Is HelloFresh cooked?

Meal Kits + RTE = Anxiety?
Acquire a tiny competitor (2% of your market cap). Pivot your company to bet on it. Profit?

That’s the Hello Fresh strategy. Nearly 7 years post-IPO they are either mounting a 🐐-level comeback or heading for yet another DTC flameout.

The stock is down -94% from its Covid peak. Even investors who bought at IPO have lost about half their money over a period when simply buying the index would have returned 2-2.5x. It trades for a microscopic (0.1x) price-to-sales ratio.

The market thinks this meal kit is cooked. Why? TLDR: the business of meal kits isn’t as big or profitable as previously expected.

“Hail Mary,” thy name is “Ready-to-Eat”

That’s HF's new product category on which the future depends.

Jumpstarted by the acquisition of Chicago-based Factor75 in November 2020 for what now seems like peanuts, ready-to-eat (RTE) — think microwavable meals — already makes up 24% of HF’s global revenues, and is even bigger in the US. Topline grew 54% for RTE in Q1 while Meal Kits shrunk -7.6% vs Q1 last year, meaning the RTE category share is growing rapidly.

My POV, as I shared with a large European hedge fund client recently:

The company needs to stabilize meal kits at a decent profitability. But more important is the efficiency of customer acquisition to RTE, which can make-or-break this turnaround.

Hello Fresh will follow the “tried and tested playbook that we have perfected with 18 country launches over the last 10 years in the meal kit space” in growing RTE, per the CEO.

They have indeed built an impressive worldwide marketing machine that has acquired around 10 million households ever. But a lot has changed since the hyper-growth of meal kits, especially in digital marketing and online grocery. To wit, HF spent an unsettling 23% of global revenue on marketing in Q1, way above their 15-16% “mid-term” target.

This will be an exciting one to watch no matter what happens.
Back to blog

Leave a comment

Please note, comments need to be approved before they are published.