertips. Because of this, HappyFresh was a huge hit when it was launched in Malaysia in 2015.

🎢 As compiled by Vulcan Post, here’s where HappyFresh’s journey began:

• March 2015 — HappyFresh was launched in Indonesia and Malaysia.

• September 2015 — HappyFresh raised USD12 million in its Series A round, led by Vertex and Sinar Mas Digital Ventures.

  • HappyFresh expanded to Thailand and Taiwan.

• March 2016 — HappyFresh expanded to the Philippines.

• August 2016 — HappyFresh raised undisclosed amount in its Series B round.

  • CEO had reported that the amount was higher compared to its Series A round.

  • HappyFresh withdrew from Taiwan and the Philippines markets.

• January 2017 — Guillem Segarra took over as the new CEO.

  • HappyFresh re-strategised to focus on unit economics, logistics, and new business units.

  • HappyFresh started seeing positive margins (finally!).

• April 2019 — HappyFresh raised USD20 million for its Series C, led by the Mirae Asset-Naver Asia Growth Fund.

• 2020 — COVID started, and HappyFresh experienced 10x to 20x growth across 3 countries (Malaysia, Thailand, Indonesia).

  • People were stuck at home and couldn’t go out to buy groceries, and HappyFresh came to their rescue.

  • Suddenly, consumer behaviour shifted towards online groceries due to the pandemic. HappyFresh grew tremendously because of this tailwind.

📉 The Fall of HappyFresh

💸 Despite its growth during the pandemic, HappyFresh was still losing money. Unfortunately, the happy story ended after the pandemic:

• July 2022 — HappyFresh launched its own supermarkets.

  • Launching their own supermarkets was the latest strategy toward a path of profitability.

• September 2022 — Finally, after 7 years, on 22 September 2022, HappyFresh Malaysia announced on their Facebook page that they were left with no choice but to cease operations immediately due to the current economic situation.

  • Although HappyFresh managed to secure an undisclosed funding from investors, the company only resume operations in Indonesia (Bye HappyFresh Malaysia! 😭)

Want to learn more about HappyFresh’s downfall?

• HappyFresh Malaysia officially says goodbye after 7 years

• A timeline of HappyFresh’s tumultuous 7-year journey in Malaysia, from launch to closure

⚠️ 2 Mistakes

Mistake 1: Copied overseas e-grocery model to Southeast Asia

When Instacart was launched in the US in 2012, it was a huge success. 2 years after in 2014, HappyFresh copied the same model and applied it in Southeast Asia. It promised to deliver groceries to customers within 1 hour — which was a bold concept given the complexities of the regions in Southeast Asia.

Despite the solid background and credentials of the founders, conquering Southeast Asia was not an easy task, requiring a huge amount of blood and sweat.

🚦 On top of that, HappyFresh had to build its own logistics network for highly congested and remote areas and solve other operational challenges, making it harder to grow profitably as a company.

After the closure of HappyFresh in Malaysia and the subsequent shutdown of Honestbee, it seems that blindly copying overseas e-grocery model to Southeast Asia might not be a good idea as each region has its own unique market needs, geographical challenges, language, and culture.

Mistake 2: Expanded too fast & grew at all costs

To fulfil the company’s ambition, HappyFresh expanded quickly using the funds raised from investors. Within 2 years, HappyFresh expanded to 5 different countries before it withdrew from Taiwan and the Philippines in 2016.

📉 The grew-at-all-costs approach didn’t last long. The company was burning tons of money every month. HappyFresh faced challenges in the face of slowing economic growth, surging inflation and higher interest rates.

Even worse, HappyFresh seemed to be facing some challenges and was undergoing a restructuring exercise to manage its mounting debt. According to DealStreetAsia, HappyFresh needed to raise capital as debt owed to supermarkets, logistics partners and other clients were piling up.

Eventually, the company’s ambition was far ahead of the business’s profitability and its cash was running out, forcing HappyFresh to close down in Malaysia.

🧠 3 Lessons Learned

Lesson 1: Never blindly copy overseas models to Southeast Asia

I was guilty of this mistake too. When we first started Staq, we often referred to Codat (another similar player based in the UK). We fell in love with Codat’s solution, business model and product and we wanted to apply the same way in Southeast Asia.

Needless to say, Codat’s model didn’t seem to work in Southeast Asia due to low market readiness (SMEs are not ready to share financial data) and timing (recession).

Lesson 2: Build the fort before conquering other places to build an empire

HappyFresh wanted to build an empire (dominate the whole Southeast Asia) from Day 1, but they forgot to build and strengthen their own fort before conquering other places.

Because of that, most of their forts are half-built in different countries with high burn rates, making them vulnerable to collapse when the storm comes.

Lesson 3: Don’t bite off more than you can chew

On top of the debt owed to supermarkets, logistics partners and other clients, HappyFresh had at least US$97 million (about RM437 million) in debt financing. 🤯

Even though HappyFresh looked good on the outside with its expansion plans, they were struggling financially because of the huge amount of debt owed to multiple stakeholders and institutions. Good for PR, bad for business.

Remember, never bite off more than you can chew, or you’ll get choked and suffocated eventually.

That's all for today

Thanks for reading. I hope you enjoyed today's issue. More than that, I hope it has helped you in some ways and brought you some peace of mind.

You can always write to me by simply replying to this newsletter and we can chat.

See you again next week.

- Admond

Disclaimer: The Runway Ventures content is for informational purposes only. Unless otherwise stated, any opinions expressed above belong solely to the author.