WHEB Commentary

A deep dive into HelloFresh


Netflix’s latest results shocked the market. A growth darling suddenly stopped growing and was shedding subscribers. The stock tumbled ~40% on the day and the WHEB team took note. None of the ‘FAANGS’ are within our sustainability-driven investment universe as we do not consider them to be positive impact stocks, but our investment strategy is very much geared towards growth.

One stock came to mind after the Netflix news: HelloFresh, the meal kit provider. It is one of our worst performers so far this year, having shed almost 60% of its peak value since early December – all while still reporting substantial subscriber growth and record revenues.  We receive a lot of questions about this holding so we want to remind our investors why we are holding it and despite the painful short-term performance, why we believe it will be a positive contributor to our strategy in the long-term.

To recap, HelloFresh is the global leader in providing meal kits for easy home cooking. It operates in 16 countries and is the undisputed market leader in most. In 2021, it sold more than 1bn meal kits achieving a turnover of €6.0bn (+60%) and operating profit of €527m. By 2025, it targets sales above €10bn and EBITDA margins well above 10% – and this is a conservative target in our view.

Are meal kits impactful?

What can possibly be sustainable and impactful about meal kits? A lot. So much in fact that we had a long discussion whether the stock should be categorised under our Resource Efficiency theme or under Wellbeing. In the end, we opted for the latter since for the end user, this is the primary benefit.

There are numerous studies which show that meal kits reduce food waste and thus carbon emissions relative to supermarket-sourced home-cooked meals. For example, in 2019 the University of Michigan produced an academic paper showing that on average, grocery meal greenhouse gas (GHG) emissions are net 33% higher than with meal kits[1]. This also takes packaging into account. In its latest sustainability report, HelloFresh backed this up with its own life cycle assessment along the entire value chain across several regions and meals to show that HelloFresh meals generate 25% fewer GHG emissions compared to those bought in supermarkets[2] [3].

However, this does not mean that we give meal kits a free pass on plastic packaging waste, which clearly has a negative impact, and this is an active engagement topic for us. We are pleased to see that HelloFresh is acutely aware of this issue and is working hard to reduce and potentially eliminate non-recyclable plastics from its products over time. In 2021, it reduced its plastics and mixed packaging by 32% per meal.

The impact from a Wellbeing perspective is three-fold: 1) HelloFresh makes fresh and healthy food more accessible and convenient 2) The meals are calorie and portion-controlled 3) There is an educational element from cooking tasty meals yourself and it creates a sense of achievement.

Why we continue to believe in HelloFresh

We believe that HelloFresh has a bright future with many years of profitable double-digit revenue growth ahead, for the following reasons:

  • HelloFresh is an e-commerce company benefitting from the shift to online from bricks-and-mortar. The meal kit market had shown healthy double-digit growth before Covid. The pandemic has been an accelerator of this shift. It has also expanded the company’s customer base thanks to the increased working from home environment.
  • The meal kit and online food market is still in its infancy but growing rapidly. Online Food and Beverage accounts for just 5% of a $1.1trn global market. HelloFresh’s current markets account for 176m households which consume 225bn meals at home annually. In 2021, HelloFresh served 0.45% of those.
  • HelloFresh has established itself as the market leader in most countries it operates in (and if not, a close second). They leave very little to chance – it is a deeply data-driven company with technology at its core. Its rapidly expanding tech team (HelloFresh is currently adding 1000 new technology roles) is responsible for everything from the digital product to developing new recipes to powering supply chains and logistics. This is combined with numerous pilots and digital experiments to collect and validate additional data. Its approach is unmatched by any competitor and a crucial differentiator. It gives it a clear understanding of its customers’ lifetime value ensuring it achieves the targeted returns.
  • HelloFresh pursues a three pillar growth strategy of deeper penetration of its existing markets by 1) offering an ever-growing range of healthy meals at greater convenience and improving value, 2) expanding its addressable market geographically by entering 1-2 new markets every year and adding new verticals (e.g. healthy ready-to-eat meals, add-on food items), and 3) improving the monetisation of its customer base by offering increasing customisation of meals and expanding into other meal options.

A perfect storm in the short-term

HelloFresh has had a tough ride over the past 5 months. We believe this has been caused by a quadruple whammy of headwinds:

  • Market rotation. HelloFresh is a growth stock and was valued accordingly. Since late 2021, the market has been rotating from growth to value stocks, which has hit high growth / high valuation-multiple stocks.
  • Reversal of Covid-trade. With Covid expected to shift from pandemic to endemic status in developed countries soon, many companies which benefited from the trading conditions during the pandemic have underperformed as the market expected these gains to reverse. HelloFresh saw an acceleration of growth during the pandemic driven by increased home working.
  • 2022 an investment year. At its Capital Markets Day in December, the company said that thanks to the large number of growth opportunities, it had decided to accelerate its investment schedule, but this would be at a short-term cost to profit margins.
  • Russia’s invasion of Ukraine. The war in Ukraine has accelerated food and energy cost inflation which is adding additional margin pressure.

We think all these issues will be transient and expect HelloFresh to emerge from this period even more strongly positioned than it was before. HelloFresh continues to substantially outgrow its competitors, both on revenues and profitability. There is ample anecdotal evidence that post-Covid customer behaviour will not revert to pre-Covid levels – meal kits have become part of normal life. All that said, ultimately the proof of the pudding is in the eating.

[1] Jim Erickson, “Those Home-Delivered Meal Kits are Greener Than You Thought, New Study Concludes,” Michigan News, April 22, 2019, https://news.umich.edu/those-home-delivered-meal-kits-are-greener-than-you-thought-new-study-concludes/.

[2] https://ir.hellofreshgroup.com/download/companies/hellofresh/Annual%20Reports/HelloFresh_Sustainability_Report_2021_Non_Financial_Report.pdf

[3] https://cdn.hellofresh.com/de/cms/HelloFresh_Meal_Kit_Life_Cycle_Assessment_Study.pdf

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