IPO ahead

Food startup Hello Fresh woos investors

Hello Fresh CEO Dominik Richter source company
Chief chef? Hello Fresh CEO Dominik Richter.
  • Why it matters

    Why it matters

    Hello Fresh, the loss-making home-delivery food retailer, plans an IPO on the Frankfurt exchange. It needs capital to push its unorthodox service.

  • Facts


    • Hello Fresh turnover soared in 2015, but losses went up too; so far this year, the company is down €58 million ($63.5 million).
    • Hello Fresh was valued at €2.6 billion in its last funding round, in September of this year.
    • Rocket Internet, a Berlin-based start-up factory, owns 56 percent of Hello Fresh.
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People up to the age of about 35, the so-called Generation Y, have two defining characteristics: They have high standards and they’re lazy.

That makes them perfect customers for Hello Fresh, a Berlin startup that supplies food boxes that contain all the ingredients for a home-cooked meal, plus the recipe to cook it.

If you order one, you save yourself running to the supermarket and you don’t have to worry about what to do with left-over ingredients because there aren’t any. Need unusual spices for a recipe? Hello Fresh sends the precise amount needed: No three-quarters full jars lurking in the food cupboard for years.

Hello Fresh was founded in 2011 and has grown strongly ever since. Today, the startup is active in seven countries; as well as Germany, this includes Austria, the Netherlands, the U.K. and the U.S.

In the first nine months of 2015, turnover climbed to €198 million, or $217 million, compared with €41 million for the same period last year.

Profits, however, are a different story. So far, there are none. In the first three quarters of this year, the company had an operating loss of €58 million, six times greater than the previous year. The biggest culprit is thought to be high advertising costs. When marketing costs are taken out, the firm has an operating profit of €19 million.

The marketing is necessary. Anyone traveling regularly on German railways will have seen young people in railway stations handing out Hello Fresh vouchers.

But the problem for Hello Fresh is not just raising brand awareness – they also have to make people understand the product idea. When it comes to food shopping, Germans tend to be conservative. It will not be easy to get them to hand over decisions on what they cook in their own kitchen. Marketing pushes may get people to try out the company’s service, but one-off customers are expensive. For Hello Fresh, the real key to success is gaining longer-term subscribers.

The Berlin-based startup supplies food boxes that contain all the ingredients for a home-cooked meal, plus the recipe to cook it.

In Holland, the subscription model is working well, and Hello Fresh should also do well in the English-speaking world, above all in households with no children and two full-time earners. In July, August and September of this year, Hello Fresh delivered a total of 13.2 million meals to 530,000 subscribers.

The company’s margins are pretty good, too. An average meal costs just over €6.50, significantly higher than the retail price of the ingredients included. But it’s well worth it for customers, says Hello Fresh: In the supermarket, you buy ingredients in larger quantities than you need, and the remainder is usually thrown away.

Hello Fresh wants fresh money to convince a lot more customers that the model works: “Listing on the stock market will help our financial flexibility and will actively support our growth strategy,” said Mr. Richter, the chief executive. In financial circles, it is said the offering could bring in anything from €300 million to €500 million.


Hello Fresh source company
Food delivery from Hello Fresh. Source: Hello Fresh


That is good news for one business in particular: Rocket Internet.

The Berlin-based startup factory has a 56 percent stake in Hello Fresh. It urgently needs some good news. Since the IPO of its former subsidiary Zalando, an online retailer, Rocket shareholders haven’t seen any sign of a repeat success story: A company which might burn through cash at first, but eventually manages to become profitable. If Hello Fresh’s IPO is a success, it could be a sign that the company is approaching break-even, said Lukas Boventer, an analyst with private equity investor Warburg.

Stock Market Listings-01


For Rocket, this would mean that any Hello Fresh profits could be fully consolidated. There would also be the prospect of selling its stake at some future point. It could also be a positive example for other Rocket companies planning to go to market, like the delivery service Hero, and the online furniture retailer Home 24.

Hello Fresh was valued at €2.6 billion in its last funding round. Key coordinating institutions in the IPO are the big U.S. banks Morgan Stanley and Goldman Sachs; UBS and JP Morgan are also involved.

So far, German IPOs in 2015 have had mixed results. German Startups Group, an Internet private equity firm, had to cancel its launch because of volatility in the market. By contrast, the classified advertisements website Scout24 enjoyed a successful float in early October.


Peter Köhler is a Handelsblatt editor in Frankfurt, reporting on banks, private equity firms, venture capital and corporate funding. Miriam Schröder is a Handelsblatt reporter whose beats include covering the Berlin startup scene. To contact the authors: koehler@handelsblatt.com, schroeder@handelsblatt.com

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