Complete your registration today for a chance to win £50 John Lewis vouchers in our weekly draw Enter now
Baillie Gifford
Updated 22 Dec 2023
Save Article

Disclaimer

This is a non-independent marketing communication commissioned by Baillie Gifford. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.

As with any investment, your capital is at risk.

With its innovative approach to reducing the pain of meal planning and grocery shopping, the direct-to-consumer (DTC) meal-kit delivery service HelloFresh reduces food waste by providing convenient and healthy meal options straight to its customers' doorsteps.

In Scottish Mortgage’s Invest in Progress podcast, Deputy Manager Lawrence Burns hears from Dominik Richter, co-founder and chief executive of HelloFresh, about the company’s progress in its mission to “change the way people eat forever”.

Food, glorious food

The genesis of HelloFresh was three friends that wanted to flex their passion for entrepreneurship by addressing a large market need. They alighted on the $7bn global food industry, where they recognised households struggle to find the time and resources to cook healthy and nutritious meals.

Having identified consumers’ problems and challenges in maintaining a varied and balanced diet, they worked backwards to pioneer the meal-kit concept. Starting in Germany in 2011, HelloFresh expanded across Europe to North America and is now in 18 countries worldwide.

Reducing food waste by building strong supplier relationships

Traditional food supply chains often result in large amounts of waste. Richter states, “About one-third of the [US] harvest never makes it to the customer.”

With HelloFresh, it’s a case of less is more:

The fewer touches a product requires, the fewer stops, the fewer intermediaries, the fresher it is and the more potential to extract margin you have. So, it’s both good for business and the consumer; it’s good for the environment, so it’s a win-win.

The company has built direct, “very tight integrations and relationships” with around 2,500 suppliers globally. That helps maintain the quality and variety of its meal offerings.

An art and a science

Creating and delivering the “right” recipes and meal-kit menus at scale is complex. Richter notes:

We develop the recipes and menus and then source all the ingredients, repackage them into the exact quantities you need to cook these delicious meals and deliver them to your doorstep.

Meticulous recipe development and menu creation sets HelloFresh apart from its competitors, whom he says have “really underappreciated the art and science behind that”.

To begin with, “It was about ‘what are five or ten meals that have mass market appeal, and how can you still ensure that you have variety week over week, month over month?’”

Today, HelloFresh boasts a recipe database of about 10,000 recipes. It delivers approximately a billion meals annually and caters to a wide range of customer groups, cost, taste and variety preferences.

Factoring in a better consumer experience

A focus on improving the customer experience is the hallmark of HelloFresh’s culture. Richter confirms,

We continuously work on the proposition and the customer experience. My north star is that I want to be very confident that, every year, the product we’re building is much, much better than the product we had in the previous year.

This was evident during the Covid-19 pandemic when it entered the ready-to-eat (RTE) market by acquiring Factor75. The move was motivated by customer research, which identified that, unlike the meal kits, “ready meals are usually consumed when you’re alone”.

With this applying to less than 10 per cent of HelloFresh’s meal-kit customers, this is a complementary market where HelloFresh can quickly leverage its existing capabilities to rapidly expand its total addressable market.

“A lot of the muscles we need to be good at operating a ready-to-eat business are the same muscles that you need to operate a meal kit business,” he says.

That’s why Richter thinks his company can offer a larger range of more nutritious, much tastier and healthier ready meals than its retail competitors at a competitive price point.

In doing it well, HelloFresh can address consumers’ challenges in eating well in different circumstances, such as when you need a quick meal, but don’t want to compromise on nutrition or taste. He says, “In my view, there is very little reason why this business line shouldn’t become as big as meal kits is today.”

Burns agrees that, “what’s next in the journey . . . with ready-to-eat, with new DTC offerings over time," earns the company its place in the Scottish Mortgage portfolio.

Delayed Gratification

Here, it sits alongside innovative food-related companies, from Ocado to Delivery Hero and DoorDash. Looking across these companies helps the managers’ ascertain how the food industry is changing and evolving.

Burns notes, “[HelloFresh] could have reached profitability sooner and produced much higher margins than it does today had it decided to sit back and not reinvest that money into the product.”

But the fact that Richter hasn’t and “is willing to delay gratification to achieve that ambition is vital” in aligning HelloFresh’s management with Scottish Mortgage’s long-term investment horizon.

If HelloFresh continues to enhance its offerings, even a slight increase in market share could lead to significant growth over time due to the vast global food market. The company is poised to shape the future of the food industry, providing consumers with convenient, healthy and sustainable meal options.

This communication was produced and approved at the time stated and may not have been updated subsequently. It represents views held at the time of production and may not reflect current thinking.

This content does not constitute, and is not subject to the protections afforded to, independent research. Baillie Gifford and its staff may have dealt in the investments concerned. The views expressed are not statements of fact and should not be considered as advice or a recommendation to buy, sell or hold a particular investment.

Baillie Gifford & Co and Baillie Gifford & Co Limited are authorised and regulated by the Financial Conduct Authority (FCA). The investment trusts managed by Baillie Gifford & Co Limited are listed on the London Stock Exchange and are not authorised or regulated by the FCA.

A Key Information Document is available by visiting scottishmortgage.com

Welcome to Kepler Trust Intelligence

Please enter a valid email address
{{item.msg}}
Please enter a valid password
{{item.msg}}
Please enter a valid email address
{{item.msg}}
Please check your email. If an account exists you'll be sent instructions on how to reset your password.
To ensure that we are able to provide content which is appropriate for you, please tell us a little about yourself.
Please choose an option
{{item.msg}}
Please enter a company name
{{item.msg}}
Please enter a location name
{{item.msg}}
Please choose an option
{{item.msg}}
Please enter a platform
{{item.msg}}
Please choose an option
{{item.msg}}
Please enter a trust
{{item.msg}}
?
The information contained herein is not for distribution and does not constitute an offer to sell or the solicitation of any offer to buy any securities in the United States to or for the benefit of any United States person (being residents of the United States or partnerships or corporations organised under the laws thereof). The investment funds referred to herein have not been registered in the United States under the Investment Company Act of 1940 and units or shares of such funds are not registered in the United States under the Securities Act of 1933.
Please confirm
{{item.msg}}
Please select an option
{{item.msg}}
See benefits
A free Kepler Trust Intelligence account allows you to access premium content including the ‘Kepler View’ – our verdict on the trusts we cover – and historical research so you can see how our view has changed over time. An account also unlocks useful facilities like the ‘follow’ button which lets you keep track of the trusts you’re interested in and as a logged in user you can also download PDFs of our research, and choose the layout of the page you’re reading to suit your preference. We will not share your details unless you give us permission to do so, and we won’t bombard you with emails – we only send one a week.
Please select an option
{{item.msg}}
Please enter your first name
{{item.msg}}
Please enter your last name
{{item.msg}}
Please enter a valid email address
An account already exists with this email - have you forgotten your password?
{{item.msg}}
Please enter a valid password
{{item.msg}}
Please enter a valid password
{{item.msg}}
How will this information be used? Your answers help us to tailor our content to relevant investment trusts, and to ensure that the asset allocation and portfolio strategy research we produce is appropriate to our userbase.
Our Website uses Cookies Cookies are small text files held on your computer. They allow us to give you the best browsing experience possible and mean we can understand how you use our site. Some cookies have already been set. You can delete and block cookies, but parts of our site won’t work without them. By using our website you accept our use of cookies. For further information please refer to the Kepler Privacy Notice.
Need help?

One more thing...

Did you know, you can 'follow' individual trusts on Kepler Trust Intelligence? Use the functions below to set up alerts and we'll send you research and updates on your chosen trusts.

Suggested trusts to follow

Browse all funds
Need help?
Current Site Kepler Trust Intelligence is produced by the investment companies team at Kepler Partners and is the UK’s premier source of detailed qualitative research on investment trusts. Absolute Hedge is a market leading UCITS research database providing proprietary research on funds, themes and strategies in the UCITS space. Kepler Liquid Strategies is a Dublin domiciled UCITS fund platform featuring a number of best-of-breed fund managers. Kepler Partners is a corporate advisory and asset raising boutique specialising in the regulated funds market in Europe and investment trusts in the UK.