Retailers

Virus Surge Drives Sales and Profits for HelloFresh

Officials highlight affordability, raise annual sales guidance
Photograph courtesy of Hello Fresh

The onset of the coronavirus pandemic helped to drive more than 1 million new U.S. customers to HelloFresh in the first quarter, and it would have added more had the company been able to hire and train workers fast enough to meet the surge in demand.

The Berlin-based direct-to-consumer meal-kit company said U.S. sales increased by 82.3% in its fiscal first quarter, which ended slightly more than two weeks after COVID-19 was declared a global pandemic and stay-at-home orders and restaurant closures drove growth to food consumed at home. HelloFresh said U.S. customers increased by 86.6%, orders increased by 82.2%, and the number of meals delivered increased by 90.3%.

Although HelloFresh realized rapid growth in January and February, the pandemic triggered an additional surge during the last three weeks of March that had the company temporarily limit new orders while adjusting its ability to serve them, CEO Dominik Richter said in a conference call. “At some point in March, we definitely had to limit and restrict new customers coming to the service because we first had to source and train new labor to then be able to really manufacture on as many days and as many shifts as we can. I think since the beginning of April, we have been able to slowly build out capacity in the centers that we already have, and we now have more capacity than when we entered the COVID-19 phase,” Richter said, according to a Sentieo transcript.

“We’ve been fortunate that through the hard work and the many night shifts of the team, we could support millions of families around the world in those crazy times with healthy, affordable and, most of all, safe meals in the safe environment of their home,” Richter added. “A lot of the supplier relations, the technology, the brands and the operational excellence that we've put in place over the last couple of years has helped us to cope quite well with the additional demand we've been seeing since mid-March, and I'm quite proud that we've played such an instrumental part in these times for many, many families.”

Since late March, capacity expansion is supporting the demand, Richter added, “and that will be a main driver for the performance in Q2.

In the U.S., sales in the period totaled 436.7 million euros, or about $473.2 million, a 77% increase in constant currency.

The added revenues—along with a reduction in marketing spend—also sent profits on an upward trajectory, as adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) in the U.S. climbed by 318.5% for an 11.3% quarterly margin rate. That helped the company see its group adjusted EBITDA increase by 341.8% in the quarter, swinging from a 26.1 million euro loss to a 63.1 million euro gain.

As a result of the stronger growth trends, HelloFresh adjusted its fiscal year sales growth guidance and is now expecting an annual sales increase in the range of 40% to 55%, up from previous calls for 22% to 27% growth.

Officials Highlight Affordability

In discussion with analysts, Richter insisted HelloFresh was well-positioned to withstand an economic downturn associated with the pandemic, citing the company’s cost structure and a consumer offering he called “very affordable,” particularly as compared to out-of-home dining and high delivery fees associated with some e-commerce food offers. The company’s nascent U.S. value tier, called EveryPlate, is on a “great trajectory” and could be expanded to international markets, he added.

“I think what we’ve seen from customer research and what we’ve seen in terms of development in the last couple of weeks, was that customers generally consider our meals very affordable,” Richter said. “We also have the numbers to back that up, that compared to supermarket spend, we actually come out very well when you benchmark our meals. 

“What you typically see in recessionary environments is that food-at-home spend is not contracting a lot, it’s actually rather stable. And food out-of-home is usually the sort of the type of discretionary spend that customers do away with. And hence, we do think that generally we’re in a very good position, and we obviously still have the opportunity of a very successful value brand that we have in the U.S., which we are definitely thinking about launching in other markets as well.

EveryPlate meals start at $4.99 per meal, as compared to HelloFresh, with prices starting at $7.49.

“We’ve actually seen a lot of consumers commenting quite positively on the value for money that we actually offer. And so we haven’t seen anything like increased price sensitivity from consumers. But I think that it’s also understandable, if you look at the price at which we sell our meals, which is actually in line or cheaper with supermarkets at much better service levels and much more convenience levels.

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