HelloFresh Moves to Expand Grocery Offering

Source: winsightgrocerybusiness.com

Slide from Hello Fresh Group’s Capital Markets Day presentation

The meal kit is shaping up to be something of a Trojan horse for HelloFresh Group, where officials say they have made their “first foray” into an accompanying online grocery store that appears to be on its way to the U.S.

While brick-and-mortar competitors try to find ways to sell more meals, HelloFresh wants to sell more ingredients, each trying to capture a greater share of their shoppers’ overall food spending. Berlin-based  HelloFresh is in the process of expanding what it calls its HelloFresh Marketplace store available in Europe that provides customers who use the service to buy their bundled recipes for meals the option of adding additional groceries to the order.

In Belgium, the Netherlands and Luxembourg, where the service quietly pioneered late last year, the assortment of these extra items has grown to 150 products and is driving increased rings, profits and customer loyalty, officials said. This is encouraging the company to further expand assortment in Benelux, while launching similar offerings in additional markets, including taking steps to expand the U.S., WGB has learned.

The Marketplace is one aspect of a strategic vision to evolve from a meal-kit company to a fully integrated food solutions group that HelloFresh officials first spoke about in a Capital Markets Day presentation in December. This represents the company’s first attempt to “monetize” its audience beyond meal delivery traditionally focused on dinners shoppers prep themselves. Its acquisition of the nutrition-focused prepared meal business Factor late last year was another move in this direction.

HelloFresh currently offers an “add-on” store in most countries already with about 25 products, accounting for some 2% of its total revenues. The Marketplace expands this to new items, categories and occasions; officials speaking at the company’s Capital Markets Day in December said they could envision such an offering growing to as many as 2,000 products over five years, although they cautioned that plans were still developing.

“We’ll experiment our way into what’s the exact best setup for us,” CEO Dominik Richter said in December. “But I think there’s a very, very clear path how you can get to 15% to 20% revenue share with those add-on products.

A Marketplace appears to be on the agenda in the U.S. A recently posted Hello Fresh job ad sought an operations planning manager to be based in New York with strategic responsibilities for Hello Fresh’s product innovation vision, including a HelloFresh Marketplace. U.S.-based customers of the service, in the meantime, have also discussed discovering new availability of products in some markets in recent weeks, including packaged spices, bakery items and pantry essentials such as peanut butter—all of which were mentioned by officials in December when describing the Marketplace. WGB was unable to immediately verify these online assertions, and a spokesman declined to comment specifically on market rollouts.

In Benelux, offerings in the Marketplace have appeared to have more than doubled since officials spoke of a 70-item offering in December.

“With those 150 products, we have seen that as we add more products, we also get higher attach rates from consumers. And we actually have seen a beneficial impact both on [average order value] as well as on the average profits that we clip per order,” Richter told analysts while reviewing quarterly results this week, according to a Sentieo transcript. “And for the remainder of the year, we will certainly continue to add more products to it and then observe and monitor how these relationships hold true. The more products we add, the more attach rates and the higher baskets we get. We will be monitoring that closely.

In new Marketplace areas, HelloFresh intends to expand selection to about 100 products by the end of the year, Richter added, “which puts us on a very good trajectory to scale it up further in the outer years and really … eat into consumers’ food budget; capture a larger part of consumers’ food budget over time.

HelloFresh will bring good momentum into this and other initiatives. Sales in the U.S. grew by 83.7% in its fiscal first quarter to 802 million euros (about $965 million U.S.), while margin as a percent of sales dipped to 29.1% from 30% in last year’s first quarter, primarily due to higher fulfillment costs, officials said, but also the effect of promotions to draw new customers. In the U.S., these came together as the company aggressively incentivized shoppers to speed the ramp-up of newly opened production facilities.

Production expenses also increased as a result of February snowstorms in the Southern U.S.

In the U.S., active customer increased by 39.8% to 3.7 million; the number of orders increased by 68.7% to 15.1 million; and the number of meals served jumped by 85.8% to 113.9 million in the quarter.

Companywide order rates and average order value were up year over year, but slightly down sequentially from the fourth quarter.

Richter said the acquisition of the nutrition-focused prepared meal business Factor—whose audience skews more toward men and lunches than its traditional meal-kits—was scaling successfully and continued to show good momentum, “which gives us a lot of conviction that we’re able to execute M&A deals very successfully.

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