NEWS: Meal kit success (or not) in 2020 (WSJ)

[Jenise]

The following isn't much of a surprise; it just puts numbers on the situation. What surprised me most is to find out that while Hello Fresh sales are surging, and other brands like Amazon and Ocado are similarly pacing up (there was a graph in the article that can't transfer over), domestic competitor Blue Apron's running flat. I wonder why.

By Carol Ryan
Aug. 11, 2020 8:05 am ET

Perfect conditions for meal-kit companies won’t last forever. But with Covid-19 infections spiking again in key markets and fewer people going on summer vacation, HelloFresh’s HFG -0.91% winning streak can continue for a while longer.

The German company said Tuesday that sales at constant exchange rates rose by 122% in the second quarter compared with the same three months of 2019. An operating margin of 13.8% was up from just 0.3% in the year-ago period. Management also increased its 2020 sales and profit expectations for the third time since January.

HelloFresh is now a rare European tech name that is beating a U.S. rival hands down. Troubled New York-listed competitor Blue Apron reported quarterly growth of just 10% and hasn’t been able to capitalize on the demand spike in the same way.

The pandemic has led to a boom in sales for most companies that deliver food to customers’ doors. Before Covid-19, a typical U.S. family cooked at home four times a week, according to numbers cited by HelloFresh. Today, when working remotely, they take seven evening meals at home and often lunch as well.

The trend is driving higher average order values at HelloFresh as well as a surge in user numbers. An increase in infection rates suggests demand will remain strong in the U.S. in particular, where the business makes over half its sales. And with fewer consumers vacationing this year, the company isn’t experiencing the drop-off in orders it usually registers in summertime.

These ideal growth ingredients won’t be around indefinitely. When consumers become comfortable dining out again and supermarkets can fulfill more e-commerce orders, HelloFresh’s growth will ebb. Marketing costs—typically a big cash burner for meal-kit companies—also look artificially low. As customers sought out the service of their own accord, HelloFresh’s promotion spending dropped to 8.5% of sales from 21% in the comparable period last year.

The stock may still have another serving for investors, who have already enjoyed a 152% gain this year. At 2.3 times projected sales, HelloFresh’s valuation is still relatively cheap compared with other tech names that also are benefiting from the pandemic. Shares of Ocado, another rapidly expanding European food-tech company, trade for 7.1 times. Amazon. com, which isn’t growing as rapidly, is at a multiple of 3.9 times.

Appetites for HelloFresh—from customers and shareholders alike—should be healthy for the rest of the year.

Some more on Blue Apron: https://www.grubstreet.com/2020/02/what ... apron.html

To read that article, the question isn't why is BA doing so poorly but, rather, why is HF doing so well? All the same pitfalls apply... food quality has to be consistently good, speed and quality of *delivery* is vital, users are still likely to either hate cooking or graduate to better cooking....

[Jenise]

Interesting. The Grub article was written in Feb this year, so it's pre-Covid.

Comparing that to today's WSJ article suggests that Blue Apron's managing to hang onto a merely flat trajectory vs. trending further downhill during the Pandemic is actually an improvement in their circumstances. Where Hello Fresh, which delivers all over Europe has done extremely well as has Ocado, which also operates in Europe. I am guessing that Amazon is mostly U.S., if not entirely U.S.

All this probably suggests that Europe overall has embraced the whole meal kit concept better than America has.

I'm only aware of one couple in my overall large circle of friends who do these. In that case, Beth was the household cook, but she was an exec at Google and didn't neccessarily have time to cook where Amber was more guy-like, into the wine side and big hunks of grilled meat. They signed up for the more exotic kits in order to save time shopping while expanding their experience with foods further out than their midwestern roots. Then a job change for Beth put them in Paris. So they signed up for Bonjour Fresh and have continued to enjoy it, especially during the Pandemic. They're the ideal customer. Almost everyone else I know already cooks or would find the service either too expensive or too much trouble--you still have to cook it.

Comparing that to today's WSJ article suggests that Blue Apron's managing to hang onto a merely flat trajectory vs. trending further downhill during the Pandemic is actually an improvement in their circumstances.

I suppose they are surviving by accidentally riding Fresh Direct's business model: we do the shopping for you.

Where Hello Fresh, which delivers all over Europe has done extremely well as has Ocado, which also operates in Europe. I am guessing that Amazon is mostly U.S., if not entirely U.S.

All this probably suggests that Europe overall has embraced the whole meal kit concept better than America has.

Agreed. Wonder why?

Beth ... Amber ... Paris ... Almost everyone else I know already cooks or would find the service either too expensive or too much trouble--you still have to cook it.

They do sound like the ideal couple for the service.

The people in Unit 5 of my building use Fresh Direct. I'm sure it's lovely but I'm totally twitchy even thinking about someone else shopping for me. And, anyway, I get ideas from the things I see in the store.

I don't understand linking Meal Kit with Ocado.

Ocado is a UK company acting as a virtual supermarket; i.e. the major supermarkets Tesco & Sainsbury had success with home deliveries using a model of picking off shelves in the store nearest. They already had a well known name.

Ocado has no shops, it operates out of well-automated warehouses. For some years it sold up-market supermarket Waitrose's stock, now Waitrose are delivering their own using to pick in store model.

While Meal Kits are a thing here, my son was making a pasta and lamb ragu from a meal kit last night, but it was from a specialist meal kit company Gousto rather than a general online supermarket.

What my son likes is that the box contains all the ingredients in the correct amounts, plus the recipe and it introduces him to new tastes.

[Jenise]

Peter, another piece in the WSJ about Ocado this morning that might interest you.

"The British business, which runs the most sophisticated online grocery operation in the world, said Tuesday that sales in its U.K. retail division increased by 52% for the quarter through August compared with the same period in 2019. Management gave no update about the part of the business that really drives its high stock-market valuation: the unit that sells its automated-picking technology to major supermarkets globally, such as Kroger in the U.S. and Sobeys in Canada. Still, Ocado said the strong U.K. performance would lift earnings before interest, taxes, depreciation and amortization above £40 million for its current financial year—a sum equivalent to $51.4 million, which is ahead of expectations. The shares jumped 5% in morning trading in London.

The growth of Ocado’s grocery division, run since last year as a joint venture with local retailer Marks & Spencer, is impressive. But it lags that of low-tech competitors. Walmart -owned Asda has increased its online sales by more than 100% in recent weeks, based on Kantar data. Traditional supermarkets are meeting higher demand by picking web orders by hand in stores—admittedly a profit-sapping method. Some are also teaming up with food-delivery companies such as Amazon -backed Deliveroo and Uber Eats to get groceries to customers’ doors.

That means they are taking share of the fast-growing online market from Ocado, which needs time to build robots to push additional orders through high-tech warehouses. But investors have already bought the line that Ocado has the only profitable strategy long-term. The still loss-making company’s share price has almost doubled since January."