Nestlé scales back meal delivery presence through Freshly deal

Dive Brief:

• Nestlé is forming a business that combines its Freshly business, a provider of fresh-prepared meal delivery services in the U.S., with Kettle Cuisine, a manufacturer of fresh artisanal foods for retail and foodservice customers. Kettle Cuisine currently is owned by private equity firm L Catterton. The financial terms of the deal were not disclosed.
• Nestlé will hold a 41% stake in the partnership and L Catterton will actively lead and manage the business. 
• Nestlé purchased Freshly in October 2020 in a deal valuing the company at $950 million as part of a broader overhaul by the global food giant to add healthier options in fast-growing segments to its portfolio. Nestlé said the business has fallen short of its expectations.

Dive Insight:

Just two years after buying Freshly, Nestlé is scaling back its presence in the prepared foods delivery market.

“There have been dramatic shifts in the external business environment, including direct-to-consumer cost models” since the acquisition, a Nestlé spokesperson told Food Dive. “With these shifts, Freshly has not driven the scale or performance we had hoped for. This partnership opens the opportunity to bring fresh prepared foods to a broader group of customers and geographies.”

Freshly has a menu of fresh, chef-cooked meals for customers, breaking down barriers to healthy eating by delivering nutrition and convenience. It has worked to separate itself from other prepared meal brands by selling foods that are gluten-free and have fewer processed ingredients, more nutrients and less sugar.

Nestlé purchased a roughly 16% stake in Freshly in 2017 to evaluate and test the market. When it purchased the rest of the company three years later, the world’s largest food manufacturer said the acquisition combined its deep understanding of eating at home and research and development capabilities with Freshly’s highly specialized consumer analytics platform and distribution network. 

The approach of how the combined company will move the businesses forward as one entity is still being determined. For now, the partnership will focus on offering an assortment of fresh food products to customers across geographies and a variety of channels. 

The new partnership could give Freshly access to Kettle Cuisine’s small-batch, all-natural soups, sauces and side dishes that are sold at retail and foodservice establishments. Kettle Cuisine’s use of natural ingredients and classical artisan cooking techniques to produce clean-label products from scratch should blend seamlessly with Freshly’s current products.  

“The aim of the partnership is to deliver convenience and accessibility to people looking for fresh prepared foods, ultimately driving long-term business growth,” the Nestlé spokesperson said. “The fresh prepared foods market continues to grow, offering an attractive opportunity for the partnership.”

Nestlé has been rapidly overhauling its portfolio in recent years to include healthier and faster-growing options. The company has been jettisoning those in which revenue is not rising as quickly, as well as segments in which the Switzerland-based company is not one of the largest players. The Freshly deal fits squarely within that business strategy. In the past few years, Nestlé ​​also sold its U.S. chocolate business and the majority of its struggling North American Waters business.

Nestlé sold brands such as Edy’s, Haagen-Dazs, Outshine and Drumstick in December 2019 to Froneri, a joint venture the Swiss company created six years ago with PAI Partners, in a deal valuing the ice cream business at $4 billion. While Nestlé no longer oversees the business, it remains a majority shareholder and has three people on Froneri’s eight-person board.

The transaction with L Catterton and its Kettle Cuisine business is similar to the way Nestlé structured the ice cream deal. Nestlé remains a large player and positions itself to benefit from any upside in business.