HelloFresh HFG -0.22% SE has risen to the top of what turned out to be a smaller market for meal kits than many companies and investors expected.
The German company is adding users with simple recipes and a big menu, surpassing rival Blue Apron Holdings Inc. APRN 0.79% in 2018 and 2019 as the biggest U.S. provider of kits for dinners with pre-apportioned ingredients and instructions for customers to cook at home.
Now HelloFresh is working to sustain that success as growth in demand continues to be tepid. Less than 5% of U.S. consumers used meal kits in the past 30 days, according to a recent survey by research firm NPD Group, up from 3% a year ago.
“The overall market is still growing, but not as much as we thought,” HelloFresh Chief Executive Dominik Richter said in an interview.
Tatiana Mac, a product designer and developer in Portland, Ore., subscribed to HelloFresh for seven months about two years ago. Now she buys meals from the company only sporadically.
She found it difficult to cook three meals every week between her travels and other engagements. She said she was tired of paying $10 or more for each meal and having to throw out all the packaging that comes with each kit.
“While I love food and I love cooking, I don’t often have the energy for it,” said Ms. Mac, 33.
HelloFresh has about 1.5 million customers in the U.S., up from about 71,000 in 2017. Quarterly sales have doubled in that time to $246.5 million in the most recent period. The company said it is on track to deliver its first full year of profitability in fiscal 2019. Its U.S. business had its first quarterly profit in August, about five years after entering the market.
Meanwhile, Blue Apron, which helped build enthusiasm for meal kits after its founding in 2012, has faded. The company’s customer count has fallen from a peak of above a million in 2017 to fewer than 400,000. Quarterly sales have more-than halved since 2017 to under $100 million for the most recent quarter.
Nicholas Yarbro, who attends the University of Texas at Dallas, tried Black Friday deals for HelloFresh and Blue Apron earlier this month. Mr. Yarbro, 22, said HelloFresh is cheaper and offers easier recipes to follow. He and his girlfriend get four meals a week.
“There is less prep time with it. All you do is chop, and everything is prepackaged and well-labeled. Directions are super simple,” Mr. Yarbro said. He has discontinued Blue Apron and plans to stick to HelloFresh.
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Blue Apron was also hurt by problems at a fulfillment center in New Jersey that took longer than planned to get operating smoothly, according to former employees. The center, which opened in early 2017, took about a year and a half to become fully operational. High fees to get the facility working efficiently ate into Blue Apron’s marketing budget, costing the company customers.
Blue Apron declined to comment.
Once valued at nearly $2 billion, Blue Apron has seen its stock plummet by more than 90% since going public in 2017 to $7.61, giving the company a valuation of roughly $100 million.
“Meal-kitting doesn’t fit as many lifestyles as many folks believed,” said Matt Davis, who left Blue Apron in 2017 after leading the operations team to found Mosaic Foods, which makes frozen bowls of tofu and beets.
Many smaller rivals that cropped up in recent years are also losing customers or shutting down. Meal-kit companies secured $89 million of venture funding in 2019, according to PitchBook Data Inc., down from a peak of $179 million in 2017.
One reason behind the tough outlook: Meal-kit makers have largely gone after the same cohort of younger, city-residing consumers, leading companies to roll out heavy promotions to stand out. They spend even more on discounts to bring customers back when they cancel, which further squeezes their margins.
Albertsons Cos. closed the Plated subscription service it bought in 2017. The business, backed by venture-capital, hasn’t been profitable, people familiar with the business said. Kettlebell Kitchen shut down in November after six years in business. When it raised about $30 million in 2018, Kettlebell was losing $12 million a year, said a person familiar with the company.
Pat Vihtelic, founder and chief executive of the Home Chef meal-kit maker that Kroger Co. bought last year, said his company has been profitable since the second half of 2017.
HelloFresh plans to keep growing with a bigger menu that includes faster recipes, vegetarian and low-calorie options. The company is also working to branch into kits for lunch, snacking and a wine club for people to pair with the kits they are cooking.
“Our core demographic is the people that are already cooking at home,” Mr. Richter said.
That acknowledgment could put a cap on HelloFresh’s growth potential, said Tom Allchurch, a former executive at HelloFresh and Sun Basket, an organic-focused meal-kit maker founded in 2014.
“Kits are too much work. There is a point to which they will stop growing,” Mr. Allchurch said.
Write to Jaewon Kang at jaewon.kang@wsj.com
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December 25, 2019 at 08:04PM
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HelloFresh Grabs Bigger Slice of Shrinking Meal-Kit Market - Wall Street Journal
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