The recent rise of meal kit delivery services has encouraged yet another company to seek a big payout. HelloFresh announced plans to file for an IPO, to be listed on the Frankfurt Stock Exchange. The company, which is majority owned by German e-Commerce investor Rocket Internet, plans to raise up to $352 million to support the offering.
Proceeds from this funding will be used primarily to finance the company’s long-term growth strategy, including the potential addition of new business lines.
This is the second attempt at going public for the meal kit delivery service, which first sought an IPO in 2015. HelloFresh pulled the offering after investors were reluctant to support its then $2.9 billion valuation. The company’s projected value now stands at $1.8 billion.
HelloFresh hopes that its fortunes turn out better than that of competitor Blue Apron, which saw its estimated IPO price drop from as high as $17 per share to a debut at $10 (the stock price now hovers around $5). Of course, HelloFresh likely won’t have the built-in disadvantage of having a colossal retail-grocery merger preempt its plans, but the challenges in going public in such a competitive market still remain.
Pricing and costs are always key concerns in this segment, and unlike the case of recently acquired Plated or even Amazon’s new kits, HelloFresh doesn’t have the buying power that retailer-backed kits have. Large grocers can purchase food and other items at lower prices, enabling them to charge less for the kits. For example, Ahold’s grocery delivery service Peapod said it is developing meal kits that will be approximately half the price of those from companies like Blue Apron and HelloFresh.
And with high pricing, turnover remains a concern. HelloFresh increased its active customer base to 1.3 million in Q2, which is well ahead of Blue Apron’s 943,000 customers. But more than 55% of subscribers at Blue Apron, HelloFresh and Plated have cancelled their subscriptions within a year of starting the membership, according to NPD Group’s Checkout Tracking data as of September 2016.
With companies such as Green Chef, Martha & Marley Spoon, Sun Basket, Terra’s Kitchen, Home Chef, Purple Carrot and Chef’d all vying for largely the same customer base as HelloFresh, the soon-to-be-public company will need to figure out how to optimize its pricing and address retention if it has any hopes of retaining its valuation.