Can Berlin deliver to hungry Americans?

Hello fresh Struggles in US market
Not laughing any more in hard-fought US market: Blue Apron CEO Matthew B. Salzburg. Source: Reuters

At this time of year, many Americans turn their attention to mouth-watering meals in anticipation of the annual turkey roast on the Thanksgiving holiday Thursday or shopping ahead of the Black Friday deals. So it will come as little surprise that the companies providing subscription meals in a box are ramping up their sales pitches in hopes of winning new customers.

But all that marketing has now become problematic for many of the meal-kit companies, including German entry HelloFresh, which provide recipes and prepared food ready to cook for people who are too busy to plan and shop for themselves.

Berlin-based HelloFresh, which went public on the Frankfurt stock exchange on Nov. 3, is experiencing many of the glitches affecting rivals as it attempts to win a beachhead in the crowded US market.

CEO Dominik Richter remains optimistic about the company’s future in the US. “We built a strong company and our future prospects have never been better than today,” Mr. Richter told Handelsblatt.

When the company released third quarter figures Tuesday, they showed 790,000 active customers in the US and about 500,000 in the rest of the world, but that reflected almost no growth from the previous quarter despite spending a quarter of its revenues on advertising to attract new customers. Even worse, sales fell from €141 million to €131 million in the time period, explained in part because the summer is not when people do a lot of cooking.

“The problems of Blue Apron show that the US market is not easy.”

Alexander Graf, E-Commerce expert, eTribes

The company’s earnings before interest, taxes, and depreciation in the third quarter was a €17 million loss, compared with a €20 million loss in the same period last year. While that might look like an improvement, in fact for the nine months ending in September the loss actually grew from €77.2 million to €81.4 million.

So it’s worthwhile asking: Is the company’s €1.7 billion market capitalization realistic given the fickleness of the market? “The current figures are not very promising,” said e-commerce expert Alexander Graf of consulting firm eTribes.

Rival firm Blue Apron went public in June, but has since seen its share price crumble from $10 at its IPO to just $3 on Tuesday, prompting Bloomberg to dub it the “IPO Bust of the Decade.” It’s even been hit with a shareholder lawsuit about the decline in its stock price.

The company has suffered a host of logistical problems. But another reason may be the number of companies now crowding into the market: At least 10 firms offer the same basic package. Many of these now are making trial offers to lure customers, but the ease of the internet is helping many customers try more than one to take advantage of the low prices. For example, HelloFresh is offering its regular meals, normally priced at $9.99, for just $3.33 this week, a price point at which it must be losing money.

Goldman Sachs analyst Heath Terry said Blue Apron had cut its marketing spending in order to staunch the flow of losses, but that will affect sales going forward. However, he added “we still view Blue Apron as the leader in the meal-kit delivery space and expect they will exit this period of hyper-competition in that same position given its scale vs. competitors.”

HelloFresh’s Mr. Richter says his firm is different than Blue Apron. “We have an international presence and experience from different markets and the know-how to adapt and position ourselves,” he said.

But e-commerce expert Mr. Graf says HelloFresh has the same business model as troubled Blue Apron. “The problems of Blue Apron show that the US market is not easy,” Graf said.

Another concern is that online giant Amazon is rumored to be preparing its own entry into the meal-box subscription business, combining its expertise in online sales with the supermarket chain Whole Foods, which it purchased last July.

HelloFresh remains optimistic that its database of customer food preferences around the world will keep it ahead of the pack. But it’s taking no chances: This week’s box contained a turkey dinner.

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Florian Kolf leads a team at Handelsblatt that covers retail, Johannes Steger is an editor with Handelsblatt’s markets desk and Charles Wallace is an editor with Handelblatt Global in New York. To contact the authors: Kolf@Handelsblatt.com, Steger@handelsblatt.com and c.wallace@extern.handelsblatt.com.

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