Dive Brief:
- HelloFresh said its preliminary fourth-quarter sales rose 58-59%, and that it hopes to break even by the end of 2018, according to Fortune. Sales during the period increased to between $309 and $313 million.
- The U.S. is the largest market for the German meal kit delivery firm. Sales in the U.S. reportedly doubled, compared to its international business, which grew by just less than a third, the business publication said.
- HelloFresh listed on the Frankfurt stock exchange in November. The stock is up about 6.5% since the listing.
Dive Insight:
Hello Fresh seems to have found the secret to succeeding in the highly competitive and volatile U.S. meal kit industry. While competitor Blue Apron has languished since its IPO in June, HelloFresh’s shares are up and sales are increasing.
The German meal kit company’s sheer size could be helping it break away from the pack and grow. According to Bloomberg, HelloFresh received a valuation of $2.3 billion during a funding round back in December of 2016. Blue Apron, in contrast, is valued at around $1 billion.
Size is important because it cushions HelloFresh from month-to-month peaks and dips in sales, and also allows for continued spending on advertising to attract new customers — a huge expense but a necessity for the meal kit space that makes profitability increasingly difficult. Competitor Blue Apron had to cut back on its ad spending in 2017, and experienced a corresponding dip in new signups.
In addition, HelloFresh offers vegetarian meals at a lower price point compared to the ones that include an animal protein. It also has introduced 20-minute meals to appeal to consumers who have complained that meal kits take too long to make.
While HelloFresh has done well after its listing on the Frankfurt stock exchange last November, competitor Blue Apron has struggled. The U.S. meal kit maker went public last June, but has wrestled with high marketing costs and declining customer spending. After slashing its initial offering price due to investor concerns, Blue Apron's stock has plummeted nearly 70% since its IPO.
The meal kit company also has been hounded by executive changes, layoffs and order fulfillment problems at a new New Jersey warehouse. Blue Apron's revenue during its latest quarter rose 3% from a year ago to $210.6 million, as an increase in average revenue per customer offset a decline in the number of people using the service, the company said in its latest earnings report.
Major grocery chains also are entering the meal kit market, further increasing competition. According to Nielsen, supermarkets tallied $81 million in meal kit sales in 2016, and stand to make considerably going forward. Publix and Kroger both launched their own in-store meal kits in 2017, and Albertsons doubled down by purchasing well-known meal kit service Plated in September for an undisclosed amount. Amazon has started selling its own new meal kits, which has all the earmarks of turning into an industry disrupter down the road.
Despite the clear consumer interest in meal kits, investors aren’t seeing the return they want and are curtailing spending. The Wall Street Journal noted that in 2015, investors made 25 deals worth $308 million, versus 18 deals worth $274 million in 2017.
HelloFresh may want to consider a partnership with a U.S. grocer or major retailer to continue to grow and thrive. While it’s doing well now, there’s no telling how much market share Amazon may eventually poach when its meal-kit service hits it stride or whether grocery chains will become meaningful players. While most of the larger chains already have in-store kits available, they could benefit from the name recognition and established customer base HelloFresh would bring. Any retailer, ranging from Kroger to Costco, could be a potential partner.
Despite the challenges the industry faces, demand for meal-kits isn’t waning. The Wall Street Journal reports that the sector is still expected to grow to more than $6 billion by 2021. Whether there will be room for more than one or two key players remains to be seen, but Hello Fresh would be wise to work aggressively to take one of those spots.