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Has grocery delivery start-up Honestbee lost its sting?

Honestbee, an online concierge and delivery service provider, was launched in Singapore in July 2015. (PHOTO: Honestbee)
Honestbee, an online concierge and delivery service provider, was launched in Singapore in July 2015. (PHOTO: Honestbee)

By Therese Tay

SINGAPORE — It seemed to hold much promise when it burst onto the Singapore scene four years ago, but the Honestbee dream now seems to be unravelling.

Following its July 2015 launch, concierge app Honestbee rapidly went from a Singapore-based start-up to a regional success story. Besides Singapore, it offered grocery services in Hong Kong, Taiwan, Thailand, Indonesia, Malaysia, the Philippines and Japan, food delivery services in the same markets except Indonesia, and laundry services in Singapore. In October last year, it launched its innovative automated store, Habitat, in Singapore.

But signs of trouble have begun to appear. In January this year, the company said it had “temporarily paused” its partnership with FairPrice as it reviews “its processes and service levels with partners”. By late April, TechCrunch reported the company was “nearly out of money and trying to offload its business”. Shortly after, Honestbee confirmed that CEO and co-founder Joel Sng had resigned, with interim CEO Brian Koo leading a “strategic review”. Sng’s departure follows that of another co-founder, Isaac Tay, and Philippine head Crystal Gonzalez.

The company has also temporarily suspended operations in Japan and the Philippines, ceased operations in Hong Kong, and Indonesia, and stopped its food delivery and laundry services in Singapore. It has let go of approximately 10% of its total headcount.

What happened?

Is Honestbee simply ahead of its time or has its aggressive expansion – and accompanying costs – caught up with its dwindling bank balance?

According to Associate Professor Lawrence Loh of the National University of Singapore’s Business School, “It’s very clear that they’re up against the big boys in the market such as Deliveroo and Foodpanda. Honestbee diversified too fast, burning cash at a rate quicker than what it could earn.”

Still, high costs and burn rates are not uncommon for online start-ups in Asia. Building critical mass takes massive investment in digital marketing, discounting, and on the other end of the demand-supply equation, recruitment.

It takes a lot to survive, says CIMB Bank economist Song Seng Wun: “The tech startup world, especially in e-commerce, is really about survival of the fittest… Whoever has the deepest war chest and can move the fastest without burning out will win the game."

When it launched, Honestbee announced a US$15 million Series A investment from Formation8, a firm that included ex-CEO Sng among its partners. Last year, Tech In Asia found filings found filings that showed Honestbee had raised a further US$46 million from Korean investors. But burn rates are high. In May, TechCrunch reported having seen December 2018 losses of US$6.5 million.

BlackStorm Consulting management consultant Paddy Tan believes part of the problem was that Honestbee did not have the right people to support its rapid expansion.

“The local team, while employing unique go-to-market strategies, also has to be in-sync with headquarters, to have the same direction and deliverables,” he said.

Additionally, management has been slow in reacting to market changes and customer needs, said Assoc Prof Low. While the launch of Habitat last year was a game-changer, “it seems that it came a little too late.”

Based on latest analysis from YouGov Plan & Track, Honestbee’s reputation in Singapore – measured through a Buzz score – is at an all-time low.

A chance for survival

However, there may be hope for the struggling start-up.

Assoc Prof Loh noted that its new CEO has been quick to put a new team in place. “For him to step in so quickly and firmly indicates he is invested and committed to reviving Honestbee. Now, the company must… consolidate and concentrate on things that give them a unique value proposition.”

CIMB’s Song agrees. "Finding new investors will be a lot more difficult when they know that you are not in a position of strength… They really do need to push something very different and interesting, and financially sound too," he said.

Industry watchers are optimistic that Habitat could fiil this role. Despite its remote location, Habitat is a profitable business and an attractive concept that will appeal to would-be investors.

Habitat’s digitised, interactive model “is just the thing that can, regionally, help bring the industry closer to what Alibaba has done with its futuristic Hema Xiansheng venture, and what Amazon has achieved with Amazon Go,” said Lucas Tok, lecturer at Singapore Polytechnic’s School of Business.

Besides “natural” investors like Grab, Go-Jek and possibly Lazada, which acquired online grocery store RedMart in 2016, Tok believes that Honestbee could be a strategic investment for traditional players like the Dairy Farm Group, which owns Cold Storage and Giant.

Yet, even if a lifeline comes, Honestbee needs to tread with greater caution, he said. “Honestbee must… improve and testbed the concept carefully before expanding”.

Related stories:

Honestbee to stop food delivery service in Singapore, halts laundry service

Honestbee CEO Joel Sng steps down, replaced by Brian Koo

Troubled Singapore start-up honestbee to keep going in Malaysia where business is ‘brisk’