As per a report by Slice Intelligence, the growth rates for food subscription services is slowing down. Back in 2015, food subscription services like Blue Apron and HelloFresh were seeing growth of nearly 200% each quarter. Those growth rates have dropped to under 60% in the last quarter of 2016.
The idea for Berlin-based HelloFresh came to founders Dominik Richter and Thomas Griesel back in 2012. The two wanted to set up a food at home business to provide healthy food and cooking options to Londoners. Through adequate market research, the two narrowed down on the markets of Berlin, Amsterdam and London as their first markets and began offering locally sourced and pre-portioned ingredients to help consumers prepare home-cooked meals each week. The idea took off and by the end of the year, HelloFresh had expanded into the US.
HelloFresh’s subscription service starts from as low as $8.74 a meal, which serves up to two adults and two children. Its revenues have grown significantly in the past few years. For the nine months ended September 2016, revenues grew 121% to €438.3 million (~$467.63 million). But the company continues to suffer losses. For the same period, it reported a loss of €77.2 million (~$82 million), up from €63.6 million (~$67.9 million) a year ago.
The company has been venture funded so far with $364 million raised from investors including Baillie Gifford, Rocket Internet, Insight Venture Partners, Phenomen Ventures, HV Holtzbrinck Ventures, Investment AB Kinnevik, and Vorwerk Direct Selling Ventures. Its last round of funding was held in December last year when it raised €85 million in a round led by Baillie Gifford. HelloFresh did not disclose the valuation in the round. Reports suggest that the round valued it at nearly $2 billion, significantly lower than its 2015 valuation of $2.9 billion. The reducing valuation probably indicates the market’s growing impatience with its continued losses and declining growth rates. In a surprising move, HelloFresh’s biggest investor Rocket Internet stayed away from the round. Rocket Internet has not disclosed the reasons for the abstinence. The company itself has been having troubles, so that could also be the reason for this abstinence.
HelloFresh’s Improving Offerings
But HelloFresh continues to invest in technological and product improvements. It plans to use the latest funding to improve its technology platform. It plans to nearly triple its operations this year and is investing in the development of another fulfillment center. HelloFresh will also be working on more customization of food offerings. It wants to understand its customers tastes better so that it can offer more focused meal options. It is also investing in content development and has begun publishing a customer magazine and content in its app every day. The content development is expected to help it build a social community.
Additionally, it is now working on expanding the meal options available to its customers. Till last year, HelloFresh allowed customers to choose three out of five dishes. Starting this year, it will allow them to choose three out of ten dishes.
Analysts are hopeful that HelloFresh is gearing up for an IPO this year. after its plans for an IPO ran into trouble last year. Last year, US-based Blue Apron, which had a valuation of $3 billion, put its IPO on hold. Blue Apron delivered revenues of $800 million in 2016, but was still not profitable. The food delivery industry is stumbling and billion dollar valuations without profitability are not something the market is willing to digest. HelloFresh also will also have to make sure it has a more robust financial model before it goes public if it wants to justify its valuation.
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This segment is a part in the series : 2017 IPO Prospects