honestbee may face tough search for buyer

Singapore

HONESTBEE could struggle to find a buyer amid reports that it is facing a cash crunch and looking for suitors, industry observers said.

The grocery and food delivery startup is reportedly struggling to pay its staff, amid layoffs and high-level departures, and has held early talks with some potential buyers in Asia who could possibly acquire part or all of its business, according to a TechCrunch report last Friday.

Citing sources familiar with the talks, TechCrunch reported that the suitors include tech unicorns Grab and Gojek. Grab is invested in honestbee's competitor, HappyFresh. Meanwhile, honestbee's backer, Formation Group, has also invested in Gojek. honestbee, Grab and Gojek declined to comment for this story.

honestbee's reported woes are not entirely surprising, as the company may have "stretched itself quite a bit in terms of cash burn", said Lawrence Loh, an associate professor at the National University of Singapore Business School.

"They tried to jump from online to offline in a very distinctive way that used up a lot of resources, particularly with habitat (by honestbee)," he said, in reference to the startup's tech-enabled supermarket and restaurant launched last year.

habitat may sit unfavourably with potential buyers, given its remote location and intense competition from other supermarkets, he added.

"It's a sunk cost, and whether it is consistent with the direction of Gojek or Grab is still debatable . . . For groceries, the cost structure is very important because the competitors are all very cost-conscious . . . with Giant, Sheng Siong and FairPrice."

It may also be tough for honestbee to attract buyers, given the difficulty of retaining one of its other core assets - its pool of freelance shoppers and delivery people, said Christopher Quek, managing partner of venture firm Trive.

"When you are talking about the gig economy, the potential of (delivery) people just walking away is very high. I think it will be challenging for Grab and Gojek to try and retain the honestbee crowd," he said.

Without commenting specifically on honestbee, Carmen Yuen, partner at Vertex Ventures, noted that it is difficult for a distressed startup to easily sell its business off to a unicorn, even if there are clear business synergies.

"Unicorns are also not doing charity work. There will have to be a certain level of thought before they even consider a . . . company interesting for acquisition, even though it may seem fitting for their business expansion," she said.

The most pertinent question for a buyer would be how long it takes for the target company to turn around, and whether it would increase the buyer's cash burn. "Assuming the startup is challenged now, how long more will it take before they can make money? Even if there were going to be an acquisition, the people considering it also have to look at . . . how long more they will be burning (cash)," she added.

Other key factors for a buyer to consider would be the quality of the customer base and partners acquired, noted Reshmi Khurana, managing director and head of South-east Asia at risk consultancy Kroll. She highlighted some of the key questions: "Are there any institutions with whom honestbee has tie-ups that can be transferred? Second, does the brand honestbee mean anything to customers? Or are there other players they can go to?"

Since its inception in 2015 as an on-demand grocery delivery service, honestbee has expanded aggressively beyond Singapore, launching in the Philippines, Hong Kong, Thailand, Indonesia, Taiwan, Japan and Malaysia.

However, it has temporarily stopped its operations in the Philippines, TechinAsia first reported last week. honestbee also announced that layoffs will hit 6 per cent of its global headcount, and that it is suspending its food verticals in Hong Kong and Thailand.