AUGUST 2022
SEE DISCLOSURE APPENDIX OF THIS REPORT FOR IMPORTANT DISCLOSURES AND ANALYST CERTIFICATIONS
HELLOFRESH: PAYING PEOPLE
TO EAT
A smaller TAM and weak business model will limit long-
term growth expectations
The HelloFresh business model is structurally weak. Selling expensive meal kits with
heavy discounts and high marketing spend has created a business that is churning
through its customers at a rapid rate.
The TAM is small, and TAM penetration is already high. A HelloFresh meal box is 125-
300% more expensive than supermarkets. Meanwhile, our proprietary analysis suggests
TAM penetration is high at 35-40%.
With high discounting and weak customer relationships, HelloFresh is effectively paying
people to eat, barely earning back customer acquisition costs.
We rate HelloFresh Underperform.
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PORTFOLIO MANAGER'S SUMMARY
Paying people to eat. HelloFresh is churning through customers at a rapid rate, acquiring
and reactivating customers at deep discount, and not earning back customer acquisition
costs over the lifetime of customers. It's a meal kit company, a product of its time (the
2010s) when capital was abundant, the TAM limitless, customers embraced new concepts,
and subscriptions smoothed the frictions of daily life. Our work on the stock, the company,
and its smaller-than-expected market opportunity are the subjects of this Blackbook.
Our bear case since our initiation of coverage in July 2021 has focused on three key points:
(1) a structurally weak business model; (2) a small TAM and high TAM penetration; and (3)
a flawed growth strategy. HelloFresh’s results show high churn, high marketing spending,
high discounting, and a very expensive product appropriate for city dwellers and people
who work in large corporations. The positives around changing consumer habits and
healthy eating do not capture consumer hearts fast enough to offset weak customer loyalty.
The numbers. The business is flawed. It is built upon high levels of discounting (>20% off
on average), high levels of churn (90% of customers don't purchase in Q4), and high levels
of marketing spend (>15% of sales). This leads to a business model that is predicated on
acquiring and churning through customers at a rapid rate.
The product is too expensive, and the TAM is small. HelloFresh resells a highly
commoditized product at significant markups (2-4x more than expensive than buying from
a supermarket), with a HelloFresh box for two people for three meals in the US costing $60
(vs. average US food spending of $85 per week). Discounts devalue the brand. The TAM is
smaller than what management claims, and TAM penetration is high at 35-40%. As a result
of a small TAM, expensive product, high churn, and high discounting, it barely earns back
its customer acquisition cost (CAC) with a customer lifetime value (CLTV) to CAC ratio of
just 0.8x (vs. 4x at best-in-class companies). Effectively, HelloFresh is paying people to eat.
You can't have your cake and eat it too. We struggle to reconcile long-term expectations of
high revenue growth and margin expansion. It will likely become harder to grow post-
pandemic with high inflation and expand margins with pressure on COGS, high marketing
spend, and the additional complexity introduced by its growth strategy. This strategy to
transform into a "food solutions group" is just a clever name for a "grocer." New verticals,
more recipes, customization, and grocery add-ons bring significant complexity to the
operation without fundamentally improving the relationship with customers. We would
prefer them to transform into a cash cow, focus on their most loyal and affluent customers,
and pull back on massive TAM expansion. Shareholder returns would improve, and the
business would be more sustainable.
August 3, 2022
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TABLE OF CONTENTS
SIGNIFICANT RESEARCH CONCLUSIONS 5
INTRODUCTION TO MEAL KITS 15
What is a meal kit? What are the unit economics?
BULL VS. BEAR 25
Laying out arguments from both sides
HELLOFRESH CUSTOMERS: GOODBYE FRESH CUSTOMERS 37
Proprietary deep dive into customer database and churn
HEAVY DISCOUNTING, TRADING DOWN RISK, AND HIGH LOGISTICS COST
EXPOSURE 61
How HelloFresh fares in an increasingly inflationary environment
CUSTOMER LIFETIME VALUE (CLTV) 73
HelloFresh effectively pays people to eat with a CLTV:CAC ratio of 0.8x
WOULD YOU PAY 2X, 3X, OR 4X MORE TO EAT? 81
Putting HelloFresh's high price points into context
READY, STEADY, COOK — A MEAL KIT TASTE TEST 89
How meal kits from different providers compare
PROPRIETARY US CONSUMER MEAL KIT SURVEY – PART 1 105
Meal kit users
PROPRIETARY US CONSUMER MEAL KIT SURVEY – PART 2 119
Non-meal kit users and demographics
FOUR KEY TAKEAWAYS FROM THE 2021 CMD 131
FY22 margins hit, medium-term guidance unchanged
THE CASH COW POTENTIAL 143
If we were in control, how we would steer the company
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EXHIBIT 1: Financial overview
Note: HFG.GR is benchmarked against the MSCI Europe, which had a closing price of €145.1 as of close July 28, 2020.
Source: Bloomberg, and Bernstein estimates and analysis
Rating
Target price
Current price (28/07/2022)
Downside
Market cap (EUR mn)
Stock price move
52w range
TTM performance
TTM relative performance
Bernstein & Consensus EBITDA
forecasts
Bernstein
EBITDA
forecast
Bernstein
EBITDA
margin
EV/EBITDA on
Bernstein
forecast
Consensus
EBITDA
Consensus
EBITDA
margin
2021A 528 8.8%
2022E 490 6.4% 9.7x 483 6.4%
2023E 517 6.4% 9.2x 631 7.4%
2024E 772 8.8% 6.2x 815 8.5%
2025E 847 9.1% 5.6x 931 8.7%
2026E 902 9.1% 5.3x 1,010 8.6%
HelloFresh key operational metrics
Orders (mn) 2022FYE 2023FYE 2024FYE 2025FYE 2026FYE
US
65.2 68.4 73.5 76.4 79.5
International
64.7 67.9 72.4 75.3 78.3
Total 129.9 136.3 145.9 151.7 157.8
AOV (€) 2022FYE 2023FYE 2024FYE 2025FYE 2026FYE
US
67.9 67.1 66.8 68.2 69.5
International
49.7 51.8 53.6 54.6 55.7
Group 58.9 59.5 60.2 61.4 62.7
Active Customers 2022FYE 2023FYE 2024FYE 2025FYE 2026FYE
US
4.0 4.2 4.4 4.6 4.8
International
4.1 4.4 4.6 4.8 5.0
Total 8.1 8.6 9.0 9.4 9.8
Total Orders per Customer 2022FYE 2023FYE 2024FYE 2025FYE 2026FYE
US
16.4 16.2 16.6 16.6 16.6
International
15.6 15.5 15.7 15.7 15.7
Group 16.2 16.2 16.1 16.1 16.1
Revenue (€mn) 2022FYE 2023FYE 2024FYE 2025FYE 2026FYE
US
4,427 4,591 4,911 5,209 5,526
International
3,219 3,520 3,879 4,115 4,365
Holding
0 0 0 0 0
Total 7,646 8,111 8,789 9,324 9,891
Meals (mn) 2022FYE 2023FYE 2024FYE 2025FYE 2026FYE
US
508 534 573 596 620
International
572 601 637 663 689
Group 1,081 1,135 1,210 1,259 1,309
EBITDA (€mn) 2022FYE 2023FYE 2024FYE 2025FYE 2026FYE
US
375 410 515 550 585
International
162 141 308 351 374
Holding
-46 -34 -51 -54 -57
Total 490 517 772 847 902
€97.50 - €24.57
-68%
-63%
HelloFresh Group
Underperform
€24.00
€26.71
11.3%
€4,645
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SIGNIFICANT RESEARCH CONCLUSIONS
THESIS OVERVIEW
HelloFresh is the global leader in meal kits, selling and delivering boxes of prepared
ingredients and recipes to customers on subscription. The industry remains immature as it
has only existed at scale for the last few years, with growth supercharged by the Covid-19
pandemic.
At a structural level, HelloFresh has a weak business model with high churn, high marketing
spend, and high discounting. 90% of customers aren't buying by Q4, discounting is >20%
on average, customers are bombarded with discounts once they sign up, and marketing
spend is >15%. The business is churning through customers at a rapid rate due to weak
product-market fit, limited change in consumer habits, and the high cost of the product.
With this business model, we think it will become increasingly hard to scale the business,
maintain the growth in customers, and improve profitability — all at the same time.
It's also expensive relative to a normal food shop, which limits the TAM and brings into
question TAM penetration. A HelloFresh box is 125-300%+ more expensive than cooking
from scratch and unaffordable for the average consumer. A box for two people for three
meals in the US costs $60, while the average US family spends just $80 on food for a week.
This average family is included in management's TAM. We think that the TAM is smaller than
the company identifies. With the high levels of churn, we expect TAM penetration to be
between 35-40%.
As a result of a smaller TAM, expensive product, high churn, and high discounting, we think
HelloFresh is barely earning back its CAC with a CLTV to CAC ratio of just 0.8x (vs. >4x for
best-in-class businesses). Effectively, HelloFresh is paying people to eat.
EXHIBIT 2: HelloFresh thesis summary in one chart
Source: Bernstein analysis
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HELLOFRESH: PAYING PEOPLE TO EAT
STRUCTURALLY WEAK BUSINESS MODEL
The business model is hard with high levels of discounting, high churn, and high marketing
spend, leading to HelloFresh working its way through its TAM at a rapid rate. Customers
come in and leave just as quickly, leading to an unhealthy customer database and weak
relationships with customers (see Exhibit 7). It makes us concerned about long-term
growth.
◼ Discounting — the opposite of pricing power — is high, which devalues the brand. The
product is unaffordable for most people, and HelloFresh is artificially stimulating
growth by acquiring non-core TAM customers (e.g., students who buy on a discount),
and by propping up customer numbers at the end of a quarter with deep discount
emails. Looking at the history, frequent use of high levels of discounts has been a
consistent theme at ~20% in the US and 10-17% in the International segment (see
Exhibit 3).
◼ Churn is high at 90%; customers aren’t buying after Q4 (see Exhibit 6). Customers
aren't sticking with the product due to the high costs and weak product-market fit.
Reactivations are increasing (which the company is positive about), but we think they
are mainly discount-driven, and customers churn just as quickly once reactivated.
Although this isn't a subscription product and we don't expect customers to buy every
week, we would expect greater customer engagement, given the product is a staple.
◼ Marketing spend is high, and there is limited operational leverage. This shows that
HelloFresh has to work the business quite hard to maintain the same levels of growth.
We struggle to see marketing spend getting below 15% in the long term unless it
manages to fix the consumer relationship and improve retention. In addition, as a DTC
company, HelloFresh is advertising in the traditionally lower ROI venues such as TV
and public transportation with deep discounts, further reducing marketing efficiency
and the likelihood of the expense remaining higher (see Exhibit 4).
◼ As a result, HelloFresh is effectively paying consumers to eat with a CLTV-to-CAC ratio
at 0.8 (see Exhibit 8). HelloFresh fails to earn back its customer acquisition costs due
to its structurally weak business model — we estimated customer lifetime value over
three years at €59 vs. the acquisition cost of €75.
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EXHIBIT 3: US segment has an average discount of
~20%
EXHIBIT 4: HelloFresh London tube advertising — 60%
off and 35% off on next three boxes
Source: Company reports, and Bernstein estimates and analysis
Source: Bernstein photo
EXHIBIT 5: Due to high churn, including lost customers,
HelloFresh has worked its way through 35% TAM in
the US based on our TAM
EXHIBIT 6: We calculate that churn is high, with only
30% of customers retained in Q4; two-thirds of
retained customers have been reactivated
Source: Company reports, and Bernstein estimates (all data) and analysis
Source: Bernstein estimates (all data) and analysis
US 2019FY 2020FY 2021FY
Orders 21 39 59
Meals 138 278 452
Revenue € 1,025 € 2,073 € 3,294
Revenue per meal (EUR) € 7.4 € 7.5 € 7.3
Revenue per meal (USD) $8.6 $8.7 $8.5
Meals per order 6.7 7.2 7.6
Full price box for 8 meals
(inc. delivery) (USD)
$85.9 $85.9 $85.9
Price per meal $10.7 $10.7 $10.7
Average discount % -20% -19% -21%
5%
6%
24%
25%
0%
5%
10%
15%
20%
25%
30%
US International
HelloFresh: Active vs. total customer
TAM penetration % Q2-21
Active customer TAM penetration %
Total customer TAM penetration %
0%
20%
40%
60%
80%
100%
Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8
HelloFresh estimated customer
retention rates (Q1-Q8)
Discount & ditch Regularly reactivated
Seasonal customers Frequent customers
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EXHIBIT 7: 13 million customers have been acquired and lost in the US, trying HelloFresh and not sticking with
the product over the last four years
Source: Company reports, and Bernstein estimates (all data) and analysis
EXHIBIT 8: Bernstein customer lifetime value calculation: Ratio to CAC is dismal at 0.8x
Source: Company reports, and Bernstein estimates (all data) and analysis
EXPENSIVE COMMODITIZED PRODUCT = SMALLER TAM
HelloFresh's business model is quite simple. It creates recipes, buys the ingredients, and
puts both the recipe and pre-portioned ingredients into a box. The ingredients are typically
low-margin commodities (e.g., potatoes). HelloFresh is then able to sell these products at a
70% gross margin, well above the 30% gross margin that supermarkets might achieve. As
a result, the product is very expensive at 125-300%+ more expensive than cooking from
scratch (see Exhibit 11 and Exhibit 12). In our surveys, customers dislike how expensive the
-0.3
-0.6
-0.9
-1.2
-1.6
-2.1
-2.7
-3.2
-3.6
-4.1
-4.7
-5.3
-5.9
-6.8
-8.2
-8.8
-10.0
-11.1
-13.0
0.4
0.6
0.7
0.8
0.9
1.2
1.1
1.1
1.1
1.4
1.4
1.5
1.8
2.6
2.0
2.5
2.6
3.7
3.8
-14
-12
-10
-8
-6
-4
-2
0
2
4
6
2016
Q3
2016
Q4
2017
Q1
2017
Q2
2017
Q3
2017
Q4
2018
Q1
2018
Q2
2018
Q3
2018
Q4
2019
Q1
2019
Q2
2019
Q3
2019
Q4
2020
Q1
2020
Q2
2020
Q3
2020
Q4
2021
Q1
2021
Q2
HFG - Total customer base (millions): active and lost customers (US)
Cumulative customers lost Active customers
1st Order Year 1 Year 2 Year 3 Notes
Gross revenue per order € 62 € 62 € 62 € 62 Full price for 2 people, 3 meals in the US
Discount -€ 37 -€ 19 -€ 12 -€ 12 Calculation
% discount 60% 30% 20% 20% Bernstein calculation
Net / reported revenue per order € 25 € 43 € 50 € 50 Reported AOV ~50 EUR
Frequency per year 1 16 16 16 Reported order frequency
Contribution margin % 27% 27% 27% 27% Avg. achieved CM % over last few years
Retention marketing spend % 11% 11% 11% Backcalculated based on CAC to achieve target marketing spend
SG&A % 4% 4% 4% 4% Reported SG&A
Contribution € 11 € 95 € 95 € 95 Calculation
Net retention rate 30% 25% 20% Bernstein calculation
Net contribution € 7 € 29 € 24 € 19 Calculation
Discount rate 8%
3 year CLTV inc. discounting (NPV) € 64 Calculation
Customer Acquisition Cost (CAC) € 100
CLTV:CAC 0.6x Calculation
Total marketing spend modelled 15.2% Reported marketing spend ~15%
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product is and is one of the key reasons why they churn (see Exhibit 9). Plus, the high cost
of the product limits the TAM which, when combined with the structurally weak business
model, suggests that HelloFresh is burning through its TAM at a rapid pace.
The product is expensive, and the higher cost does not outweigh the benefits of
convenience and discovery of new recipes. 53% of non-meal kit users quoted "too
expensive" as the reason for not using the product, while the net promoter score (NPS)
score is -29 (should be at least positive) (see Exhibit 10) among meal kit users, as only 22%
of people would actively recommend meal kits. This makes us cautious on the long-term
ability of HelloFresh to change consumer habits, convert customers into meal kit users, and
sustain long-term growth.
Compared with cooking from scratch, HelloFresh is very expensive. We deconstructed a
selection of recipes which shows that the cost of cooking with HelloFresh ingredients is
125-300%+ more expensive than cooking from scratch. In an environment of higher
inflation and consumer spending squeeze, this will make growth more difficult.
As a result, TAM penetration is high. Building a bottom-up view of churn and lost customers,
TAM penetration is ~35% (see Exhibit 13). While surveying US consumers, almost 40% of
affluent customers had used a meal kit at any point. This brings into question the headroom
to further growth as HelloFresh churns its way through its addressable market.
EXHIBIT 9: Top reasons for not using meal kits are that
they are too expensive and people don't like the
business model
EXHIBIT 10: NPS of -29, with the majority of people
being detractors and only 22% of respondents
actively promoting meals
Note: Sample = 763
Source: Survey Monkey Panel and Bernstein analysis
Note: Sample = 327
Source: Survey Monkey Panel and Bernstein analysis
53%
33%
25%
20%
19%
18%
10%
7%
8%
0%
10%
20%
30%
40%
50%
60%
Non-meal kit users: Why haven't you
tried meal kits?
7.4%
3.1%
4.0%
3.7%
6.4%
14.1%
11.7%
16.0%
12.0%
6.7%
15.0%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
0 -
Not
likely
1 2 3 4 5 6 7 8 9 10 -
Very
likely
Detractor Neutral Promoter
Meal kit users: How likely are you to
recommend meal kits to a friend or
colleague?
NPS = -29
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EXHIBIT 11: Premium of HelloFresh meal vs. cooking from scratch (adjusted for recipe quantities)
Source: Tesco website, HelloFresh website, and Bernstein analysis
EXHIBIT 12: Even for the highest quintile of earners
(US), a HFG box takes up 46% of weekly food
spending
EXHIBIT 13: With ~40% penetration of food spending
quintiles, we think it is difficult for HFG to extend
into lower income groups due to affordability
Source: USDA, US Census Bureau, company website, and Bernstein analysis
Note: Sample = 327
Source: Survey Monkey Panel and Bernstein analysis
300%
275%
218%
215%
211%
209%
193%
187%
177%
172%
164%
158%
149%
138%
125%
0%
50%
100%
150%
200%
250%
300%
350%
HelloFresh vs. cooking from scratch - HFG pricing vs. cost of items (adjusted for quantity used in recipe)
US food
spending by
income quintile
Food spending
at home per
week
HFG box (three
meals, two
people)
Lowest quintile $54 117%
2nd quintile $71 89%
3rd quintile $85 74%
4th quintile $100 63%
Highest quintile $137 46%
19%
25%
33%
36%
43%
40%
0%
10%
20%
30%
40%
50%
$0-50 $50-75 $75-100 $100-125 $125-150 $150+
Meal kit users: penetration of
consumers by food spending per
week
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FLAWED GROWTH STRATEGY
New growth initiatives add complexity to the previously simple business model with limited
impact on growth, putting into question the mid-term margin target. At the 2021 CMD,
there was a raft of new growth initiatives announced, including expansion into new markets
and other meal occasions, more recipes, and grocery add-ons, to achieve mid-term target
of €10Bn revenue and 10-15% margins. While geographic expansion and new products
will likely add to top line growth, impacts from other initiatives will be small. HelloFresh also
plans to reduce lead times and bring in recipe customization. We think the business is
becoming increasingly complex with the new initiatives, which puts into question mid-term
margins as operational complexity eats into efficiency. With these growth levers,
HelloFresh is hoping to lay the path toward a "food solutions group," which we think is just
a clever name for "grocer," by rebundling the weekly shopping basket it initially claimed to
unbundle. However, we don't think this will work as HelloFresh will struggle to compete
against food retailers on range, price, or speed.
However, we think at the core of HelloFresh is a small group of core affluent customers
who love the product and are highly profitable. Even with very high churn, we expect there
to be almost three million regular core customers at present. Therefore, we think
HelloFresh should pivot from being the Amazon of meal kits or creating a food solutions
group to targeting this core of affluent customers and focusing on growing strong
sustainable margins and FCF as opposed to discount-driven, churn-intensive, and Capex-
intensive growth at all costs. This will likely lead to a much lower top line growth, but
increase margins significantly and increase FCF. It will increase the company's product-
market fit, enable it to pass on inflation, and improve customer satisfaction.
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EXHIBIT 14: We think new geographies and product lines have the greatest business benefit
Source: HelloFresh reports and Bernstein analysis
Lever Initiative What is it?
Business
benefit
Complexity Bernstein perspective
Quicker lead
times
Go from 4-5 day lead times to 2-
3 days, speeding up delivery to
customer and cut off times
Low Easy
Quicker lead times would increase
competitiveness vs. grocers, but 2-3 days is
still uncompetitive. This would reduce the
effectiveness of the supply chain &
inventory/labor forecasting.
More recipes
Increase from 35 recipes to 50-
100 recipes and full market
rollout of all brands
Low Medium
More recipes would help order frequency and
may attract some new customers (e.g. vegan).
It adds to complexity of operations in handling
combinations.
Value
Become more competitive on
price reducing price vs market
by -25 to 40% vs. the 2016
baseline (2021 at -20 to -30%)
High Hard
Reducing prices would open up the TAM but
create significant challenges for unit
economics. Price gap is significant vs. grocers.
New meal kit
brands
Rollout GreenChef (premium
offer) and EveryPlate (reduced
cost offer)
Low Hard
New brands are cannibalistic, require more
marketing spend, and the operations are
duplicated with dedicated sites to each brand.
Limited synergies, and the same TAM.
New
geographies
Expand into new markets such
as Italy and Norway (both in
2021), and Japan (2022)
High Medium
New markets are attractive as an organic
growth source. Italy and Norway are small.
Japan will be challenging, given no experience
in Asian markets or with Japanese cuisine.
New product
lines
Continue expansion of RTE
(ready to eat) products through
Factor 75 and YouFoodz;
Factor 75 to launch in a new
market in 2022
High Medium
High growth rates in short term due to low
levels of sales today. TAM is very small, given
very high cost of the product, requires more
labour to prepare, complexity of ops is
increased, and sites are duplicated.
New meal
occasions
Focus on getting greater share
of weekly meal occasions (e.g.,
breakfast and lunch)
Low Easy
Meal kits have limited appeal to consumers
due to cost and take time to prepare. On
breakfast, we question the value added by a
meal kit compared with cheap options such as
cereal or toast. On lunch, we question the
value/time trade off vs. sandwiches and
salads.
Grocery
product add-
ons
Rollout of HelloFresh Market to
4 new markets (as well as US)
with private label and ~1000
SKUs. Market is effectively a
grocery offering of ready meals,
and "solution-oriented" items
Low Hard
We don't think HelloFresh can compete on
range, price, or convenience vs. grocers.
Adding 1,000 SKUs to the warehouses will
increase food waste, add complexity to
picking, and require significant investment in
technology (e.g. WMS/IMS/OMS).
Recipe
customization
Driving additional AOV and
orders by allowing customers to
swap ingredients, upgrade
ingredients, and add
ingredients to meal kits
Low Medium
Increases complexity of operations (e.g. not
just a single pick of individual recipes) whilst
driving limited incremental AOV growth.
TAM
penetration
TAM
expansion
Additional
monetization
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EXHIBIT 15: HFG current strategy (our published model) vs. our corporate action strategy
Source: Company reports, and Bernstein estimates and analysis
European Food Retail: We value stocks in our coverage through the following steps: (1) We
use a market-based approach to valuation. We take data for a set of comparable companies
and assess how multiples relevant to the sector (PE, EV/EBITDA, EV/sales, EV/EBIT, FCF
yield) change relative to expected growth rates, creating a regression of each multiple vs.
expected growth; (2) We generate earnings forecasts for the company, compare those
forecasts with consensus expectations, and seek to reflect events that may happen during
the 12 months that are likely to move consensus expectations; (3) We value the stock by
applying the relevant multiple (as determined by our industry valuation regressions) to our
earnings forecast; and (4) Where appropriate, we break down the company into its parts
(e.g., by geography) and value it as a sum of those parts. Note that we make several
adjustments to our valuation analysis: (1) For company-specific tax rates, habits of
recurring one-off charges, or other company-specific traits; (2) To separate non-operating
assets if we feel their inclusion is distorting the valuation multiples; and (3) To include
pension deficits, non-operating provisions, and seasonality of debt in our net debt
calculation.
HelloFresh SE: We value HelloFresh using an average of a 15-year DCF, PE, and
EV/EBITDA.
FY21 FY22E FY23E FY24E FY25E
Model - HFG current strategy 7.2 8.1 8.7 9.3 9.6
Corporate Action strategy 7.2 4.9 4.1 4.1 4.2
Model - HFG current strategy 5993 7126 7788 8421 8933
Corporate Action strategy 5993 4674 4179 4390 4612
Model - HFG current strategy 59.8% 18.9% 9.3% 8.1% 6.1%
Corporate Action strategy 59.8% -22.0% -10.6% 5.1% 5.1%
Model - HFG current strategy 25.3% 23.9% 25.1% 25.9% 26.1%
Corporate Action strategy 25.3% 28.4% 32.0% 32.8% 33.5%
Model - HFG current strategy 528 448 574 710 791
Corporate Action strategy 528 619 795 868 940
Model - HFG current strategy 8.8% 6.3% 7.4% 8.4% 8.9%
Corporate Action strategy 8.8% 13.2% 19.0% 19.7% 20.4%
Model - HFG current strategy 1.4 1.1 1.5 1.8 2.0
Corporate Action strategy 1.4 1.8 2.4 2.7 3.0
Model - HFG current strategy 181 -138 39 149 209
Corporate Action strategy 181 150 394 468 519
Model - HFG current strategy 276 101 134 283 492
Corporate Action strategy 276 289 776 1244 1763
Basic EPS
FCF
Net Cash / (Debt)
Active Customers (m)
Group Revenue
Revenue growth %
Contribution margin %
Adj EBITDA
Adj EBITDA %
VALUATION METHODOLOGY
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HELLOFRESH: PAYING PEOPLE TO EAT
European Food Retail: There are certain risks that are common to all the companies in our
coverage: (1) Prevailing economic conditions — in each of the territories our coverage
companies operate in, the food retail spend is correlated to prevailing economic conditions.
Thus, any unexpected deterioration or improvement in the macroeconomic conditions in
these countries will likely impact the growth assumptions applied to those operations; and
(2) New Entrants — all companies in our coverage are at risk from new entrants either at a
local/regional level (i.e., a new supermarket opening locally to an incumbent) or national
level (a new entrant entering a whole market). Currently, the greatest expansion is being
seen at the lower (Lidl/Aldi in the discount sector) and higher (Waitrose/Wholefoods) ends
of the market or online (Amazon). These companies may continue to outpace the sector and
impact the growth of the companies in our sector. Similarly successful operators in certain
regions/countries, e.g., E.Leclerc in France, could expand beyond their current boundaries.
As a lot of the non-coverage companies are privately held, it can be difficult to assess the
ability and willingness of these companies to expand further.
HelloFresh SE: The upside risks to our target price include: (1) Pandemic behavior sticks
and new customers continue ordering; (2) Cost reduction sticks post-pandemic and
marketing spend stays low vs. 2019 levels; (3) Further acquisitions that grow the business;
and (4) New strategic initiatives or geographies provide material upside.
We rate HelloFresh Underperform with a target price of €24. HelloFresh operates a hard
business model with high discounting, high churn, and high marketing spend. The TAM is
smaller than management expects due to the commoditized and expensive nature of the
product. In addition, retention is poor, which means the already limited TAM is being
churned through quickly. We think it will become increasingly harder to scale the business,
maintain the growth in customers, and improve profitability. But consensus expectations
remain high, expecting +15.5% revenue CAGR during FY 2021-26 and expanding EBITDA
margin by +100 bps at the same time. We project a 10.5%+ CAGR with -240 bps margin
decline into FY22 and recovery to FY21 level in FY24.
RISKS
INVESTMENT IMPLICATIONS
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INTRODUCTION TO MEAL KITS
15
INTRODUCTION TO MEAL KITS
What is a meal kit? What are the unit economics?
OVERVIEW
A meal kit is a selection of prepared, pre-portioned ingredients delivered directly to a
consumer's home (D2C) for home cooking of a pre-selected recipe. However, the concept
of a meal kit is not new. It bridges the gap between a ready meal (fully prepared meal to
cook at home) and scratch cooking (selecting raw ingredients to cook a meal of your
choosing). Meal kits have been sold in some form for many years by supermarkets, with Old
El Paso (a General Mills brand, covered by Alexia Howard) being a prime example. The D2C
meal kit emerged in the early 2000s in the Nordics and evolved into its current guise in the
2010s, with HelloFresh, Blue Apron, Gousto, and HomeChef being some of the largest
global players.
Not all meal kits were born equal. There's a significant difference between the supermarket
meal kit (e.g., Old El Paso fajitas); a classic DIY meal kit (e.g., HelloFresh) where pre-
portioned ingredients are sold D2C via a subscription; the more recent cook-it-yourself
meal kit (e.g., Pasta Evangelists) where a meal is delivered that just needs cooking; to
prepared ready meals (e.g., Factor 75) where a selection of ready meals is delivered to your
door. We focus on the classic DIY meal kit as it makes up the majority of the market.
Meal kit unit economics are attractive and relatively simple to understand. They are
attractive because on a single unit basis, a meal kit company is selling simple commoditized
products at very high gross margins (65% vs. supermarkets' gross margin of 25-30%).
Although shipping the product is expensive and involves a high variable cost (40% of
revenue), this is more than compensated for by the high gross margin. Whilst the single unit
economics look attractive, the big problem is below contribution margin (revenue –
procurement – fulfillment) where marketing spend is high and will remain high, leading to
lower EBITDA margins. This is further compounded by weak customer relationships, high
churn, and weak product-market fit, which brings into question the sustainability of growth.
History of meal kits is checkered. The number of meal kit companies mushroomed in the
D2C explosion of 2015-17, and while the D2C market consolidated, it was due to failures
rather than to structural consolidation. Many smaller competitors ran out of cash as a result
of the challenging business model, while HelloFresh survived through strong execution and
a push toward profitability. As a result, HelloFresh has a strong global market share, but it
doesn't matter. Consumers aren't shifting from HelloFresh to other meal kits but are instead
shifting back to grocery stores, which are still cheaper, easier, and simpler to shop from.
We think the threat of meal kits to food retailers is limited, given the high cost of the product.
On valuation, we think HelloFresh should be compared with other staples retailers, and we
value the business based on PE, EV/EBITDA, and a DCF.
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HELLOFRESH: PAYING PEOPLE TO EAT
WHAT IS A MEAL KIT?
◼ A meal kit is a selection of prepared, pre-portioned ingredients that are delivered
directly to a consumer's home (D2C) for home cooking of a pre-selected recipe. They
are typically run as subscription services where a consumer signs up to several recipes
each week. For example, one could choose to have three meals delivered (cheese &
caramelized pork steaks; a sticky Thai rice bowl; and a lamb ragu) and receive the exact
ingredients required for each meal in the box (e.g., for lamb ragu, 500g tomatoes,
500g lamb mince, a small sachet of herbs, one onion, two cloves of garlic, etc.). One
could then prepare these at home following the recipe cards (see Exhibit 17 to
Exhibit 21).
◼ The concept of a meal kit is not new. It bridges the gap between a ready meal (fully
prepared meal to cook at home) and scratch cooking (selecting raw ingredients to
cook a meal of choice). Meal kits have been sold in some form for many years by
supermarkets, with Old El Paso (a General Mills brand, covered by Alexia Howard)
being a prime example. Old El Paso has had fajita or taco kits on supermarket shelves
for years, where a box contains tortillas, a spice mix, and some tomato salsa. All the
consumer needed to do was follow the recipe on the back and buy some fresh chicken,
peppers, and onions. This is the original form of the meal kit that has evolved into a
D2C model.
◼ D2C model of meal kits started in the 2000s in the Nordics with Linas Matkasse (not
covered) and expanded with the growth of players such as HelloFresh, Blue Apron (not
covered), and other startups. These new D2C players focused on delivering the boxes
directly to the home (thereby disintermediating food retailers) and focusing on
improving the offer with more fresh products, all the ingredients included, and a wider
range of innovative recipes (e.g., a Massaman fish curry cooked at home on a Tuesday).
◼ Meal kit companies have a broad appeal, but they normally claim that their target
customers are young women in their early 30s with two children under the age of five,
where both parents are working. Given the expense of the products, they typically
target more affluent, urban professionals, and some are only available in major urban
centers.
◼ However, "meal kits" is a bit of a catch-all term with different variants.
Supermarket meal kit (e.g., Old El Paso fajita kit): Sold on a supermarket shelf,
contains a few ingredients to make a recipe (consumers need to buy the
remaining ingredients), and often focuses on "world cuisines" (e.g., Mexican, Thai,
Indian, etc.).
Classic DIY meal kit (e.g., HelloFresh or Blue Apron): Sold D2C via a subscription
model, contains all the ingredients for a recipe; the meal kit typically contains
three or four recipes for two people and is delivered D2C.
CIY meal kits (e.g., Pasta Evangelists or Nonna Tonda — both private): Cook-it-
yourself (CIY) meal kits are often a specific meal delivered to your door; are one-
step away from a ready meal and, in the case of the pasta kits, include freshly
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BERNSTEIN
INTRODUCTION TO MEAL KITS
17
made pasta and a sauce which need to be cooked separately and then served.
They tend to be much quicker, focus on the convenience, and come with high-
quality fresh pasta and sauce.
Prepared ready meals (e.g., Freshly (owned by Nestlé and covered by Bruno
Monteyne), AllPlants (private), and Factor 75 (owned by HelloFresh)): These are
effectively D2C ready meal boxes but are often targeted at consumers who want
to know all the nutritional information about what they are eating and are
therefore typically perceived as healthier than traditional supermarket ready
meals. In a prepared ready meal kit, a selection (e.g., 12) of ready meals which can
be heated and eaten is delivered. There is limited preparation time. Often, they
target specific dietary needs (e.g., AllPlants is vegan and others target
bodybuilders).
EXHIBIT 16: Meal kits sit in between cooking from scratch and ready meals, along a spectrum of level of
preparedness
Source: Bernstein analysis
EXHIBIT 17: Ready meals have evolved from frozen meals in the 1970s to traditional meal kits and fresh ready
meals with the most recent iteration of meal kits such as HelloFresh, ready meals delivered, and new FMCG
channels
Source: Company websites and Bernstein analysis
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HELLOFRESH: PAYING PEOPLE TO EAT
EXHIBIT 18: HelloFresh meal kit
EXHIBIT 19: HelloFresh ingredients for pasta recipe
Source: Company website
Source: Bernstein photo
EXHIBIT 20: Pasta Evangelists
EXHIBIT 21:Factor 75 ready meals
Source: Company website
Source: Company website
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INTRODUCTION TO MEAL KITS
19
UNIT ECONOMICS AND AN EIGHT-LINE P&L
◼ Meal kit unit economics are attractive and relatively simple to understand. They are
attractive because on a single unit basis, a meal kit company is selling simple
commoditized products at very high gross margins (65% gross margin vs.
supermarkets' gross margin of 25-30%). Although shipping the product is expensive
and involves a high variable cost (40% of revenue), this is more than compensated for
by the high gross margin. While the single unit economics look attractive, the big
problem is below contribution margin (revenue – procurement – fulfillment) where
marketing spend is high and will remain high, leading to lower EBITDA margins. This is
further compounded by weak customer relationships, high churn, and weak product-
market fit, which brings into question the sustainability of growth.
◼ The unit economics of a meal kit are quite simple.
Revenue = customers x orders per customer x average order value (AOV)
AEBITDA = revenue – procurement – fulfillment – marketing & SG&A
EXHIBIT 22: Simple eight-line HelloFresh/meal kit P&L
Source: Bernstein analysis
◼ Revenue = customers x orders per customer x average order value (AOV)
Customer numbers are typically measured by active customers in the quarter (i.e.,
a customer who bought at least once). Customers are driven by acquisition,
retention, and reactivations. Acquiring new customers is critical to maintaining
growth; retention is typically quite weak, but there will be a core of regular users;
and reactivations are lost customers (i.e., those who have purchased before to
come back), encouraged often by discounts. Web traffic, app data, and Google
Trends tend to have a good relationship with customer numbers.
Orders per customer is the number of times the average customer orders in a
period. It is a signal of usage and behavior change, as higher orders per customer
would signal more consistent usage and good product-market fit. Currently,
HelloFresh achieves roughly four orders per customer per quarter, which
suggests that people aren't on average using the product all the time (as expected
and partly driven by the mix effect of customers).
Average order value is a factor of order size (meals per order, revenue per meal,
and any add-ons). Meals per order has stayed flat around eight, which suggests
that the most common box size is four meals for two people (in line with their
target customer of a working couple with kids). Revenue per meal has been
CUSTOMER
NUMBERS
ORDERS PER
CUSTOMER
AOV REVENUE
REVENUE
PROCUREMENT
COSTS (COGS)
FULFILMENT
COSTS
MARKETING &
SG&A
AEBITDA
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HELLOFRESH: PAYING PEOPLE TO EAT
increasing as some inflation (not all) is passed on, some add-ons are added to the
boxes, and delivery fees are increased. There are lots of moving parts to revenue
per meal (including the mix effect of higher and lower value propositions such as
EveryPlate and Factor 75). AOV is net of discounts (with discounts not being
disclosed).
◼ AEBITDA = revenue – procurement – fulfillment – marketing & SG&A
Procurement costs (35-40% of revenue) are the COGS that go into the meal kit,
including both the cost of food and the cost of packaging. We like to look at
procurement costs on a percentage basis and a per order basis, as it helps
understand movements in top line and underlying trends. There is an argument
that procurement costs as a percentage should decrease because of buying
scale, but we're cautious, given that most meal kit companies are still subscale vs.
supermarkets. Inflation is also a key driver here as food prices rise, which can be
in part offset by management decisions on ingredients and recipes.
Fulfillment costs (~35-40% of revenue) include the cost of picking, packing,
dispatching, and fulfilling the order. It is difficult to model in detail due to lots of
moving parts of new fulfillment facilities, efficiency and capacity in existing
fulfilment centers, and parcel rates. Fulfillment costs should increase with
inflation and parcel spot rates, and become more efficient as sites increase
capacity and automation is introduced.
Marketing & SG&A (~20% of revenue) is mainly composed of marketing spend
(>15% of sales) and general costs (~4-5% of revenue). Marketing spend includes
both acquisition and retention marketing, but does not include discounts, which
are netted off revenue (not disclosed). Marketing spend is likely to remain high, as
the business is a high churn model, which requires constant customer
engagement and promotion to drive demand. SG&A should stay relatively flat, but
HelloFresh has recently hired a significant number of data analysts to increase
their capabilities, which could put pressure on margins.
◼ Although P&L and unit economics might be simple, the business model is hard.
HelloFresh operates on a high discounting model where new customers are given
40-60% off to get them signed up, and reactivated customers are prompted with
very regular discounts (often toward the end of the quarter) to sign up. We think
this devalues the brand, encourages discount chasing, and creates an unhealthy
customer base. It also means that HelloFresh acquires a large number of
customers who aren't in its TAM (i.e., students), who are given money to eat for
free. It also means that the reliability of active customer numbers is lower due to
customers using multiple accounts to get the discounts. For example, I recently
had a door-to-door marketer come to my house and offer me a discount. I said I
had bought before so I wouldn't be eligible, and they encouraged me to use a
different email address.
High churn, where 90% of customers don't buy by Q4 because they come for the
discounts, find the product too expensive at full price, and the product doesn't fit
their lifestyles. This means that more discounting and more marketing spend are
required to acquire more customers. Reactivations are portrayed as a good thing
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INTRODUCTION TO MEAL KITS
21
(i.e., getting customers to come back), but we think that they are discount-driven
and that customers churn just as quickly.
As a result, high marketing spend is required to consistently acquire and
reactivate customers, and will be needed in the long term without a significant
improvement to the underlying customer relationship, retention, and discounting.
Marketing would become less effective as the TAM is churned through, and
HelloFresh needs to acquire more customers (who are less like their target
customers and less affluent).
High variable costs mean that there is limited fixed operating leverage. Marketing
spend and COGS grow with revenue, and while there are some potential
efficiencies in procurement (e.g., better processes in warehouses), the business
doesn't scale that efficiently.
EXHIBIT 23: Meal kits are a difficult business model
Source: Bernstein analysis
THE INDUSTRY
◼ Meal kits were born out of the D2C explosion in 2015-17 when many D2C business
models received significant amounts of funding to disrupt the CPG and food retail
landscapes. Dollar Shave Club (now owned by Unilever, covered by Bruno Monteyne)
was the prime example. They were mainly subscription business models aimed at
fragmenting the traditional weekly shop, often with some form of vertical integration.
◼ The D2C market "consolidated," as did the meal kit market, not due to structural
consolidation but due to failure. Many of these D2C businesses were overhyped with
huge growth potential to build a brand that could capture consumer spending.
However, many failed by running out of cash due to a high discounting, high churn, and
high marketing spend business model with a product that didn't fit with consumers'
needs. It is still easier, cheaper, and quicker to go to a supermarket and buy all the
products together.
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HELLOFRESH: PAYING PEOPLE TO EAT
However, HelloFresh is constantly under attack from the "attack of the ants."
There are hundreds of small meal kit providers that pop up in markets all over the
world to disrupt the segment. They often target new segments (e.g., vegan) or new
models (ready meals or cook-it-yourself). This puts pressure on HelloFresh to
constantly innovate and spend on discounting and marketing to avoid being
attacked by newer, more interesting solutions.
◼ HelloFresh is one of the survivors through strong execution, a push toward
profitability, and a well-timed entry into the US market. It is one of the lucky ones of the
D2C boom that managed to continue growing and fund itself to profitability. It was also
opportunistic in that it was able to grow in the US while Blue Apron (not covered) was
struggling, therefore capturing customers from a competitor and boosting
performance.
◼ HelloFresh has a strong global market share, but it doesn't matter. We are often asked
about HelloFresh's market share of the meal kit market, and it simply doesn't matter.
Consumers aren't switching from HelloFresh to another meal kit provider (by and
large). They are churning from meal kits (or HelloFresh) and trading back to
supermarkets.
◼ Discretionary or staple? We are often asked whether HelloFresh is a discretionary
product that competes with restaurants and food delivery or a staple that competes
with grocers. We think it is a staple because you have to cook it and because of the
frequency of use (3x+ per week). Many people justify the high cost of the product by
saying it competes more with restaurants, but it does not consider that the majority of
people might spend £20/$30 a month on one food delivery as a treat, and it is very
difficult to spend $60 on a meal kit box. We would expect customers who churn to
return to supermarkets rather than restaurants.
◼ However, meal kits do meet many consumer trends, making them an attractive trend-
driven investment. They are a convenient, digitally enabled, and healthy option
focusing on the provenance of items and encouraging more interesting eating. We
don't dispute the fact that they meet many consumer trends, but we think this is offset
by the challenges of the business model and the small TAM.
◼ In a recession or consumer spending squeeze, we would expect meal kits to struggle,
given the high cost of the product. We would expect trading down to supermarkets as
inflation squeezes budgets. The only saving grace is discounting, which we would
expect to help drive additional acquisition, but long-term retention rates will suffer.
◼ The threat of meal kits to food retailers is minimal. Meal kits remain a tiny part of the
market. HelloFresh's revenue was $3.3Bn in the US in FY21 vs. a grocery market that
is close to $1Tn, leading to a total market share of <0.3%. Grocery is a highly price-
sensitive category and very difficult to execute on (high volume, low margin, and
challenging supply chain). We think meal kits will struggle to gain significant share.
While some food retailers (e.g., Kroger) have purchased meal kit companies, this is
more in a test & learn approach to D2C and digital grocery, and they remain a small
part of overall sales.
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INTRODUCTION TO MEAL KITS
23
◼ On the flip side, food retailers pose a significant threat to meal kit companies. The risk
of disintermediation is high. Food retailers typically have strong new product
development (NPD) capabilities, and if they saw a significant opportunity in meal kits,
it would not be hard to replicate the product and put it on their shelves at a significantly
lower price. For example, Ahold Delhaize has already created meal kit-like products.
This also takes out the significant cost of fulfillment, which is a challenge to unit
economics. Also, Kroger has brought its meal kits to stores (see Exhibit 24).
EXHIBIT 24: Kroger's Home Chef brand in-store
proposition
EXHIBIT 25: Ahold Delhaize — beef bourguignon meal
kit
Source: Company photo
Source: Company photo
VALUATION
◼ We approach valuation using a three-part methodology and use an average of PE,
EV/EBITDA, and DCF. We value HelloFresh based on its profitability, given its relative
maturity to other "new food businesses" such as food delivery. One of the key positives
that investors highlight about HelloFresh is its ability to generate cash and profits;
therefore, we think it's reasonable to value it on these metrics.
◼ Compared with food retailers, HelloFresh looks expensive relative to peers, given its
EBITDA and EPS growth trajectory. We think EBITDA growth will be stifled by a tough
demand outlook (high inflation leading to trade down, potential recession, and post-
pandemic reset) and pressures to profitability (investment strategy, inflation on COGS,
ramping production facilities, and higher marketing spend to support growth).
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24
HELLOFRESH: PAYING PEOPLE TO EAT
EXHIBIT 26: EU Food Retail NTM+1 EV/EBITDA
EXHIBIT 27: EU Food Retail NTM+1 PE
Source: Bloomberg, and Bernstein estimates and analysis
Source: Bloomberg, and Bernstein estimates and analysis
EXHIBIT 28: HFG vs. peers on EV/EBITDA
Source: Bloomberg, and Bernstein estimates and analysis
EXHIBIT 29: HFG vs. peers on PE
Source: Bloomberg, and Bernstein estimates and analysis
7.6
6.8
6.2
6.0
5.1
5.0
0
1
2
3
4
5
6
7
8
HFG JMT TSCO AD SBRY CA
EU Food Retail (ex. OCDO) - NTM+1
EV/EBITDA (Bernstein forecast)
23.6
18.0
10.1
10.0
9.6
9.1
0
5
10
15
20
25
HFG JMT SBRY TSCO CA AD
EU Food Retail (ex. OCDO) - NTM+1
PE (Bernstein forecast)
ConsHFG
BernHFG
Target
TSCO
SBRY
JMT
AD
CA
AMZN
BABA
ASC
BOO
ZAL
R² = 0.2137
0
2
4
6
8
10
12
14
16
0% 5% 10% 15% 20% 25% 30% 35% 40% 45%
NTM EV/EBITDA
NTM - NTM+1 EBITDA growth
EBITDA growth vs. EV/EBITDA
Supermarkets
Online retailers
ConsHFG
BernHFGTarget
TSCO
SBRY
JMT
AD
CA
AMZN
BABA
ASC
BOO
ZAL
R² = 0.374
0
5
10
15
20
25
30
35
40
45
0% 20% 40% 60% 80% 100% 120%
NTM P/E
NTM - NTM+1 EPS growth
EPS growth vs. P/E multiple
Supermarkets
Online retailers
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BULL VS. BEAR
25
BULL VS. BEAR
Laying out arguments from both sides
OVERVIEW
Of any name in our coverage, we have the most polarized discussions about HelloFresh.
Investors are typically either completely bought into the long-term shift in consumer habits,
the power of the business model, and the huge opportunity of the growth levers, or they are
left perplexed by high churn, high marketing spend, high discounting, and a very expensive
product, which brings into question the TAM and TAM penetration, as well as both post-
pandemic and long-term growth and margins. Below, we outline what we understand to be
the bull case and the bear case, and provide our response.
◼ Bull case: HelloFresh is the strongest executor globally in the meal kits space with
strong top line growth and profitability over 2020 and 2021, which is expected to
continue. It is profitable and cash generative. Meal kits meet many consumer trends,
and the long-term growth opportunity is huge (e.g., grocery, new products, and new
geographies).
◼ Bear case: The business model is hard (high churn, high discounting, and high
marketing spend), and the product is expensive. The TAM is smaller than management
claims and is almost 40% penetrated. Growth levers aren't material and add
complexity to the business. Post-pandemic demand will be squeezed, and inflation
pressures top line and margins.
BULL CASE
◼ Strong growth during the pandemic with stickier, better cohorts: HelloFresh
demonstrated strong growth through the pandemic with >100% growth in FY20 and
~60% growth in FY21 (see Exhibit 30). The pandemic has accelerated the pace of
consumer take-up, and the quality of customer acquisition during the pandemic has
been stronger. As a result, retention metrics have improved and more consumers have
changed their eating habits, which is expected to stick post-pandemic (see Exhibit 32).
There is latent demand post-pandemic as HelloFresh was operating at full capacity for
most of 2020 and was not actively recruiting new customers, suggesting there could
be further growth post-pandemic.
Retention metrics are improving yoy, reactivations are good, and CAC payback is
quick. Retention metrics are improving by each cohort, and cohorts have stuck
with the product during the pandemic (see Exhibit 32). Reactivation is a low-cost
way of reengaging customers with the product and leads to greater engagement.
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HELLOFRESH: PAYING PEOPLE TO EAT
Payback of the CAC is quick as a result and improving, which demonstrates that
discounting and the marketing strategy are going in the right direction.
Pricing is becoming more attractive and is opening the product to a wider
audience. Over time, HelloFresh has not passed on as much inflation and,
therefore, the product is becoming more affordable in real terms relative to
normal grocery shopping. This widens the TAM along with cheaper alternatives
such as EveryPlate (see Exhibit 35).
◼ Execution has been the strongest of peers, and HelloFresh has a high market share:
Many D2C meal kit companies have failed due to lack of demand and funding, and
weak execution. Listed peers such as Blue Apron (not covered) have struggled with
top line demand and profitability over the past couple of years. However, HelloFresh
has come out dominant with a strong US market share, significant scale (5-6x larger
than peers), and the majority share of the global meal kit market. Its strong ability to
execute and innovate has put it in a dominant position, and the flywheel benefits only
increase. The company has scale buying benefits, scale logistics benefits, and a digital
food network infrastructure capable of delivering food across many countries.
◼ HelloFresh is one of the only profitable and cash-generative "new" food companies: It
became profitable in 2019 (0.9% AEBITDA margins), and generated 12.6% margins
and nearly €500Mn FCF in FY20. Recently announced share buybacks reinforce
management's conviction in the business, and there is room for further buybacks and
cash return in the future.
◼ Meal kits meet many emerging consumer demands and trends: The growth of meal
kits and HelloFresh fits within many longer-term secular consumer trends such as the
increasing digitalization of food; the need for provenance, convenience, and helping
the time-poor; a desire to eat healthier; and a desire to reduce food wastage. Millennial
consumers will likely become increasingly affluent over the next 5-10 years and have
families, for which HelloFresh is perfectly suited.
◼ Long-term growth opportunity is huge: The TAM is underpenetrated, and there is room
to grow by: (1) monetizing the existing customer base; (2) increasing penetration of
the core product; and (3) expanding the TAM through new products. We often hear
that HelloFresh will be the CPG company of the next 100 years (akin to Nestlé, covered
by Bruno Monteyne). Management says that it is only currently serving a fraction
(<0.45%; see Exhibit 33) of its TAM's meal consumption. New brands (GreenChef and
EveryPlate) are ramping well, and new brands such as Factor 75 and new geographies
are ramping quickly and made up 25% revenue in Q3-21. Plus, there's a huge
opportunity to improve the existing proposition (quicker lead times, more recipes, and
customization) as well as boost AOV with add-ons, customization, and grocery.
Grocery opportunity is huge. Cracking the multi-billion-dollar grocery market
globally could provide material upside. HelloFresh can do this by capturing more
meal occasions and providing simple, convenient ordering of add-on products to
the box, thereby consolidating a household's grocery spending. It can do this by
moving toward becoming a "food solutions" group that encompasses meal kits,
ready meals, and individual SKUs by HelloFresh Market (see Exhibit 36).
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BERNSTEIN
BULL VS. BEAR
27
Investments for growth in production facilities and in technology and data teams
set the business up for future growth. Given the capacity constraints during the
pandemic, new production facilities will likely enable HelloFresh to capture the
latent demand it couldn't serve during 2020 and 2021. The investments in
technology and data could enable HelloFresh to be at the forefront of customer
experience, enable new growth levers such as grocery, and reduce costs by
optimizing market spend (acquisition and retention).
TAM expansion provides compelling growth in the medium term with the option
to launch new brands, ready meals, and the core proposition into new markets.
HelloFresh recently entered Norway and Italy, which will boost growth, and
further entered Japan during 2022, opening a new region of untapped growth
(see Exhibit 37 and Exhibit 38). The new brands and ready meals are expected to
bolster the offer in existing markets and help in the move toward a food solutions
group.
◼ ESG is a huge boost. HelloFresh helps consumers reduce their food wastage and has
a clear focus on providing a sustainable food solution. It is planning on reducing its
carbon footprint by 60% (2022 vs. 2019), reducing food waste by 50% (2022 vs.
2019), and becoming the first global carbon-neutral meal kit company. It is working
across upstream and downstream areas as well as its operations to optimize for
sustainability (see Exhibit 39 and Exhibit 40). For example, it has worked hard to
reduce ice and introduce linerless boxes. As a result, it has a dedicated ESG board
subcommittee, sustainability targets in management remuneration, and strong
disclosure on ESG.
◼ Management has been a strong executor and has a strong vision for the future of the
business. The CEO and CFO are well-liked and have steered the HelloFresh business
through periods of very strong growth. They have brought HelloFresh to profitability,
been sensible about capital allocators, and have a clearly identified and wide-reaching
growth strategy. They have consistently beat and raised on guidance, surpassing
expectations.
EXHIBIT 30: Strong revenue growth demonstrated
before and during the pandemic
EXHIBIT 31: Profitability has steadily increased
Source: Company reports, and Bernstein estimates and analysis
Source: Company reports, and Bernstein estimates and analysis
52%
41%
41%
107%
60%
0%
20%
40%
60%
80%
100%
120%
2017FY 2018FY 2019FY 2020FY 2021FYE
HFG - Bernstein YoY sales growth
(FY17-FY21E)
-13.8%
-7.7%
-4.3%
2.6%
13.5%
8.8%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
2016FY 2017FY 2018FY 2019FY 2020FY 2021FY
HFG - Adj. EBITDA margin
(FY16-FY21E)
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HELLOFRESH: PAYING PEOPLE TO EAT
EXHIBIT 32: Retention rates by cohort are increasing YoY
Source: Company reports
EXHIBIT 33: Significant upside potential for TAM penetration, with <0.45% penetration today
Note:
1
Assumes 2.5 heads per household with 10 weekly meals from home over 52 weeks;
2
Delivering 1 billion meals annually
Source: Company reports
EXHIBIT 34: Management claims very low TAM
penetration across both segments
EXHIBIT 35: Pricing relative to grocery shopping has
come down over time
*Total addressable market
Source: Company reports
Source: Company reports
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BERNSTEIN
BULL VS. BEAR
29
EXHIBIT 36: Creation of a food solutions group could provide significant upside
Source: Company reports
EXHIBIT 37: Upsell and cross-sell products are expected
to make up 15-20% revenue in the future
EXHIBIT 38: TAM levers already make up 25% revenue
in Q3-21
Source: Company reports
Source: Company reports
EXHIBIT 39: Carbon emissions are coming down
EXHIBIT 40: Food waste is low and reducing
Source: Company reports
Source: Company reports
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HELLOFRESH: PAYING PEOPLE TO EAT
BEAR CASE
◼ Structural Underperform: We remain cautious on HelloFresh from a structural
perspective with challenges to the business model, an expensive product with a small
TAM, and very high TAM penetration.
Business model is hard, leading to a revolving door of customers in and customers
out. High discounting (~20% on average with high introductory discounts of
>50% and reactivation of 40% off on multiple boxes) devalues the brand and
creates weak customer relationships. Churn is high at 90% of customers churned
by Q4, and we don't see any improvement in retention rates. We think most of the
cohort improvement is driven by one-off improvements from the pandemic as well
as increasing reactivation rates, which we think are driven by high discounting,
and customers tend to churn just as quickly when they are reactivated. Marketing
spend is high at ~15%, and we expect this to continue at a high level over the next
five years.
Product is expensive and TAM is smaller. A HelloFresh box is very expensive as it
is essentially a commoditized product with a very high markup. When looking at
an average meal, a HelloFresh meal is ~1.6-2.4x as expensive as cooking from
scratch or a ready meal (see Exhibit 49). There is nothing wrong with an expensive
product, but we think this significantly limits the potential TAM for HelloFresh.
When you look at food spending in the US by income quintile, for an average
family, a HelloFresh box would make up 74% of weekly spending for just three
meals and two people, leaving only $22 for 18 other meals, snacks, and other
family members (see Exhibit 42). Even for the most affluent (top quintile), a
HelloFresh box would make up 46% of weekly food spending. Whilst there is
more elasticity in food spending in the top quintile, we think a HelloFresh box is
unaffordable for the middle quintile, which the company includes in its TAM.
TAM penetration is high. As a result of high churn, we think HelloFresh is working
its way through its TAM at a rapid rate and runs the risk of hitting the brick wall of
TAM saturation. When surveying US consumers, ~40% of the top earners have
used a meal kit product (see Exhibit 41), and when we look at our bottom-up
proprietary retention analysis, we think HelloFresh has worked its way through
>16 million customers in the US, leading to a TAM penetration of >35% in the US
(see Exhibit 43 and Exhibit 47). We think this puts the longer-term growth runway
of HelloFresh at risk.
◼ Short-term Underperform: We remain Underperform in the shorter term over 2022 as
we expect post-pandemic demand to be weaker as consumers return to normal habits
and higher inflation to encourage consumers to trade down (as they do with other
grocery items) to supermarkets, discounters, and private label. As a result, we think
margins will be squeezed further as a result of inflation hitting logistics and food costs
as well as slower growth hurting newly ramped production facilities.
Post-pandemic demand is in question. As consumers return to normal activities,
we expect HelloFresh to be a post-pandemic loser as people start eating out more
and pressure on time shifts consumers back to simpler, quicker meals and/or
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BERNSTEIN
BULL VS. BEAR
31
ready meals. The comps are tough from the high growth rate in 2020 and 2021,
and with heavy churn and a potential relapse in retention metrics, we think
continued strong growth will be difficult. We model +16% YoY growth in FY22 vs.
company guidance of 20-26%.
Higher inflation will pressure both consumers and the cost lines of the P&L. As
higher food inflation hits consumers in the US and Europe (along with energy
prices and other consumer products increasing too), we expect this to hurt
HelloFresh. Given the high cost of the product relative to grocery products (which
tend to be the most price-sensitive of consumer categories, given the large
proportion of household earnings they make up), we expect consumers to trade
down to cheaper alternatives such as traditional grocery store shopping and
private label items. Furthermore, we expect inflation to hit the HelloFresh P&L
significantly as price costs increase on food (and HelloFresh have limited buying
power) and logistics costs continue to creep up (which make up 40% sales). This
will pressure margins.
Margins squeezed by mistimed growth investments. HelloFresh took multiple
margin hits over the last year, explained by management as investments for
growth. We are very cautious as we think these are mistimed. It is opening several
new production facilities, which drag on margins due to the need to ramp up the
facilities in terms of demand and efficiency, as well as doubling the size of its
technology and data teams, which increases SG&A. Given the uncertain demand
trajectory, we think management has overegged the pudding and been too
aggressive on investments.
◼ Longer-term Underperform: Over the long term, we remain cautious on consensus
expectations for strong growth (+15.5% revenue CAGR for 2021-26) and margin
expansion (+100 bps) due to the structural challenges of the business model, weak
product-customer fit, limited growth levers, and additional complexity of the business.
We model +10.5% revenue CAGR and +50 bps expansion.
Growth vs. margins dilemma: At the core of HelloFresh, there is an affluent set of
customers who love the product and buy it at full price. We expect they make up
all the EBITDA of the business. The problem with consensus expectations is that
we think it is going to be very difficult over the five-year horizon to both growth at
a fast rate and expand margins. We think HelloFresh cannot have its cake and eat
it too — it could choose to grow quickly at the expense of margins or retrench to
grow slower but become more profitable. Historically, the focus has been on
growth, but with higher TAM penetration and post-pandemic challenges, we think
this will become tougher. We think a strategy of slower, more targeted growth
with a highly profitable customer base could be attractive in the long run.
Customer feedback & product-market fit is weak: We don't think the HelloFresh
product is changing consumer habits. Churn is at 90% and NPS from our US
survey is at -29 (where you should expect it to be at least positive). The meal kit
product is not shifting consumer behavior away from grocery shopping toward
pre-portioned meal kit shopping, and when we tried the product ourselves, it was
an okay experience, in that, the recipes were interesting and the food was good
quality, but packaging wastage is strong, the recipes took a long time to prepare,
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HELLOFRESH: PAYING PEOPLE TO EAT
and we found the product expensive. This perspective was reinforced by the
consumers that we surveyed in the US, meaning that there is likely to be limited
long-term uptake of the meal kit concept.
Discounting will continue to be strong and discount-driven reactivations could
provide boosts to quarterly numbers but risks to long-term stability. Deeply
discounted trials are capital-destructive, and we think on average HelloFresh only
achieves a CLTV:CAC of 0.8x, suggesting that it is effectively paying people to eat
food over a three-year lifetime. We think the increasing number of reactivations
(likely driven by discounts) demonstrates the weaker top line customer
acquisition, and we typically receive reactivation emails toward the end of a
quarter (useful for boosting quarterly growth). We think these discounts devalue
the brand, encouraging customers to only buy the product at a discount. We
question whether on the longer term, this discount-led strategy can continue
within the context of weak customer feedback and question how many times
customers will continue to reactivate at a discount before churning again.
Growth levers will provide only limited growth at a significant cost (see Exhibit 50).
Attempts to reduce lead times and add more recipes aim to improve customer
perception and thereby increase retention, but we think that within the context of
a very expensive product, this will have a limited effect on the overall TAM. New
meal kit brands such as EveryPlate are cannibalistic and add additional cost
through complexity and marketing spend. New geographies are a good expansion
route, but the list of opportunities gets smaller and less interesting (e.g., Norway
is small), new product lines such as Factor 75 will provide a short-term boost to
growth, but the overall TAM is very small, given the very expensive nature of the
product. On new "meal occasions," we struggle to see the size of the prize and
rationale for breakfast and lunch — they may add to AOV, but we struggle to see
HelloFresh being competitive with alternatives (e.g., toast and cereal for
breakfast, which are quicker and cheaper). And on the grocery opportunity, we
struggle to see how HelloFresh can compete on price and range vs. a typical
grocer when grocery operations add significant complexity (stockholding, shrink,
inventory management, and additional picking) while boosting AOV only slightly.
We also struggle to see how HelloFresh can compete with increasingly quick
grocery options when the lead times are still five to seven days in most markets.
Although management has identified the future as a "food solutions" group, we
think it is just attempting to recreate a grocery store but in a less efficient, less
convenient, and more expensive way.
Complexity of the business changes investment case from asset-light to high
Capex. We question how complex the business has become or is becoming.
Previously, HelloFresh ran a simple business model where 15-30 recipes were
packed in a box a week in advance and shipped to the consumer. This model
(despite high discounting, churn, and marketing spend) had perks with high levels
of inventory, control, and labor forecasting, which helped reduce cost. However,
this is changing. For example, it is spending more Capex than ever before, setting
up in-house logistics in the US (which we can never see competing effectively vs.
a parcel carrier), and adding significant complexity with grocery, new brands, and
recipe customization.
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BERNSTEIN
BULL VS. BEAR
33
EXHIBIT 41: High TAM penetration: ~40% high earners
had used a meal kit
EXHIBIT 42: HelloFresh box is unaffordable for the
third quintile of families and challenging for the
fourth quintile
Note: Sample = 327
Source: Survey Monkey Panel and Bernstein analysis
Source: USDA, US Census Bureau, company website, and Bernstein analysis
EXHIBIT 43: Based on our retention deep-dive,
penetration of management's TAM is ~25%
EXHIBIT 44: Churn is high, with 90% of customers
leaving by Q4
Source: Company reports, and Bernstein estimates (all data) and analysis
Source: Bernstein estimates (all data) and analysis
19%
24%
33%
38%
41%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Under
$29,999
$30,000 to
$49,999
$50,000 to
$74,999
$75,000 to
$99,999
Over
$100,000
Meal kit users: penetration of income
groups
US food
spending by
income quintile
Food spending
at home per
week
HFG box (three
meals, two
people)
Lowest quintile $54 117%
2nd quintile $71 89%
3rd quintile $85 74%
4th quintile $100 63%
Highest quintile $137 46%
5%
6%
24%
25%
0%
5%
10%
15%
20%
25%
30%
US International
HelloFresh — Active vs. total
customer TAM penetration % Q2-21
Active customer TAM penetration %
Total customer TAM penetration %
0%
20%
40%
60%
80%
100%
Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8
HelloFresh estimated customer
retention rates (Q1-Q8)
Discount & Ditch Regularly reactivated
Seasonal customers Frequent customers
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HELLOFRESH: PAYING PEOPLE TO EAT
EXHIBIT 45: 53% of non-meal kit users said they were
too expensive
EXHIBIT 46: Net promoter score of meal kit users is
very poor at -29 (should be at least positive)
Note: Sample = 763
Source: Survey Monkey Panel and Bernstein analysis
Note: Sample = 327
Source: Survey Monkey Panel and Bernstein analysis
EXHIBIT 47: 13 million customers have been acquired and lost in the US, trying HelloFresh and not sticking with
the product over the last four years; we question the long-term trajectory for growth
Source: Company reports, and Bernstein estimates (all data) and analysis
53%
33%
25%
20%
19%
18%
10%
7%
8%
0%
10%
20%
30%
40%
50%
60%
Non-meal kit users: Why haven't you
tried meal kits?
7.4%
3.1%
4.0%
3.7%
6.4%
14.1%
11.7%
16.0%
12.0%
6.7%
15.0%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
0 -
Not
likely
1 2 3 4 5 6 7 8 9 10 -
Very
likely
Detractor Neutral Promoter
Meal kit users: How likely are you to
recommend meal kits to a friend or
colleague?
NPS = -29
-0.3
-0.6
-0.9
-1.2
-1.6
-2.1
-2.7
-3.2
-3.6
-4.1
-4.7
-5.3
-5.9
-6.8
-8.2
-8.8
-10.0
-11.1
-13.0
0.4
0.6
0.7
0.8
0.9
1.2
1.1
1.1
1.1
1.4
1.4
1.5
1.8
2.6
2.0
2.5
2.6
3.7
3.8
-14
-12
-10
-8
-6
-4
-2
0
2
4
6
2016
Q3
2016
Q4
2017
Q1
2017
Q2
2017
Q3
2017
Q4
2018
Q1
2018
Q2
2018
Q3
2018
Q4
2019
Q1
2019
Q2
2019
Q3
2019
Q4
2020
Q1
2020
Q2
2020
Q3
2020
Q4
2021
Q1
2021
Q2
HFG - Total customer base (millions): active and lost customers (US)
Cumulative customers lost Active customers
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BERNSTEIN
BULL VS. BEAR
35
EXHIBIT 48: HFG hasn't passed on price increases and
therefore has reduced price relative to other
foodstuffs, but it is not good value
EXHIBIT 49: Meal kits are 1.6-2.4x the cost of cooking
from scratch or ready meals
Source: Company reports
Source: Company websites, and Bernstein estimates (all data) and analysis
£3.0
£2.1
£5.0
£11.3
£0
£4
£8
£12
Cook from
scratch
Ready meal Meal Kits Delivery
Avg. lasagna meal price (GBP)
Avg. lasagna meal price - UK
1.6-2.4x more
expensive
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BERNSTEIN
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HELLOFRESH: PAYING PEOPLE TO EAT
EXHIBIT 50: We think new geographies and product lines have the greatest business benefit
Source: Company reports and Bernstein analysis
Lever Initiative What is it?
Business
benefit
Complexity Bernstein perspective
Quicker lead
times
Go from 4-5 day lead times to 2-
3 days, speeding up delivery to
customer and cut off times
Low Easy
Quicker lead times would increase
competitiveness vs. grocers, but 2-3 days is
still uncompetitive. This would reduce the
effectiveness of the supply chain &
inventory/labor forecasting.
More recipes
Increase from 35 recipes to 50-
100 recipes and full market
rollout of all brands
Low Medium
More recipes would help order frequency and
may attract some new customers (e.g. vegan).
It adds to complexity of operations in handling
combinations.
Value
Become more competitive on
price reducing price vs market
by -25 to 40% vs. the 2016
baseline (2021 at -20 to -30%)
High Hard
Reducing prices would open up the TAM but
create significant challenges for unit
economics. Price gap is significant vs. grocers.
New meal kit
brands
Rollout GreenChef (premium
offer) and EveryPlate (reduced
cost offer)
Low Hard
New brands are cannibalistic, require more
marketing spend, and the operations are
duplicated with dedicated sites to each brand.
Limited synergies, and the same TAM.
New
geographies
Expand into new markets such
as Italy and Norway (both in
2021), and Japan (2022)
High Medium
New markets are attractive as an organic
growth source. Italy and Norway are small.
Japan will be challenging, given no experience
in Asian markets or with Japanese cuisine.
New product
lines
Continue expansion of RTE
(ready to eat) products through
Factor 75 and YouFoodz;
Factor 75 to launch in a new
market in 2022
High Medium
High growth rates in short term due to low
levels of sales today. TAM is very small, given
very high cost of the product, requires more
labour to prepare, complexity of ops is
increased, and sites are duplicated.
New meal
occasions
Focus on getting greater share
of weekly meal occasions (e.g.,
breakfast and lunch)
Low Easy
Meal kits have limited appeal to consumers
due to cost and take time to prepare. On
breakfast, we question the value added by a
meal kit compared with cheap options such as
cereal or toast. On lunch, we question the
value/time trade off vs. sandwiches and
salads.
Grocery
product add-
ons
Rollout of HelloFresh Market to
4 new markets (as well as US)
with private label and ~1000
SKUs. Market is effectively a
grocery offering of ready meals,
and "solution-oriented" items
Low Hard
We don't think HelloFresh can compete on
range, price, or convenience vs. grocers.
Adding 1,000 SKUs to the warehouses will
increase food waste, add complexity to
picking, and require significant investment in
technology (e.g. WMS/IMS/OMS).
Recipe
customization
Driving additional AOV and
orders by allowing customers to
swap ingredients, upgrade
ingredients, and add
ingredients to meal kits
Low Medium
Increases complexity of operations (e.g. not
just a single pick of individual recipes) whilst
driving limited incremental AOV growth.
TAM
penetration
TAM
expansion
Additional
monetization
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HELLOFRESH CUSTOMERS: GOODBYE FRESH CUSTOMERS
37
HELLOFRESH CUSTOMERS: GOODBYE
FRESH CUSTOMERS
Proprietary deep dive into customer database and churn
OVERVIEW
HelloFresh discloses very little information on its customers. We get active customer
numbers each quarter and sporadic information on retention rates. Therefore, we build a
proprietary bottom-up view of the customer database using five customer types and three
retention rates. We deconstruct existing disclosure and triangulate our analysis. We find
that HelloFresh is burning through its TAM at a rapid pace (2-4% US TAM each quarter),
churning 70% of customers by Q4 post-purchase, and propping up top line growth with
reactivations, which are discount-driven and do not create healthy customers.
◼ The quality of HelloFresh's customer database is weak. It is not a SaaS business.
Customer churn is high, customers are not delighted and are switching their behavior
from grocers to meal kits. The business is heavily reliant on new or reactivated
customers each quarter (>55% of customers per quarter), which means that
marketing spend needs to stay high. Reactivations are not a good thing and are driven
by discounts. The customers have already churned once, and they churn just as quickly
post-reactivation. As a result, HelloFresh is powering through its TAM. According to
management's TAM, penetration is at 24-25%, including lost customers vs. 4-5%
active customer penetration. However, we think its TAM is too generous at 70 million
US households and limit it to the top two quintiles of earners (48 million households).
Based on Bernstein TAM, penetration is at 35% in the US.
◼ We think HelloFresh will struggle with keeping both high growth and EBITDA margin
expansion expectations due to its difficult business model, smaller TAM, and post-
pandemic weakness.
THE RED QUEEN'S RACE
Disclosure is poor. We only receive active customer numbers in the US and International
segments each quarter, and sporadic disclosure of retention metrics, which we have
pieced together to peel the onion on customer behavior to create our analysis.
◼ Churn is high. Only 30% of customers are retained in the fourth quarter after they
purchase. 70% of customers discounted and ditched in the year, and 66% of the
customers retained are reactivations (i.e., haven't purchased in the quarter before).
HelloFresh is not delighting customers and converting them to the meal kit model.
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HELLOFRESH: PAYING PEOPLE TO EAT
◼ This is not Amazon (covered by Mark Shmulik) Prime or a SaaS business. Retention is
not as strong, the product has physical constraints, and the TAM is limited due to the
expensive nature of the product. We should not use SaaS metrics such as net revenue
retention to look at HelloFresh.
◼ The Red Queen's Race is not a fun game, and the quality of customers is weak.
Customers aren't sticking with the products. >55% of customers are new or
reactivated each quarter; reactivations are not a good thing. Just like Alice in Lewis
Carroll's Through the Looking Glass, HelloFresh is being forced to run faster to acquire
more customers, lose them, and reactivate them to maintain growth expectations
without really getting anywhere.
◼ Burning through the TAM at a rapid rate, and the ceiling is closing in. If you include lost
customers, TAM penetration is at 24-25% of the HelloFresh TAM. We think the TAM
is too high at 70 million households. If you reduce it to the top two quintiles of earners
(48 million households), penetration is at 35%.
◼ Reactivations are not a good thing. They drive ~60-100% of new customers each
quarter, but are driven by discount-led activity and do not reflect a strong, healthy
engagement with customers. Customers discount and ditch on a recurring basis, and
they churn at similarly high rates to new customers.
◼ Payback is slow. CAC is high at €100-€200, and payback is 6-10 months. The
investment in new customers is high, most of whom churn by Q4 post-purchase. This
excludes the cost of discounts and brings into question the effectiveness of marketing
spend when most customers are being recruited through reactivations each quarter.
◼ Disclosure should be improved. We would like if HelloFresh reported on three things:
(1) Organic growth (i.e., on a like-for-like basis, excluding new countries or new
products); (2) Net new customer additions (i.e., customers who have never ordered
before); and (3) Discounts, to show the true cost of customer acquisition.
To achieve the above analysis, we breakdown the active customer numbers into five
customer types and use three retention rates. We flow these assumptions through
HelloFresh's data for 2017 to 2021 within a closed loop (i.e., no customers can leave the
system). We run this analysis twice on the US segment and on the International segment.
We sense check and triangulate our analysis against the disclosed net revenue retention
figures against reported revenue (using bottom-up calculations) and disclosed CAC
payback.
METHODOLOGY NOTE
642734_50312053-cabc-445b-9541-3140c14c8c8d.pdf
BERNSTEIN
HELLOFRESH CUSTOMERS: GOODBYE FRESH CUSTOMERS
39
SUMMARY IN CHARTS
EXHIBIT 51: Disclosure is limited, with only active
customers disclosed at a segment level…
EXHIBIT 52: …and we need to piece together sporadic
data points to understand how customers evolve
Source: Company reports and Bernstein analysis
Source: Company reports and Bernstein analysis
EXHIBIT 53: Churn is high based on our calculation,
with only 30% of customers retained in Q4; two-
thirds of retained customers have been reactivated
EXHIBIT 54: Due to high churn, including lost
customers, HelloFresh has worked its way through
24-25% of customers
Source: Bernstein estimates (all data) and analysis
Source: Company reports, and Bernstein estimates (all data) and analysis
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
2017 Q1
2017 Q2
2017 Q3
2017 Q4
2018 Q1
2018 Q2
2018 Q3
2018 Q4
2019 Q1
2019 Q2
2019 Q3
2019 Q4
2020 Q1
2020 Q2
2020 Q3
2020 Q4
2021 Q1
2021 Q2
Customer numbers (millions)
HFG - US active customers (Q1-17 to
Q2-21)
0%
20%
40%
60%
80%
100%
Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8
HelloFresh estimated customer
retention rates (Q1-Q8)
Discount & Ditch Regularly reactivated
Seasonal customers Frequent customers
5%
6%
24%
25%
0%
5%
10%
15%
20%
25%
30%
US International
HelloFresh — Active vs. total
customer TAM penetration % Q2-21
Active customer TAM penetration %
Total customer TAM penetration %
642734_50312053-cabc-445b-9541-3140c14c8c8d.pdf
BERNSTEIN
40
HELLOFRESH: PAYING PEOPLE TO EAT
EXHIBIT 55: 13 million customers have been acquired and lost in the US, who tried HelloFresh and didn't stick
with the product over the last four years
Source: Company reports, and Bernstein estimates (all data) and analysis
EXHIBIT 56: HelloFresh is churning through an increasing % of the TAM each quarter…
Source: Company reports, and Bernstein estimates (all data) and analysis
-0.3
-0.6
-0.9
-1.2
-1.6
-2.1
-2.7
-3.2
-3.6
-4.1
-4.7
-5.3
-5.9
-6.8
-8.2
-8.8
-10.0
-11.1
-13.0
0.4
0.6
0.7
0.8
0.9
1.2
1.1
1.1
1.1
1.4
1.4
1.5
1.8
2.6
2.0
2.5
2.6
3.7
3.8
-14
-12
-10
-8
-6
-4
-2
0
2
4
6
2016
Q3
2016
Q4
2017
Q1
2017
Q2
2017
Q3
2017
Q4
2018
Q1
2018
Q2
2018
Q3
2018
Q4
2019
Q1
2019
Q2
2019
Q3
2019
Q4
2020
Q1
2020
Q2
2020
Q3
2020
Q4
2021
Q1
2021
Q2
HFG - Total customer base (millions): active and lost customers (US)
Cumulative customers lost Active customers
0.6%
0.6%
0.8%
0.8%
0.9%
1.3%
1.0%
0.9%
1.0%
1.4%
1.1%
1.4%
1.8%
3.0%
1.3%
2.4%
2.3%
3.9%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
2017
Q1
2017
Q2
2017
Q3
2017
Q4
2018
Q1
2018
Q2
2018
Q3
2018
Q4
2019
Q1
2019
Q2
2019
Q3
2019
Q4
2020
Q1
2020
Q2
2020
Q3
2020
Q4
2021
Q1
2021
Q2
HFG - % of Bernstein US TAM churned each quarter
642734_50312053-cabc-445b-9541-3140c14c8c8d.pdf
BERNSTEIN
HELLOFRESH CUSTOMERS: GOODBYE FRESH CUSTOMERS
41
EXHIBIT 57: …and needs to continue to acquire or reactivate customers each quarter; majority of the customers
didn't purchase the quarter before, challenging the business model
Source: Company reports, and Bernstein estimates (all data) and analysis
EXHIBIT 58: Reactivations are critical, but driven by discounting behavior, they are not a good thing
Source: Company reports, and Bernstein estimates (all data) and analysis
10%
12%
15%
16%
18%
16%
21%
24%
24%
20%
23%
22%
20%
15%
27%
21%
23%
17%
21%
10%
12%
15%
16%
18%
16%
21%
24%
24%
20%
23%
22%
20%
15%
27%
21%
23%
17%
21%
81%
76%
71%
68%
64%
69%
58%
51%
51%
61%
54%
55%
59%
69%
47%
57%
54%
65%
58%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2016
Q4
2017
Q1
2017
Q2
2017
Q3
2017
Q4
2018
Q1
2018
Q2
2018
Q3
2018
Q4
2019
Q1
2019
Q2
2019
Q3
2019
Q4
2020
Q1
2020
Q2
2020
Q3
2020
Q4
2021
Q1
2021
Q2
HFG - Customer type by quarter (US)
Frequent customer base Seasonal customer base Customers acquired
84%
87%
76%
68%
57%
61%
36%
15%
35%
17%
0%
16%
13%
24%
32%
43%
39%
64%
101%
115%
85%
112%
116%
100%
65%
146%
115%
126%
83%
100%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2016
Q4
2017
Q1
2017
Q2
2017
Q3
2017
Q4
2018
Q1
2018
Q2
2018
Q3
2018
Q4
2019
Q1
2019
Q2
2019
Q3
2019
Q4
2020
Q1
2020
Q2
2020
Q3
2020
Q4
2021
Q1
2021
Q2
HFG - New customers by quarter: new (never purchased before) vs.
reactivated (US)
New customers Reactivated customers
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HELLOFRESH: PAYING PEOPLE TO EAT
NOT ALL CUSTOMERS ARE ALIKE: BREAKING DOWN
CUSTOMER TYPES
One thing to bear in mind when breaking down customer databases and understanding
retention is that not all customers are alike. Customers behave differently depending on
their individual habits and needs. This is supported by HelloFresh's relatively light
subscription model. Subscribing to HelloFresh is not like signing up to a gym membership
or a phone contract where one will end up being locked in for 12 months or longer. With a
HelloFresh subscription one can sign up, stop, or reactivate as needed.
HelloFresh has identified four different groups of customers: Trialists, Seasonal Users,
Occasional Users, and Frequent Users (see Exhibit 59). The dream customers are frequent
customers who buy weekly (perhaps with a few gaps for holidays) and at full price. Seasonal
and Occasional Users will engage with the product on a more flexible basis, perhaps
choosing to subscribe for a few weeks in January for a healthy, easier option, or reengaging
when they're reminded of the product. Trialists are the worst customers as they sign up for
a short period of time (maybe four weeks), take advantage of heavy discounts, and then
decide the product isn't for them. Their lifetime value will be very challenged by high
customer acquisition costs, high levels of discounting, and low contribution.
EXHIBIT 59: HelloFresh customer breakdown
Source: Company reports and Bernstein analysis
We get very limited disclosure on HelloFresh's customer database and only receive active
customer numbers (see Exhibit 60 and Exhibit 61). In this chapter, we break down active
customer numbers across the US and International segments based on our understanding
of the business, our experience with subscription businesses, and the information provided
by the company. We use HelloFresh's active customer numbers as the basis of our analysis.
An active customer is a uniquely identified customer who has received at least one box
within the preceding three months (including new customers, free or discounted boxes,
and lapsed customers).
642734_50312053-cabc-445b-9541-3140c14c8c8d.pdf
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HELLOFRESH CUSTOMERS: GOODBYE FRESH CUSTOMERS
43
EXHIBIT 60: HelloFresh US active customers
EXHIBIT 61: HelloFresh International active customers
Source: Company reports and Bernstein analysis
Source: Company reports and Bernstein analysis
BERNSTEIN PROPRIETARY CUSTOMER TYPES
METHODOLOGY
As we receive very limited information on customer segments, we break down the
customer database as follows in Exhibit 62. We then use the five different customer types
and our retention rates (outlined in the next section) to flow the numbers through the closed
customer database over the last four years to understand the health of the customer
database in more detail. We can understand how many truly new customers are acquired
vs. how many are reactivations of lost customers (likely driven by discounts), and what the
recurring customer base might look like.
◼ New customers: We define new customers as truly net new customers who have never
engaged with HelloFresh. We calculate this in each period as the total number of
active customers minus the frequent and seasonal customer base from the previous
quarters, and the reactivated customers.
◼ Frequent customers: Frequent customers are the best customers who we expect are
shopping 40+ times per year (taking away a few weeks for holidays and other events).
They have fundamentally shifted their shopping and eating habits toward the meal kit
subscription model. We calculate frequent customers based on a retention rate
relative to their original cohort (i.e., 7.5% of the cohort is still composed of frequent
customers in any quarter).
◼ Seasonal customers: Seasonal customers purchase at a lower frequency (e.g., once a
month) as they enjoy engaging with the product, but it doesn't fit with their lifestyle on
a full-time basis or might cost too much. We think there will be a relatively large cohort
of seasonally active customers (who may or may not be attracted by discounts). Versus
HelloFresh's taxonomy, we bundle together seasonal and occasional customers for
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
2017 Q1
2017 Q2
2017 Q3
2017 Q4
2018 Q1
2018 Q2
2018 Q3
2018 Q4
2019 Q1
2019 Q2
2019 Q3
2019 Q4
2020 Q1
2020 Q2
2020 Q3
2020 Q4
2021 Q1
2021 Q2
Customer numbers (millions)
HFG - US active customers (Q1-17 to
Q2-21)
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
2017 Q1
2017 Q2
2017 Q3
2017 Q4
2018 Q1
2018 Q2
2018 Q3
2018 Q4
2019 Q1
2019 Q2
2019 Q3
2019 Q4
2020 Q1
2020 Q2
2020 Q3
2020 Q4
2021 Q1
2021 Q2
Customer number (millions)
HFG - International active customers
(Q1-17 to Q2-21)
642734_50312053-cabc-445b-9541-3140c14c8c8d.pdf
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HELLOFRESH: PAYING PEOPLE TO EAT
simplicity of our model. We calculate seasonal customers based on a retention rate
relative to their original cohort.
◼ Lost customers: These customers are the inverse of trialists (in HelloFresh's
taxonomy). They are the customers who typically try the product, using a heavy
discount for two-to-four boxes, and decide that the product isn't for them. They stop
purchasing with any regularity but may be reactivated. We calculate the number of lost
customers from a particular cohort by subtracting the number of frequent, seasonal,
and reactivated customers from the original cohort number.
◼ Reactivated customers: Reactivated customers are those who have stopped shopping
with HelloFresh but start shopping again, often prompted by retention marketing
efforts and heavy discounting to lure them back. We calculate this by applying a
reactivation rate to the total cumulative lost customer base in any given quarter.
EXHIBIT 62: Bernstein customer breakdown
Source: Bernstein analysis
FREQUENT
CUSTOMERS
SEASONAL
CUSTOMERS
LOST CUSTOMERS
NEVER
PURCHASE
AGAIN
NEW CUSTOMERS
Customer
Customer
Customer
REACTIVATED
CUSTOMERS
3 customer types emerge
from customer funnel:
FREQUENT customers,
SEASONAL customers,
LOST customer
1
Need to think about lost
customers in 2 ways: those
who NEVER PURCHASE
AGAIN, and those who are
RE-ACTIVATED at some point
2
Customers who are bought
into meal kit subscription,
ordering 40+ times a year
Customers who purchase
at a lower frequency (once
a month etc)
Customers who take
advantage of the discounts
or trial period but stop soon
after
Customers who stopped
purchasing but restart in
another quarter
642734_50312053-cabc-445b-9541-3140c14c8c8d.pdf
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HELLOFRESH CUSTOMERS: GOODBYE FRESH CUSTOMERS
45
RETENTION, RETENTION, RETENTION
The other piece of the puzzle that we need to understand alongside customer types is the
retention or churn rate. We prefer to talk about retention rates of different customers, so
we use that terminology below. Again, we have received very limited data on retention rates
apart from a few snippets in Capital Markets Day presentations over the last few years. For
a subscription business like HelloFresh, we would welcome further disclosure on retention
rates from management. To date, we have received two different metrics: net revenue
retention and reactivation.
Net revenue retention — churn is high, and HelloFresh is not a SaaS company: As shown in
Exhibit 63, this is the percent of revenue from the original cohort that is retained or spent
again in subsequent quarters. Net revenue retention sits at around 30-50% in Y1 for HFG
and declines to around 20% by Y3 of a particular cohort. On the face of it, we think this is
very high churn with 50-70% of revenue lost within the first year. We don't think this is a
fair or useful metric — HelloFresh is not a SaaS business, and its customer dynamics are
very different. We would prefer disclosure of customer retention. In the next section, we
deconstruct what net revenue retention means and how it might apply to customer
numbers.
Net revenue retention is typically a metric used by SaaS businesses to measure the total
revenue from customers over their lifetime. We don't think this is a very useful or fair metric
for HelloFresh. HelloFresh is a highly discount-led business, so at a very simple level, if it
acquires 10 customers at a 50% discount, it needs to retain only five (50% retention rate)
of them at full-price to achieve a 100% net revenue retention.
EXHIBIT 63: HelloFresh net revenue retention disclosure
Source: Company reports
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HELLOFRESH: PAYING PEOPLE TO EAT
Reactivation rates — reactivated customers are not a good thing: As shown in Exhibit 64,
HelloFresh shows that reactivation increased YoY from the mid-10s in 2016 to the high-
20s by 2019. Management is positive about reactivated customers, as they require lower
marketing spend and demonstrate the flexibility of the model (i.e., seasonal customers can
become occasional customers and vice versa).
However, we do not like reactivated customers as they are customers who have lapsed and
decided that HelloFresh is not for them, and then are reactivated by discounts. We have
been signed up to HelloFresh for several months and keep getting emails like that shown
in Exhibit 65, which give lapsed customers heavy discounts across four boxes (40% off on
two boxes, 20% off on two boxes). This level of heavy discounting does not create a
sustainable, healthy customer base. Reactivation artificially stimulates demand and props
up customer numbers. As the business grows, we expect an increasing number of new
customers being reactivated customers in any quarter rather than demonstrating true net
new customer growth.
As a result of high reactivation costs, we question the need for, and the efficiency of, the
high marketing spend. Management even highlights that reactivated customers show the
same behavior as new customers but with lower marketing spend. This is portrayed as a
good thing, but it makes us concerned for two reasons: (1) new customers churn very
quickly, which suggests reactivated customers do, too; and (2) it virtually costs nothing to
reactivate a customer with an email (apart from some production costs of imagery).
However, they fail to consider the reactivation discounts as they're not included in
marketing spend but are netted off revenue. Given the high and increasing levels of
reactivation, you question where the millions of marketing spend are going and how
efficiently they are being used.
EXHIBIT 64: HelloFresh reactivation rates
EXHIBIT 65: HelloFresh reactivation email
Source: Company reports
Source: Company emails
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HELLOFRESH CUSTOMERS: GOODBYE FRESH CUSTOMERS
47
BREAKING DOWN NET REVENUE RETENTION
Net revenue retention is not an appropriate measure of retention for HelloFresh. It is a SaaS
metric. Having broken down HelloFresh's net revenue retention, we calculate that ~35%
net revenue retention is around 25-30% customer retention, and this masks the high 70-
75% churn of customers in the first 12 months — most of whom we think "discount & ditch"
after taking advantage of the free trials. This is concerning when you put it in the context of
a smaller TAM and high marketing spend.
To derive the customer retention rate metrics to apply to the customer database, we break
down and back calculate from the disclosed net revenue retentions to sense check our
retention rates. We based our retention rates on our experience working with similar
subscription businesses, the analysis of net revenue retention, and other industry sources.
To do this, we create four types of customers with revenue, order frequencies, and
discounting behavior to understand both customer retention rates (our preferred metric)
and net revenue retention rates (HelloFresh disclosed figures). We apply these across both
a one-year and two-year time horizon to see how the numbers stack up relative to each
other.
All customers in this analysis are recruited on the same day and sign up using a discount
code, enabling 50% off on box one and 35% off on boxes two, three, and four. This is a
fairly standard discount offer for HelloFresh, and although some customers will be
acquired at full price, we would expect the majority of customers to sign up with a discount
(given the high availability of discounts on their website, on forum, on banner advertising,
flyers, and magazine pull-outs).
◼ Discount & ditch customers: These customers take advantage of the initial discount
offer and never shop again. They pay £84.50 (net of discounts) but have received £65
of discounts as well as initial marketing acquisition costs.
◼ Regularly reactivated: These customers take advantage of the initial discount offer
and stop purchasing but are reactivated twice in the first six months with further
discounts. For the two reactivations, we assume two different offer types: (1) 40% off
on two boxes, followed by 20% off on two more boxes; and (2) 30% off on two boxes.
After the first six months, they stop purchasing. In total, they pay £229 (net of
discounts) but have received £145 of discounts.
◼ Seasonal customers: These customers are acquired with an initial discount but decide
to engage with HelloFresh on a seasonal basis at full price. We assume that they buy
on average twice a month for the whole 12-month period. These customers are much
more profitable as they spend £909 but only receive discounts of £65.
◼ Frequent customers: These customers are the best customers and shop with
HelloFresh every week in the 12-month period, spending over £1,700 with discounts
of only £65.
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HELLOFRESH: PAYING PEOPLE TO EAT
We use these customer types and cohorts, and apply them to two scenarios to sense check
our retention rates.
34% net revenue retention (in line with HelloFresh's disclosed numbers) is actually a 24%
customer retention (see Exhibit 66). 76% of customers churn within the first 12 months
while 40% of customers just use the discounted trial and never purchase again. Using a
50-person cohort, we use these different customer types to calculate Q1 to Q4 net revenue
retention and customer retention.
This scenario also shows how regular reactivation, which we are cautious about, can prop
up net revenue retention and customer retention. For simplicity and given the 50-person
cohort, we assume that 18 of these customers are reactivated through discounts at the
same time. This boosts retention to 60% and net revenue retention to 76% in a particular
month and, if timed correctly, reactivations can skew measurements of active customers
as well.
After purchasing in Q1-21, we received consistent email reactivations, which timed well
with the beginning of quarters. We received our first offers on April 12 and April 26 (first
month of Q2) and our second set of offers on July 13 and July 20 (first month of Q3). This
might be coincidental, but it feels as though discount-led reactivations are used to grow
customers early in the quarter.
36% net revenue retention is 30% customer retention (see Exhibit 67). However, two-
thirds of those retained customers are reactivated. We build our customer database at a
quarterly level, so we sense check our retention rates on a quarterly basis with a slightly
larger cohort (100 customers) to understand the impact. We get to 36% net revenue
retention in Q4 and 19% in Q8, in line with HelloFresh's numbers (see Exhibit 63). When we
translate this into customer retention, we get 30% customer retention in Q4 and 24% in
Q8, but this is supported by reactivations. Using these calculations, our average spend per
customer ends up at around £120-£175 or €135-€200, which is broadly in line with the
€180 spend per customer achieved in Q2-21.
SCENARIO 1: 50-PERSON
COHORT ON A MONTHLY BASIS
SCENARIO 2: 100-PERSON
COHORT ON A QUARTERLY
BASIS
642734_50312053-cabc-445b-9541-3140c14c8c8d.pdf
BERNSTEIN
HELLOFRESH CUSTOMERS: GOODBYE FRESH CUSTOMERS
49
EXHIBIT 66: Scenario 1 — 50-person cohort on a monthly basis
Source: Company website, and Bernstein estimates and analysis
EXHIBIT 67: Scenario 2 — 100-person cohort on a quarterly basis
Source: Company websites, and Bernstein estimates and analysis
Customer No. Customer Type
Orders in 1st
year
Discount M1 M2 M3 M4 M5 M6 M7 M8 M9 M10 M11 M12 Total revenue
Cost of
discounts
1 Discount & Ditch 4 50% off first + 35% off next 3 £84.50 £85
-£65.46
2 Discount & Ditch 4 50% off first + 35% off next 3 £84.50 £85
-£65.46
3 Discount & Ditch 4 50% off first + 35% off next 3 £84.50 £85
-£65.46
4 Discount & Ditch 4 50% off first + 35% off next 3 £84.50 £85
-£65.46
5 Discount & Ditch 4 50% off first + 35% off next 3 £84.50 £85
-£65.46
6 Discount & Ditch 4 50% off first + 35% off next 3 £84.50 £85
-£65.46
7 Discount & Ditch 4 50% off first + 35% off next 3 £84.50 £85
-£65.46
8 Discount & Ditch 4 50% off first + 35% off next 3 £84.50 £85
-£65.46
9 Discount & Ditch 4 50% off first + 35% off next 3 £84.50 £85
-£65.46
10 Discount & Ditch 4 50% off first + 35% off next 3 £84.50 £85
-£65.46
11 Discount & Ditch 4 50% off first + 35% off next 3 £84.50 £85
-£65.46
12 Discount & Ditch 4 50% off first + 35% off next 3 £84.50 £85
-£65.46
13 Discount & Ditch 4 50% off first + 35% off next 3 £84.50 £85
-£65.46
14 Discount & Ditch 4 50% off first + 35% off next 3 £84.50 £85
-£65.46
15 Discount & Ditch 4 50% off first + 35% off next 3 £84.50 £85
-£65.46
16 Discount & Ditch 4 50% off first + 35% off next 3 £84.50 £85
-£65.46
17 Discount & Ditch 4 50% off first + 35% off next 3 £84.50 £85
-£65.46
18 Discount & Ditch 4 50% off first + 35% off next 3 £84.50 £85
-£65.46
19 Discount & Ditch 4 50% off first + 35% off next 3 £84.50 £85
-£65.46
20 Discount & Ditch 4 50% off first + 35% off next 3 £84.50 £85
-£65.46
21 Regularly reactivated 4 50% off first + 35% off next 3 £84.50 £96.57 £48.29 £229
-£145.54
22 Regularly reactivated 4 50% off first + 35% off next 3 £84.50 £96.57 £48.29 £229
-£145.54
23 Regularly reactivated 4 50% off first + 35% off next 3 £84.50 £96.57 £48.29 £229
-£145.54
24 Regularly reactivated 4 50% off first + 35% off next 3 £84.50 £96.57 £48.29 £229
-£145.54
25 Regularly reactivated 4 50% off first + 35% off next 3 £84.50 £96.57 £48.29 £229
-£145.54
26 Regularly reactivated 4 50% off first + 35% off next 3 £84.50 £96.57 £48.29 £229
-£145.54
27 Regularly reactivated 4 50% off first + 35% off next 3 £84.50 £96.57 £48.29 £229
-£145.54
28 Regularly reactivated 4 50% off first + 35% off next 3 £84.50 £96.57 £48.29 £229
-£145.54
29 Regularly reactivated 4 50% off first + 35% off next 3 £84.50 £96.57 £48.29 £229
-£145.54
30 Regularly reactivated 4 50% off first + 35% off next 3 £84.50 £96.57 £48.29 £229
-£145.54
31 Regularly reactivated 4 50% off first + 35% off next 3 £84.50 £96.57 £48.29 £229
-£145.54
32 Regularly reactivated 4 50% off first + 35% off next 3 £84.50 £96.57 £48.29 £229
-£145.54
33 Regularly reactivated 4 50% off first + 35% off next 3 £84.50 £96.57 £48.29 £229
-£145.54
34 Regularly reactivated 4 50% off first + 35% off next 3 £84.50 £96.57 £48.29 £229
-£145.54
35 Regularly reactivated 4 50% off first + 35% off next 3 £84.50 £96.57 £48.29 £229
-£145.54
36 Regularly reactivated 4 50% off first + 35% off next 3 £84.50 £96.57 £48.29 £229
-£145.54
37 Regularly reactivated 4 50% off first + 35% off next 3 £84.50 £96.57 £48.29 £229
-£145.54
38 Regularly reactivated 4 50% off first + 35% off next 3 £84.50 £96.57 £48.29 £229
-£145.54
39 Seasonal at full price, twice a month 16 50% off first + 35% off next 3 £84.50 £74.98 £74.98 £74.98 £74.98 £74.98 £74.98 £74.98 £74.98 £74.98 £74.98 £74.98 £909
-£65.46
40 Seasonal at full price, twice a month 16 50% off first + 35% off next 3 £84.50 £74.98 £74.98 £74.98 £74.98 £74.98 £74.98 £74.98 £74.98 £74.98 £74.98 £74.98 £909
-£65.46
41 Seasonal at full price, twice a month 16 50% off first + 35% off next 3 £84.50 £74.98 £74.98 £74.98 £74.98 £74.98 £74.98 £74.98 £74.98 £74.98 £74.98 £74.98 £909
-£65.46
42 Seasonal at full price, twice a month 16 50% off first + 35% off next 3 £84.50 £74.98 £74.98 £74.98 £74.98 £74.98 £74.98 £74.98 £74.98 £74.98 £74.98 £74.98 £909
-£65.46
43 Seasonal at full price, twice a month 16 50% off first + 35% off next 3 £84.50 £74.98 £74.98 £74.98 £74.98 £74.98 £74.98 £74.98 £74.98 £74.98 £74.98 £74.98 £909
-£65.46
44 Frequent 52 50% off first + 35% off next 3 £84.50 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £1,734
-£65.46
45 Frequent 52 50% off first + 35% off next 3 £84.50 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £1,734
-£65.46
46 Frequent 52 50% off first + 35% off next 3 £84.50 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £1,734
-£65.46
47 Frequent 52 50% off first + 35% off next 3 £84.50 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £1,734
-£65.46
48 Frequent 52 50% off first + 35% off next 3 £84.50 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £1,734
-£65.46
49 Frequent 52 50% off first + 35% off next 3 £84.50 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £1,734
-£65.46
50 Frequent 52 50% off first + 35% off next 3 £84.50 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £1,734
-£65.46
Total revenue £4,225 £1,425 £3,163 £1,425 £2,294 £1,425 £1,425 £1,425 £1,425 £1,425 £1,425 £1,425 £22,503 -£4,714
Revenue retention 100% 34% 75% 34% 54% 34% 34% 34% 34% 34% 34% 34%
Actual retention 100% 24% 60% 24% 60% 24% 24% 24% 24% 24% 24% 24%
Total cost of discounts -£4,714
Number of customers Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8
Discount & Ditch 60 0 0 0 0 0 0 0
Regularly reactivated 20 20 20 20 20 20 20 20
Seasonal customers 10 7.5 7.5 5 5 4 3 2
Frequent customers 10 7.5 7.5 5 5 4 3 2
Revenue Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8
Discount & Ditch £5,070
Regularly reactivated £966 £966 £966 £966 £966 £966 £966 £966
Seasonal customers £2,345 £1,687 £1,687 £1,125 £1,125 £900 £675 £450
Frequent customers £3,844 £3,374 £3,374 £2,249 £2,249 £1,800 £1,350 £900
Total revenue £12,225 £6,027 £6,027 £4,340 £4,340 £3,665 £2,990 £2,315
Net revenue retention % 100.0% 49.3% 49.3% 35.5% 35.5% 30.0% 24.5% 18.9%
£122.25 £172.20 £172.20 £144.66 £163.47
Customer retention rates Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8
Discount & Ditch 60% 0% 0% 0% 0% 0% 0% 0%
Regularly reactivated 20% 20% 20% 20% 20% 20% 20% 20%
Seasonal customers 10% 8% 8% 5% 5% 4% 3% 2%
Frequent customers 10% 8% 8% 5% 5% 4% 3% 2%
Total retention 100% 35% 35% 30% 30% 28% 26% 24%
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HELLOFRESH: PAYING PEOPLE TO EAT
BERNSTEIN CUSTOMER DATABASE INPUT METRICS
By breaking down retention metrics, we use three assumptions to drive our customer
database analysis and feed our customer numbers as outlined in Exhibit 62. We simplify
our inputs into: (1) Total active customers reported by HelloFresh; and (2) Three retention
rates (frequent, seasonal, and reactivation). We flow this through from Q4 2016 to Q2
2021 and segment our customers into five different groups: (1) Frequent customers; (2)
Seasonal customers; (3) Reactivated customers; (4) Net new customers; and (5) Lost
customers.
Our retention rate metric assumptions are as follows:
◼ Frequent & seasonal customers: We assume a decaying retention rate from 10% in
Q1 to 2% by Q8 in line with our analysis in Exhibit 67. Although there is likely to be
different behavior between these two groups depending on the cohort, we hold the
retention rates the same, as customer decay tends to be broadly similar across
customer groups.
◼ Reactivated: We assume a constant 20% reactivation rate of the cumulative lost
customer base. Once reactivated, these customers flow through the same
assumptions (based on HelloFresh's statement that reactivated customers behave
like new customers).
We then apply our assumptions to the reported HelloFresh customer database on a
quarterly basis from 2016 to understand how the customer profile has evolved.
◼ 3.8 million active customers in the US in Q2-21 (see Exhibit 68), up from two million in
Q2-20 with strong growth in H1-21, supported by varying restrictions across the US.
◼ 42% of customer base is recurring at 1.6 million customers (see Exhibit 69),
supported by frequent and seasonal customers.
◼ Due to poor retention rates, lost customers totaled 13 million in Q2-21 (see Exhibit
70) which, when added to 3.8 million active customers, creates a total customer base
of 16.8 million. This is 24% of the TAM as identified by HelloFresh (70 million
households), which is concerning as HelloFresh is powering its way through its own
addressable market, challenging future growth rates.
◼ Each quarter, about 50-60% of customers need to be new (i.e., not purchased in the
quarter before), leading to high expectations of re-activation or customer acquisition
(see Exhibit 63). Without a material improvement in retention rates, it is hard to believe
that marketing spend and discounting can reduce over time, as these are still being
put to work.
◼ However, reactivations made up 100% of the need for new customers in Q2-21 (see
Exhibit 72). This has been the case for most of 2019 and 2020. If you assume that
US CUSTOMER DATABASE
ANALYSIS
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51
reactivations are 20% of the cumulatively lost customer database, this means that
most (if not all) are reactivated lost customers (prompted by discounts) rather than true
net new acquisitions. This means that you have to assume that retention rates or
reactivation rates are significantly lower in those quarters than we assume in order to
make the model work.
◼ Sense checking our analysis, we use assumptions on AOV, order frequency, and
discounting for our different customer types. We get to around +/-10% on reported
revenue for the last four quarters and +/-20% for the last 12 quarters. Given the
number of assumptions being fed into the analysis, we think that our scenario analysis
is broadly in the right direction.
EXHIBIT 68: 3.8 million active customers in Q2-21, up from 2 million in Q2-20
Source: Company reports, and Bernstein estimates (all data) and analysis
EXHIBIT 69: We expect the recurring customer base was around 1.6 million in Q2-21
Source: Company reports, and Bernstein estimates (all data) and analysis
0.41
0.43
0.55
0.67
0.79
0.89
1.21
1.12
1.05
1.09
1.4
1.35
1.48
1.78
2.64
1.98
2.49
2.61
3.69
3.82
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
2016
Q3
2016
Q4
2017
Q1
2017
Q2
2017
Q3
2017
Q4
2018
Q1
2018
Q2
2018
Q3
2018
Q4
2019
Q1
2019
Q2
2019
Q3
2019
Q4
2020
Q1
2020
Q2
2020
Q3
2020
Q4
2021
Q1
2021
Q2
Customer number (million)
HFG - Total active customers (US)
0.04
0.07
0.10
0.13
0.16
0.19
0.24
0.26
0.27
0.27
0.31
0.33
0.36
0.40
0.53
0.53
0.60
0.64
0.80
0.04
0.07
0.10
0.13
0.16
0.19
0.24
0.26
0.27
0.27
0.31
0.33
0.36
0.40
0.53
0.53
0.60
0.64
0.80
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2016
Q4
2017
Q1
2017
Q2
2017
Q3
2017
Q4
2018
Q1
2018
Q2
2018
Q3
2018
Q4
2019
Q1
2019
Q2
2019
Q3
2019
Q4
2020
Q1
2020
Q2
2020
Q3
2020
Q4
2021
Q1
2021
Q2
Customers (in million)
HFG - Recurring customer base (US)
Frequent customer base Seasonal customer base
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HELLOFRESH: PAYING PEOPLE TO EAT
EXHIBIT 70: Total customer base of 17 million, of which 77% is lost customers (13 million)
Source: Company reports, and Bernstein estimates (all data) and analysis
EXHIBIT 71: Majority of customers (58%) in Q2-21 were acquired (or reactivated), while 42% were recurring
Source: Company reports, and Bernstein estimates (all data) and analysis
-0.3
-0.6
-0.9
-1.2
-1.6
-2.1
-2.7
-3.2
-3.6
-4.1
-4.7
-5.3
-5.9
-6.8
-8.2
-8.8
-10.0
-11.1
-13.0
0.4
0.6
0.7
0.8
0.9
1.2
1.1
1.1
1.1
1.4
1.4
1.5
1.8
2.6
2.0
2.5
2.6
3.7
3.8
-14
-12
-10
-8
-6
-4
-2
0
2
4
6
2016
Q3
2016
Q4
2017
Q1
2017
Q2
2017
Q3
2017
Q4
2018
Q1
2018
Q2
2018
Q3
2018
Q4
2019
Q1
2019
Q2
2019
Q3
2019
Q4
2020
Q1
2020
Q2
2020
Q3
2020
Q4
2021
Q1
2021
Q2
HFG - Total customer base (millions): active and lost customers (US)
Cumulative customers lost Active customers
10%
12%
15%
16%
18%
16%
21%
24%
24%
20%
23%
22%
20%
15%
27%
21%
23%
17%
21%
10%
12%
15%
16%
18%
16%
21%
24%
24%
20%
23%
22%
20%
15%
27%
21%
23%
17%
21%
81%
76%
71%
68%
64%
69%
58%
51%
51%
61%
54%
55%
59%
69%
47%
57%
54%
65%
58%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2016
Q4
2017
Q1
2017
Q2
2017
Q3
2017
Q4
2018
Q1
2018
Q2
2018
Q3
2018
Q4
2019
Q1
2019
Q2
2019
Q3
2019
Q4
2020
Q1
2020
Q2
2020
Q3
2020
Q4
2021
Q1
2021
Q2
HFG - Customer type by quarter (US)
Frequent customer base Seasonal customer base Customers acquired
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BERNSTEIN
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53
EXHIBIT 72: However, using a 20% reactivation rate, HFG is highly dependent on reactivated customers
Source: Company reports, and Bernstein estimates (all data) and analysis
EXHIBIT 73: Retention rates or reactivation rates must be lower to enable new customers
Source: Company reports, and Bernstein estimates (all data) and analysis
84%
87%
76%
68%
57%
61%
36%
15%
35%
17%
0%
16%
13%
24%
32%
43%
39%
64%
101%
115%
85%
112%
116%
100%
65%
146%
115%
126%
83%
100%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2016
Q4
2017
Q1
2017
Q2
2017
Q3
2017
Q4
2018
Q1
2018
Q2
2018
Q3
2018
Q4
2019
Q1
2019
Q2
2019
Q3
2019
Q4
2020
Q1
2020
Q2
2020
Q3
2020
Q4
2021
Q1
2021
Q2
HFG - New customers by quarter: new (never purchased before) vs.
reactivated (US)
New customers Reactivated customers
293
364
358
366
327
509
233
-81
131
-90
-132
-1
642
-217
-366
413
9
-600
-400
-200
-
200
400
600
800
2016
Q4
2017
Q1
2017
Q2
2017
Q3
2017
Q4
2018
Q1
2018
Q2
2018
Q3
2018
Q4
2019
Q1
2019
Q2
2019
Q3
2019
Q4
2020
Q1
2020
Q2
2020
Q3
2020
Q4
2021
Q1
2021
Q2
Thousands
HFG - No. new customers (never purchased before) acquired (US)
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HELLOFRESH: PAYING PEOPLE TO EAT
◼ 3.9 million active customers in the International segment in Q2-21 (see Exhibit 74), up
from 2.2 million in Q2-20 with strong growth in H1-21, supported by additional
lockdowns and pandemic-induced restrictions in many markets.
◼ 38% of customer base — 1.5 million customers — is recurring (see Exhibit 75),
supported by frequent and seasonal customers.
◼ Due to poor retention rates, lost customers totaled 11 million in Q2-21 (see Exhibit
76), which, when added to 3.9 million active customers, creates a total customer base
of 15 million. This is 25% of the TAM as identified by HelloFresh (60 million
households), which is concerning as HelloFresh is powering its way through its own
addressable market, challenging future growth rates.
◼ Each quarter, about 60%+ of customers need to be new (i.e., not purchased in the
quarter before), leading to high expectations of reactivation or customer acquisition
(see Exhibit 77). Without a material improvement in retention rates, it's hard to believe
that marketing spend and discounting can reduce over time, as these are still being
put to work.
◼ However, reactivations made up 60-80% of the need for new customers in Q2-21
(see Exhibit 78). This has been the case for most of 2019 and 2020. Assuming that
reactivations are 20% of the cumulatively lost customer database implies that most
customers are reactivated lost customers (prompted by discounts) rather than true net
new acquisitions.
◼ Over the last four or five quarters, CAC was around €100-€200 (see Exhibit 80). This
CAC is high assuming that it loses 70% of customers after year 1, and that it doesn't
include discounts. Assuming a 9% EBIT on a €50 AOV at €150 CAC and no further
discounts, customers need to order around 33 times to pay back the CAC, which is
about eight months.
◼ In Exhibit 81 and Exhibit 82, we show the sensitivity of CAC and payback. We get to a
bottom-up figure payback of around 6-10 months vs. a company-reported 5-9
months.
◼ Sense checking our analysis in Exhibit 83, we use assumptions on AOV, order
frequency, and discounting for our different customer types. We get to around +/-5%
on reported revenue for the last four quarters and +/-15% for the last 12 quarters.
Given the number of assumptions being fed into the analysis, we are happy with the
bottom-up sense check that the numbers are broadly in the right direction.
INTERNATIONAL CUSTOMER
DATABASE ANALYSIS
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HELLOFRESH CUSTOMERS: GOODBYE FRESH CUSTOMERS
55
EXHIBIT 74: 3.9 million active customers in Q2-21, up from 2.2 million in Q2-20
Source: Company reports, and Bernstein estimates (all data) and analysis
EXHIBIT 75: We expect the recurring International customer base to be around 1.5 million in Q2-21
Source: Company reports, and Bernstein estimates (all data) and analysis
0.45
0.46
0.49
0.56
0.67
0.72
0.78
0.95
1.08
1.06
1.13
1.18
1.54
2.2
2.51
2.68
3.59
3.86
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
2017
Q1
2017
Q2
2017
Q3
2017
Q4
2018
Q1
2018
Q2
2018
Q3
2018
Q4
2019
Q1
2019
Q2
2019
Q3
2019
Q4
2020
Q1
2020
Q2
2020
Q3
2020
Q4
2021
Q1
2021
Q2
Customer number (in millions)
HFG - Total active customers (International)
-
0.05
0.07
0.10
0.11
0.14
0.16
0.18
0.20
0.23
0.25
0.27
0.29
0.34
0.44
0.53
0.61
0.75
-
0.05
0.07
0.10
0.11
0.14
0.16
0.18
0.20
0.23
0.25
0.27
0.29
0.34
0.44
0.53
0.61
0.75
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
2017
Q1
2017
Q2
2017
Q3
2017
Q4
2018
Q1
2018
Q2
2018
Q3
2018
Q4
2019
Q1
2019
Q2
2019
Q3
2019
Q4
2020
Q1
2020
Q2
2020
Q3
2020
Q4
2021
Q1
2021
Q2
Customer number (millions)
HFG - Recurring customer base (International)
Frequent customer base Seasonal customer base
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HELLOFRESH: PAYING PEOPLE TO EAT
EXHIBIT 76: Total customer base of 15 million, of which 73% (11 million) comprises lost customers
Source: Company reports, and Bernstein estimates (all data) and analysis
EXHIBIT 77: Majority of customers (61%) in Q2-21 was acquired (or reactivated) while 38% was recurring
Source: Company reports, and Bernstein estimates (all data) and analysis
-0.4
-0.6
-0.9
-1.1
-1.5
-1.8
-2.2
-2.6
-3.2
-3.6
-4.1
-4.6
-5.4
-6.5
-7.8
-9.0
-10.8
0.5
0.5
0.5
0.6
0.7
0.7
0.8
1.0
1.1
1.1
1.1
1.2
1.5
2.2
2.5
2.7
3.6
3.9
-12
-10
-8
-6
-4
-2
0
2
4
6
2017
Q1
2017
Q2
2017
Q3
2017
Q4
2018
Q1
2018
Q2
2018
Q3
2018
Q4
2019
Q1
2019
Q2
2019
Q3
2019
Q4
2020
Q1
2020
Q2
2020
Q3
2020
Q4
2021
Q1
2021
Q2
Customer number (million)
HFG - Total customer base: active & lost customers (International)
Cumulative customers lost Active customers
10%
14%
17%
17%
19%
20%
19%
19%
22%
22%
23%
19%
15%
17%
20%
17%
19%
10%
14%
17%
17%
19%
20%
19%
19%
22%
22%
23%
19%
15%
17%
20%
17%
19%
100%
80%
71%
66%
66%
61%
59%
63%
63%
56%
55%
54%
62%
69%
65%
61%
66%
61%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2017
Q1
2017
Q2
2017
Q3
2017
Q4
2018
Q1
2018
Q2
2018
Q3
2018
Q4
2019
Q1
2019
Q2
2019
Q3
2019
Q4
2020
Q1
2020
Q2
2020
Q3
2020
Q4
2021
Q1
2021
Q2
HFG - Customer type by quarter (International)
Frequent customer base Seasonal customer base Customers acquired
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HELLOFRESH CUSTOMERS: GOODBYE FRESH CUSTOMERS
57
EXHIBIT 78: However, using a 20% reactivation rate, HFG is highly dependent on reactivated customers
Source: Company reports, and Bernstein estimates (all data) and analysis
EXHIBIT 79: In the international segment, there is more consistent new customer acquisition
Source: Company reports, and Bernstein estimates (all data) and analysis
100% 100%
79%
67%
61%
48%
36%
39%
36%
11%
14%
39%
35%
20%
35%
24%
0% 0%
21%
33%
39%
52%
64%
61%
64%
89%
101%
114%
86%
61%
65%
80%
65%
76%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2017
Q1
2017
Q2
2017
Q3
2017
Q4
2018
Q1
2018
Q2
2018
Q3
2018
Q4
2019
Q1
2019
Q2
2019
Q3
2019
Q4
2020
Q1
2020
Q2
2020
Q3
2020
Q4
2021
Q1
2021
Q2
HFG - New customers by quarter: new (never purchased before) vs. reactivated
(International)
New customers Reactivated customers
450
370
277
246
273
214
167
235
242
66
-7
-88
138
598
566
317
826
569
-200
-
200
400
600
800
1,000
2017
Q1
2017
Q2
2017
Q3
2017
Q4
2018
Q1
2018
Q2
2018
Q3
2018
Q4
2019
Q1
2019
Q2
2019
Q3
2019
Q4
2020
Q1
2020
Q2
2020
Q3
2020
Q4
2021
Q1
2021
Q2
Thousands
HFG - No. new customers (never purchased before) acquired (International)
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EXHIBIT 80: Customer acquisition cost appears to be around €100-€200 in the last four quarters
Note: Periods without data are where either marketing spend data was not available, or based on our analysis, no net new customers were acquired.
Source: Company reports, and Bernstein estimates (all data) and analysis
EXHIBIT 81: Payback between 6 and 10 months based
on our calculations
EXHIBIT 82: Company reported payback is between five
and nine months
Source: Bernstein estimates and analysis
Source: Company reports
97
117
169
151
434
295
69
103
178
102
156
0
50
100
150
200
250
300
350
400
450
500
2017
Q1
2017
Q2
2017
Q3
2017
Q4
2018
Q1
2018
Q2
2018
Q3
2018
Q4
2019
Q1
2019
Q2
2019
Q3
2019
Q4
2020
Q1
2020
Q2
2020
Q3
2020
Q4
2021
Q1
2021
Q2
HFG - Customer Acquisition Cost (CAC) per new new (never purchased)
customer (International)
Average order value 50€
EBIT margin 9%
Contribution per order 4.5€
CAC
Order
numbers
Payback
months
75€ 17 4
100€ 22 6
125€ 28 7
150€ 33 8
175€ 39 10
200€ 44 11
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59
EXHIBIT 83: Comparing our bottom-up calculations vs. reported revenue, we are within +/-5% for the last four
quarters and between +/- 15% for the last 12 quarters
Source: Company reports, and Bernstein estimates (all data) and analysis
0
100
200
300
400
500
600
700
800
2017
Q2
2017
Q3
2017
Q4
2018
Q1
2018
Q2
2018
Q3
2018
Q4
2019
Q1
2019
Q2
2019
Q3
2019
Q4
2020
Q1
2020
Q2
2020
Q3
2020
Q4
2021
Q1
2021
Q2
Revenue (EUR million)
HFG - Bottom up Bernstein International revenue vs. reported revenue (Q2-17 to
Q2-21)
Reported International Revenue Bernstein bottom up International revenue
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61
HEAVY DISCOUNTING, TRADING DOWN
RISK, AND HIGH LOGISTICS COST
EXPOSURE
How HelloFresh fares in an increasingly inflationary environment
◼ Pricing power is critical in a commoditized food ecosystem, particularly in an
increasingly inflationary environment. HelloFresh is effectively a commoditized
product (raw ingredients in a box) that charges a significant 60-140% mark up and
has weak customer relationships (>90% churn in Y1). HelloFresh's pricing power is
weak. As food inflation rises, it will not be able to pass on price increases on an already
expensive product, which is devalued by discounting and pressured by rising logistics
costs. So far, HelloFresh has not increased any box prices, but has passed on some
logistics inflation.
◼ Trading down from an expensive, commoditized meal kit product is a material risk.
HelloFresh is an expensive commoditized product, taking up ~75% of the median US
family's spending on food. An inflationary environment highlights the pricing
differential, and consumers will trade down to reduce the overall impact of their
spending. New tiers (e.g., EveryPlate) are still expensive, and will be cannibalistic and
encourage trading down.
◼ Frequent, deep discounting devalues the brand and reduces pricing power.
Discounting is high with deep introductory offers (40-60% off) and frequent
reactivation emails (40% off on up to five boxes). Average discounts are around 20-
25%, and trial offers are loss-making (up to -28%). This devalues the brand, as
consumers expect discounts, and challenges the brand premium on a commoditized
product. Plus, there is the risk that the 2022 customer cohort is worse, as discount-
led consumers, who would never be able to afford the full-price product, sign up.
HelloFresh is a commoditized product and is increasingly at risk from trading down in
today's inflationary environment. A HelloFresh box contains raw food ingredients,
repackaged in a box with a recipe, charging a 60-140% markup. As we outlined in our
recent note on inflation,
1
consumers are savvy, and during periods of inflation, change their
behavior to avoid cost inflation. Consumers switch to private label and discounts, and out
of expensive categories. Grocery is a tightly budgeted category, and increases in grocery
and petrol prices can hurt family' budgets. We see HelloFresh as a loser in an inflationary
environment, as consumers look to manage their spending on food.
1
See EU Food Retail & Delivery: Inflation is good, is mostly passed on and grows profit pool.
OVERVIEW
TRADING DOWN
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◼ It's expensive, and inflation highlights the pricing differential vs. grocery stores. Meal
kits are not cheap. Looking at the price of a lasagna meal in Exhibit 84, a meal kit meal
would cost around £5 per person per meal vs. cooking from scratch or a ready meal at
between £2-£3, suggesting a 60-140% mark up on the meal. If you then compare this
vs. an average UK family spending (2.4 people), a HelloFresh box would take up 56%
of weekly spending for three meals, leaving only £28 for 18 meals, plus all home and
personal care expenses (see Exhibit 85). As food prices creep up, we find it difficult to
believe HelloFresh will be further able to raise meal kit prices without affecting
consumer demand. The boxes are already expensive, and we see downside risk from
consumers trading down to traditional grocery store shopping, instead of meal kits.
◼ In the US, HelloFresh boxes are expensive. Even for a top quintile family, a HelloFresh
box for three meals would take up 46% of at-home weekly food spending, leaving $74
for 18 meals. This doesn't consider the fact that these households might have more
than two people in them, and the box to cover the whole family might be even more
expensive. Even if you look at an average HelloFresh box (three meals, two people,
$63), it's tough to imagine anyone outside the top two quintiles of income earners
being able to afford it (earning more than $75k per household per year). This means
the US TAM is at least 30% smaller than management claims. Management claims 70
million households in the US, but we think the product only really applies to the top two
quintiles of earners (i.e., >$75k per year), which reduces the TAM to ~48 million
households. This means the TAM penetration of active customers is closer to 8.1% (in
our numbers) vs. 5.6% (in management numbers).
◼ New tiers such as EveryPlate widen the TAM, but are still expensive at 59% of median
family food spending. EveryPlate will widen the TAM slightly with a product that is 42%
cheaper than HelloFresh's core offer at $50 (see Exhibit 87). However, even at $50,
this would take up 59% of the third quintile's spending, leaving $35 to cover 18 meals!
We are also concerned that additional price tiers are both cannibalistic and cost more
to market, while not fundamentally overcoming the challenges of the business model.
As prices creep up, it would be fair to expect core HelloFresh customers to start to
trade down to EveryPlate to reduce the overall meal kit cost.
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EXHIBIT 84: Meal kits are 60-140% more expensive
than cooking from scratch or ready meals
EXHIBIT 85: An average UK family buying HelloFresh
would be left with £28 to cover 18 meals and other
expenses
Source: Company websites and Bernstein analysis
Source: Office for National Statistics (ONS) and Bernstein analysis
EXHIBIT 86: Even for the highest quintile of earners
(US), a HFG box takes up 46% of weekly food
spending
EXHIBIT 87: Even the EveryPlate offering, which is 42%
cheaper, would take up 59% of median food spending
Source: USDA, US Census Bureau, company websites, and Bernstein analysis
Source: Company websites and Bernstein analysis
Discounting is a key part of HelloFresh's strategy and diminishes its pricing power with
consumers. In fact, we think many customers sign up to HelloFresh at deep discounts (50%
off on first box and then 35% off on the next three boxes) and then ditch the product due
to the higher cost vs. grocery shopping. HelloFresh offers both deep discounts and
frequent discounts, which we think reduces the value of the product in consumers' minds
and pushes them to consistently buy on discounts. We think nearly all new customers are
buying on heavy trial discounts, and most reactivated customers in a quarter are being
prompted through discounting.
£3.0
£2.1
£5.0
£11.3
£0
£4
£8
£12
Cook from
scratch
Ready meal Meal Kits Delivery
Avg. meal price (GBP)
Avg. lasagna meal price - UK
1.6 – 2.4x more
expensive
M
T
W
T F S S
Breakfast
Lunch
Dinner £35.99
£27.71 (44%
budget)
HelloFresh box for 2.5 people for 3 meals = £35.99
Average household spending on food = £63.70
+ household
& personal
care
spending
Average UK food budget
US food
spending by
income quintile
Food spending
at home per
week
HFG box (three
meals, two
people)
Lowest quintile $54 117%
2nd quintile $71 89%
3rd quintile $85 74%
4th quintile $100 63%
Highest quintile $137 46%
$50
$86
$110
$160
$0
$20
$40
$60
$80
$100
$120
$140
$160
$180
EveryPlate HelloFresh GreenChef Factor75
HFG - US pricing by tier for 4 meals
for 2 people (USD)
42%
cheaper
DISCOUNTING
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Discount depth is typically between 20-65%. For a trial offer, US first boxes are at 65% off
(see Exhibit 88 and Exhibit 89), and in the UK, the first box is at 50% off plus 35% off on
the next three (see Exhibit 98). We have received several flyers through the post, which
show a discount of 60% on the first box plus 40% on the next three boxes (see Exhibit 90).
Although this level of discounting is meant to entice customers to try the product and
change their behavior, we think it has three negative impacts. It: (1) devalues the full price
of the product with heavy discounting; (2) attracts non-core customers, who will never pay
full price; and (3) doesn't seem to drive strong customer retention, with 90% of customers
not purchasing regularly after Q4.
Within an inflationary environment, HelloFresh also runs the risk of acquiring weaker
cohorts of customers who are searching for discounts and sign up without having the
ability to pay full price for the product. 2022 cohorts could be materially weaker than 2020
and 2021 cohorts.
EXHIBIT 88: US trial offer of 14 free meals…
EXHIBIT 89: …equals 65% off on the first box
Source: Company website
Source: Company website
EXHIBIT 90: We have received many HFG flyers for 60% off
Source: Company flyer
INTRODUCTORY OFFER
DISCOUNTING
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We are more concerned about reactivation discounting. We think many of HelloFresh's
active customers have been reactivated through heavy discounted offers pushed via email,
and that many new customers acquired each quarter just purchase for one quarter and then
ditch. HelloFresh even says that reactivated customers behave in the same way as new
customers. Full pricing is almost meaningless for HelloFresh, as many customers are
buying on heavy, consistent discounts.
Reactivations are not a good thing! This means that you are effectively paying to re-recruit
customers who already decided the product is not for them. HelloFresh disclosed that
reactivations were increasing from the mid-10s in 2016 to the high-20s (in % terms) in its
2019 Capital Markets Day presentation (see Exhibit 93). We think this highlights the
smaller nature of the TAM, the poor quality of retention, and the wastage of marketing
spend on poor customers. The company even highlights that these reactivated customers
show the same economics as "new" customers (i.e., likely to churn pretty quickly) and cost
less to acquire (demonstrating the diminishing efficiency of its marketing spend).
We have received many discount-led reactivation emails since we tried the product in Q1
2021 (see Exhibit 91, Exhibit 92, and Exhibit 94). On average, the discounts start at 40%.
Between March and October 2021, we have received seven emails (almost one a month)
trying to get us to reactivate with 40% off on two to five boxes. Although this email flow is
trying to get us to change our behavior, it is effectively devaluing the brand and putting
customers off repurchasing at full price. Anecdotally, we have read of customers who have
two accounts in a household and cancel and reactivate each quarter on different accounts
to take full advantage of heavily discounted food. HelloFresh even decided to post a letter
to me with an even deeper discount with 40% off on two boxes, and 20% off on seven
boxes subsequently (see Exhibit 95).
EXHIBIT 91: Reactivation emails with heavy discounts
EXHIBIT 92: Not just 40% off one box, but discounts on
four boxes
Source: Company emails
Source: Company emails
REACTIVATION DISCOUNTING
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EXHIBIT 93: HelloFresh reactivation rates
EXHIBIT 94: HelloFresh reactivation emails
Source: Company reports
Source: Company emails and Bernstein analysis
EXHIBIT 95: HelloFresh even starts sending mails when you haven't purchased for a while
Source: Company
We calculate HelloFresh's average discount to be 16-23% in H1-21 (see Exhibit 96 and
Exhibit 97). HelloFresh refuses to disclose any information about the depth and frequency
of discounting. Discounts are netted off revenue and not included in marketing spend, so
the total impact is obfuscated. However, from the disclosure on orders, meals, and revenue,
we can back-calculate from order economics into the level of discounting. Taking the
number of orders, meals, and revenue by segment, we can calculate the average revenue
per meal and meals per order. We can compare this to the average price charged to a
customer per meal for a similar box and then calculate the discount relative to full price. We
land at -20% to -23% discounting in H1 2021 in the US and International segments (see
Exhibit 96 and Exhibit 97), which is +500 bps to +800 bps higher compared with traditional
supermarket discounting on grocery.
Date Action Discount
Order 1 27/01/2021 60%
Referral email 04/02/2021 Unlimited £20 off vouchers for friends
Order 2 10/02/2021 40%
Referral email 15/02/2021 Free box for referrals
Order 3 24/02/2021 40%
Order 4 03/03/2021 40%
Re-activation discount 12/04/2021 2 x 30% off
Re-activation discount 26/04/2021 2 x 40% and 2 x 20% off
Re-activation discount 13/07/2021 2 x 40% and 2 x 20% off
Re-activation discount 20/07/2021 2 x 40% and 2 x 20% off
Re-activation letter August 2 x 40%, 7 x 20% off
Re-activation discount 17/09/2021 40% off 5 boxes
Re-activation discount 24/09/2021 2 x 40% and 3 x 20% off
Re-activation discount 01/10/2021 40% off 5 boxes
UNDERSTANDING HFG
DISCOUNTING
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EXHIBIT 96: US segment discounts average 20-23%
EXHIBIT 97: International segment discounts average
16-20%
Source: Company reports and Bernstein analysis
Source: Company reports and Bernstein analysis
EXHIBIT 98: Standard trial offer in pop-up on HFG UK website
Source: Company website
If we sense check this vs. our retention analysis, we calculate with a similar figure of -21%
discounting on a cohort of 50 people (see Exhibit 99). This supports our hypothesis that
retention is low with high levels of churn of 70-80% by month 12, a seasonal cohort of 10%
customers, and a frequent customer base of 12%. We assume in this calculation that
everyone is acquired on a discounted trial offer, some customers are reactivated regularly
with discounts, and then seasonal and frequent customers buy at full price.
US 2019FY 2020FY H1-2021
Orders 21 39 31
Meals 138 278 232
Revenue 1025 2073 1649
Revenue per meal (EUR) 7.4 7.5 7.1
Revenue per meal (USD) 8.6 8.7 8.2
Meals per order 6.7 7.2 7.6
Full price box for 8 meals
(incl. delivery) (USD)
85.9 85.9 85.9
Price per meal 10.7 10.7 10.7
Average discount % -20% -19% -23%
International 2019FY 2020FY H1-2021
Orders
17 36 30
Meals
143 323 261
Revenue
784 1676 1348
Revenue per meal (EUR)
5.5 5.2 5.2
Meals per order
8.5 9.1 8.8
Price per meal
6.5 6.5 6.5
Average discount %
-16% -20% -20%
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EXHIBIT 99: 50-person cohort on a monthly basis = discounts at 21%
Source: Company websites (prices for meal kit plans), and Bernstein estimates (all other data) and analysis
If we use our trial experience as a benchmark (60% off + 3 x boxes at 40% off), although
we paid €6.70, HelloFresh effectively paid us to eat at a -€45 EBIT when accounting for
marketing spend and SG&A (see Exhibit 101). This further demonstrates the weakness in
HelloFresh's pricing power, where it is giving away food for free on the idea that consumers
will change their behavior and stick with meal kits. However, based on our retention
analysis, this is not the case, with >90% customers churning post-purchase.
Given the high levels of markup (60-140%) on a commoditized food product, orders at a
40% discount are still contribution margin positive (12%) (see Exhibit 100). However, when
accounting for marketing spend and SG&A on a per order basis, EBIT contribution is
negative at -17%. Many reactivation offers that we receive are for 40% discounts, which
suggest that HelloFresh is growing customers at the expense of profitability. Our analysis
also reinforces our perspective that discounting is at around the 20-25% level. When we
flow through procurement, fulfillment, and marketing & SG&A, we get to a 12% EBIT
margin contribution. This is not too dissimilar to HelloFresh's contribution margin in H1
2021 of 10%. Exhibit 100 is slightly too generous on contribution margin, but less
aggressive on marketing & SG&A spend.
Customer No. Customer Type
Orders in 1st
year
Discount M1 M2 M3 M4 M5 M6 M7 M8 M9 M10 M11 M12 Total revenue
Cost of
discounts
1 Discount & Ditch 4 50% off first + 35% off next 3 £84.50 £85
-£65.46
2 Discount & Ditch 4 50% off first + 35% off next 3 £84.50 £85
-£65.46
3 Discount & Ditch 4 50% off first + 35% off next 3 £84.50 £85
-£65.46
4 Discount & Ditch 4 50% off first + 35% off next 3 £84.50 £85
-£65.46
5 Discount & Ditch 4 50% off first + 35% off next 3 £84.50 £85
-£65.46
6 Discount & Ditch 4 50% off first + 35% off next 3 £84.50 £85
-£65.46
7 Discount & Ditch 4 50% off first + 35% off next 3 £84.50 £85
-£65.46
8 Discount & Ditch 4 50% off first + 35% off next 3 £84.50 £85
-£65.46
9 Discount & Ditch 4 50% off first + 35% off next 3 £84.50 £85
-£65.46
10 Discount & Ditch 4 50% off first + 35% off next 3 £84.50 £85
-£65.46
11 Discount & Ditch 4 50% off first + 35% off next 3 £84.50 £85
-£65.46
12 Discount & Ditch 4 50% off first + 35% off next 3 £84.50 £85
-£65.46
13 Discount & Ditch 4 50% off first + 35% off next 3 £84.50 £85
-£65.46
14 Discount & Ditch 4 50% off first + 35% off next 3 £84.50 £85
-£65.46
15 Discount & Ditch 4 50% off first + 35% off next 3 £84.50 £85
-£65.46
16 Discount & Ditch 4 50% off first + 35% off next 3 £84.50 £85
-£65.46
17 Discount & Ditch 4 50% off first + 35% off next 3 £84.50 £85
-£65.46
18 Discount & Ditch 4 50% off first + 35% off next 3 £84.50 £85
-£65.46
19 Discount & Ditch 4 50% off first + 35% off next 3 £84.50 £85
-£65.46
20 Discount & Ditch 4 50% off first + 35% off next 3 £84.50 £85
-£65.46
21 Regularly reactivated 4 50% off first + 35% off next 3 £84.50 £96.57 £48.29 £229
-£145.54
22 Regularly reactivated 4 50% off first + 35% off next 3 £84.50 £96.57 £48.29 £229
-£145.54
23 Regularly reactivated 4 50% off first + 35% off next 3 £84.50 £96.57 £48.29 £229
-£145.54
24 Regularly reactivated 4 50% off first + 35% off next 3 £84.50 £96.57 £48.29 £229
-£145.54
25 Regularly reactivated 4 50% off first + 35% off next 3 £84.50 £96.57 £48.29 £229
-£145.54
26 Regularly reactivated 4 50% off first + 35% off next 3 £84.50 £96.57 £48.29 £229
-£145.54
27 Regularly reactivated 4 50% off first + 35% off next 3 £84.50 £96.57 £48.29 £229
-£145.54
28 Regularly reactivated 4 50% off first + 35% off next 3 £84.50 £96.57 £48.29 £229
-£145.54
29 Regularly reactivated 4 50% off first + 35% off next 3 £84.50 £96.57 £48.29 £229
-£145.54
30 Regularly reactivated 4 50% off first + 35% off next 3 £84.50 £96.57 £48.29 £229
-£145.54
31 Regularly reactivated 4 50% off first + 35% off next 3 £84.50 £96.57 £48.29 £229
-£145.54
32 Regularly reactivated 4 50% off first + 35% off next 3 £84.50 £96.57 £48.29 £229
-£145.54
33 Regularly reactivated 4 50% off first + 35% off next 3 £84.50 £96.57 £48.29 £229
-£145.54
34 Regularly reactivated 4 50% off first + 35% off next 3 £84.50 £96.57 £48.29 £229
-£145.54
35 Regularly reactivated 4 50% off first + 35% off next 3 £84.50 £96.57 £48.29 £229
-£145.54
36 Regularly reactivated 4 50% off first + 35% off next 3 £84.50 £96.57 £48.29 £229
-£145.54
37 Regularly reactivated 4 50% off first + 35% off next 3 £84.50 £96.57 £48.29 £229
-£145.54
38 Regularly reactivated 4 50% off first + 35% off next 3 £84.50 £96.57 £48.29 £229
-£145.54
39 Seasonal at full price, twice a month 16 50% off first + 35% off next 3 £84.50 £74.98 £74.98 £74.98 £74.98 £74.98 £74.98 £74.98 £74.98 £74.98 £74.98 £74.98 £909
-£65.46
40 Seasonal at full price, twice a month 16 50% off first + 35% off next 3 £84.50 £74.98 £74.98 £74.98 £74.98 £74.98 £74.98 £74.98 £74.98 £74.98 £74.98 £74.98 £909
-£65.46
41 Seasonal at full price, twice a month 16 50% off first + 35% off next 3 £84.50 £74.98 £74.98 £74.98 £74.98 £74.98 £74.98 £74.98 £74.98 £74.98 £74.98 £74.98 £909
-£65.46
42 Seasonal at full price, twice a month 16 50% off first + 35% off next 3 £84.50 £74.98 £74.98 £74.98 £74.98 £74.98 £74.98 £74.98 £74.98 £74.98 £74.98 £74.98 £909
-£65.46
43 Seasonal at full price, twice a month 16 50% off first + 35% off next 3 £84.50 £74.98 £74.98 £74.98 £74.98 £74.98 £74.98 £74.98 £74.98 £74.98 £74.98 £74.98 £909
-£65.46
44 Frequent 52 50% off first + 35% off next 3 £84.50 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £1,734
-£65.46
45 Frequent 52 50% off first + 35% off next 3 £84.50 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £1,734
-£65.46
46 Frequent 52 50% off first + 35% off next 3 £84.50 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £1,734
-£65.46
47 Frequent 52 50% off first + 35% off next 3 £84.50 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £1,734
-£65.46
48 Frequent 52 50% off first + 35% off next 3 £84.50 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £1,734
-£65.46
49 Frequent 52 50% off first + 35% off next 3 £84.50 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £1,734
-£65.46
50 Frequent 52 50% off first + 35% off next 3 £84.50 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £149.96 £1,734
-£65.46
Total revenue £4,225 £1,425 £3,163 £1,425 £2,294 £1,425 £1,425 £1,425 £1,425 £1,425 £1,425 £1,425 £22,503 -£4,714
Revenue retention 100% 34% 75% 34% 54% 34% 34% 34% 34% 34% 34% 34%
Actual retention 100% 24% 60% 24% 60% 24% 24% 24% 24% 24% 24% 24%
Total cost of discounts -£4,714
CUSTOMER ECONOMICS
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HEAVY DISCOUNTING, TRADING DOWN RISK, AND HIGH LOGISTICS COST EXPOSURE
69
EXHIBIT 100: Given the high levels of markup, orders at 40% discount are still contribution margin positive at
12%, but EBIT margin negative (-17%)
Source: Company reports, and Bernstein estimates (procurement, fulfillment, marketing expense and SG&A per order) and analysis
EXHIBIT 101: During our trial, we contributed €6.70 to HFG, but it effectively paid us to eat with a -€45 EBIT
Source: Bernstein estimates and analysis
On top of the challenges of trading down and heavy discounting, HelloFresh has a greater
exposure to logistics cost inflation that it will struggle to pass on to consumers through
higher delivery fees. Logistics costs are ~40% of sales (see Exhibit 102). The one-to-one
nature of D2C products increases the variable cost base (i.e., logistics) at the expense of
the distribution efficiencies of a large store, where consumers travel en masse to a store to
pick up their own goods.
Logistics costs are on the rise and challenged by the structural shift to e-commerce
(increasing the overall demand for parcels) and the one-off impact of the pandemic (supply
chain challenges and faster shift to online). As outlined in Exhibit 103, in the UK, postal
Discount level 0% 20% 40% 60%
Full-price AOV (2 people, 4
recipes) - $86 in USD
€ 74.1 € 74.1 € 74.1 € 74.1
Discount € 0.0 -€ 14.8 -€ 29.6 -€ 44.4
Net AOV (reported revenue) € 74.1 € 59.2 € 44.4 € 29.6
Procurement expenses per order
-€ 15.9 -€ 15.9 -€ 15.9 -€ 15.9
Fulfilment expenses per order -€ 23.2 -€ 23.2 -€ 23.2 -€ 23.2
Contribution margin € 35.00 € 20.19 € 5.38 -€ 9.43
Contribution margin % 47% 34% 12% -32%
Marketing spend per order -€ 8.3 -€ 8.3 -€ 8.3 -€ 8.3
Marketing as % revenue -11% -14% -19% -28%
SG&A per order -€ 4.7 -€ 4.7 -€ 4.7 -€ 4.7
SG&A as % revenue -6% -8% -11% -16%
EBIT € 22.00 € 7.19 -€ 7.62 -€ 22.43
EBIT margin % 30% 12% -17% -76%
FULFILLMENT COSTS
My order contribution
Revenue
Contribution
Margin
EBIT
1 60% off € 29.6 -€ 9.4 -€ 22.4
2 40% off € 44.4 € 5.4 -€ 7.6
3 40% off € 44.4 € 5.4 -€ 7.6
4 40% off € 44.4 € 5.4 -€ 7.6
Total € 162.9 € 6.7 -€ 45.3
Margin % 4% -28%
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HELLOFRESH: PAYING PEOPLE TO EAT
logistics CPI is increasing and outpacing overall CPI significantly at ~6% YoY inflation vs.
2-3% total CPI. HelloFresh's fulfillment costs per order have also been rising, particularly
in the US, by +20-30% (see Exhibit 104 and Exhibit 105). For the most part, HelloFresh
uses third-party couriers with whom it has limited scale and bargaining power.
As a result of rising costs, HelloFresh has started increasing some delivery fees. In the UK,
delivery fees have gone up by 30%, and in the US, delivery fees have gone up by US$1
(11%). However, the big challenge is that delivery fees are already relatively high in most
markets at US$9.99 in the US and €4-€6 in Europe. This averages at around 10% of the
box price, similar to food delivery but well above large-basket online grocery (2% fees as a
percentage of basket size). Increasing delivery fees is likely to put some customers off
purchasing and increase the pricing differential vs. traditional grocery.
EXHIBIT 102: Group fulfillment expenses as a % of
revenue increasing over time
EXHIBIT 103: Logistics/postal costs are increasing
rapidly vs. total CPI
Source: Company reports and Bernstein analysis
Source: ONS and Bernstein analysis
EXHIBIT 104: US fulfillment costs have had a material
step change by +20-30%
EXHIBIT 105: International fulfillment costs peaked
Source: Company reports and Bernstein analysis
Source: Company reports and Bernstein analysis
35%
36%
37%
36%
37%
39%
39% 39%
38%
40%
32%
33%
34%
35%
36%
37%
38%
39%
40%
41%
2019
Q1
2019
Q2
2019
Q3
2019
Q4
2020
Q1
2020
Q2
2020
Q3
2020
Q4
2021
Q1
2021
Q2
HFG - Fulfillment expenses as % of
revenue (Q1-19 to Q2-21)
0%
2%
4%
6%
8%
10%
12%
14%
UK Total CPI vs. Postal CPI annual
rate (2018-21)
UK Postal CPI UK CPI
10
11
12
14
12
12
12
12
9
15
14
15
14
16
0
2
4
6
8
10
12
14
16
18
HFG - US fulfilment costs per order
(EUR; Q1-18 to Q2-21)
24
24
24
20
22
24
25
25
30
26
26
22
24
24
0
5
10
15
20
25
30
35
HFG - International fulfilment costs
per order (EUR; Q1-18 to Q2-21)
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HEAVY DISCOUNTING, TRADING DOWN RISK, AND HIGH LOGISTICS COST EXPOSURE
71
At present, HelloFresh is not generally raising prices to offset cost inflation. We monitored
prices across different subscription types and geographies, and noticed a few small
changes over the last nine months.
◼ UK: During September 2021 to May 2022, while the unit price for all the subscription
types remained the same, delivery costs increased by £1 (25% increase), with
HelloFresh likely passing on rising costs with its 3P logistics partner due to driver
shortages and increased wage costs.
◼ US: The pattern is different, whereby delivery costs have remained the same, but unit
prices have changed slightly (by $0.5 per serving) between subscription types (see
Exhibit 106). It increased the unit price for all types of meal plans except the smallest
tier (two meals for two people), which is materially lower than US food inflation
at ~10%.
EXHIBIT 106: HelloFresh adjusted unit price across subscription types in the US, but it's well below inflation
Source: Company website and Bernstein analysis
# people # meals per week
Price per
serving Sep-21
Price per serving
May-22
Change % change
2 2 11.99$ 11.99$ -$ 0.0%
2 3 9.49$ 9.99$ 0.5$ 5.3%
2 4 8.99$ 9.49$ 0.5$ 5.6%
2 5 8.49$ 8.99$ 0.5$ 5.9%
2 6 7.99$ 8.49$ 0.5$ 6.3%
4 2 8.99$ 9.49$ 0.5$ 5.6%
4 3 7.99$ 8.49$ 0.5$ 6.3%
4 4 7.49$ 7.99$ 0.5$ 6.7%
4 5 7.49$ 7.99$ 0.5$ 6.7%
4 6 7.49$ 7.99$ 0.5$ 6.7%
HELLOFRESH PRICING CHANGES
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CUSTOMER LIFETIME VALUE (CLTV)
73
CUSTOMER LIFETIME VALUE (CLTV)
HelloFresh effectively pays people to eat with a CLTV:CAC ratio of
0.8x
OVERVIEW
In this chapter, we look at the customer lifetime value (CLTV) of HelloFresh by building on
and pulling together our previous work on retention, discounting, customer habits, and the
P&L. We find that HelloFresh's CLTV:CAC ratio is weak at 0.8x vs. best practice of >4x.
◼ HelloFresh's CLTV:CAC ratio is dismal at 0.8x. Effectively, HelloFresh is paying people
to eat and not earning back its customer acquisition cost (CAC). Best-in-class
businesses would have a CLTV:CAC ratio of >4x. Instead, HelloFresh has a weak
relationship with its customers with high levels of discounting, churn, and marketing
spend. This means that over three years, the lifetime value is only €59. This builds on
our work on retention (Chapter 5), pricing & discounting (Chapter 6), and customer
surveys (Chapter 10) to inform our analysis, and we outline our assumptions below.
◼ The company has recently disclosed information on CLTV and CAC payback periods.
This presents a much more positive view of a customer's value, highlighting a positive
contribution margin profit after order#2 and a payback period of <6 months. Our
analysis doesn't contradict this analysis, but the company fails to account for the full
cost of marketing (15% of sales) and the cost of SG&A (4% of sales). Even at 40%
discounts, a HelloFresh box is contribution margin-positive, given the high mark up on
a commoditized product. Excluding marketing spend and SG&A, we get to a
CLTV:CAC ratio of 1.9x and the payback period would be <6 months, but the
marketing spend as a percentage of sales would be 3%.
BERNSTEIN CLTV
HelloFresh's CLTV:CAC ratio is dismal at 0.8x. It doesn't even recover the amount it spends
to acquire customers over a three-year horizon. Best-in-class businesses would have a
CLTV:CAC ratio of >4x. Instead, HelloFresh has a weak relationship with its customers with
high levels of discounting, high churn and high levels of marketing spend. This means that
over three years, the lifetime value is only €59 when considering discounts, contribution
margins, marketing, and retention. This compares to a CAC (customer lifetime value) of €75
driven by high levels of marketing spend, which the customers will never pay back.
Effectively, HelloFresh is paying customers to eat.
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HELLOFRESH: PAYING PEOPLE TO EAT
EXHIBIT 107: Bernstein CLTV calculation: ratio to CAC is dismal at 0.8x
Source: Company reports, and Bernstein estimates and analysis
In Exhibit 107, we break down the different assumptions used to calculate our CLTV of €59
and our CLTV:CAC ratio of 0.8x.
◼ Gross revenue per order: This is the full cost of a pre-discounts box, equivalent to a
box for two people for three meals (most popular box type) in the US.
◼ Discounting: We assume high introductory discounts on first orders of 60%,
diminishing to 20% by year 3 as customers are phased out of discount email
bombardment by the company. Introductory trial offers are abundant (see Exhibit
115), and it's easy to get 50-60% off on the first box plus 20-40% off on subsequent
boxes. This continues with regular emails, and we calculate that average discounting
is around 20% (see Exhibit 113 and Exhibit 114). The model is not that sensitive to the
product discount levels as we show in Exhibit 110. Even if HelloFresh offered no
discounts, the CLTV:CAC would still only increase by +0.2 to 1.0x.
◼ Net reported revenue per order: €50 mature AOV, in line with reported metrics.
◼ Frequency per year: Broadly in line with reported metrics at 16x per year or 4x per
quarter.
◼ Contribution margin: We aim for a contribution margin of 27%. This is slightly below
the 2020 achieved contribution margin of 28%, but ahead of our FY21-FY24
estimates of 25-26%. This is driven by higher fulfilment costs, higher COGS, and
limited price expansion.
◼ Retention marketing and marketing spend: Not all marketing spend goes on customer
acquisition. There is significant marketing investment into retention marketing or
reactivation marketing as well as non-targeted CAC spend (e.g., TV advertising). We
assume this is around 12% of sales, which gets us to a total marketing spend of 15.1%
of net revenue in line with their reported numbers for FY21.
1st Order Year 1 Year 2 Year 3 Notes
Gross revenue per order € 62 € 62 € 62 € 62 Full price for 2 people, 3 meals in the US
Discount -€ 37 -€ 19 -€ 12 -€ 12 Calculation
% discount 60% 30% 20% 20% Bernstein calculation
Net / reported revenue per order € 25 € 43 € 50 € 50 Reported AOV ~50 EUR
Frequency per year 1 16 16 16 Reported order frequency
Contribution margin % 27% 27% 27% 27% Avg. achieved CM % over last few years
Retention marketing spend % 12% 12% 12% Backcalculated based on CAC to achieve target marketing spend
SG&A % 4% 4% 4% 4% Reported SG&A
Contribution € 11 € 87 € 87 € 87 Calculation
Net retention rate 30% 25% 20% Bernstein calculation
Net contribution € 7 € 26 € 22 € 17 Calculation
Discount rate 8%
3 year CLTV inc. discounting (NPV) € 59 Calculation
Customer Acquisition Cost (CAC) € 75
CLTV:CAC 0.8x Calculation
Total marketing spend modelled 15.1% Reported marketing spend ~15%
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75
◼ SG&A: 4% is broadly in line with historical reported SG&A. This should go up into FY22
and beyond due to investments in technology and data teams, but we hold it flat.
◼ Net retention rate: Based on our deep dive, we have calculated a net retention rate of
30% in Y1, which reduces to 20% in Y3. This is based on a core of regular users
(~10%) and reactivations of around 20%. As shown in Exhibit 111 and Exhibit 112, we
model retention rates of ~30% by Q4 and ~20-25% by Q8. This is based on the
disclosure by the company at its 2020 and 2021 CMDs.
◼ Discount rate: We use a discount rate of 8% based on the higher risk of HelloFresh
and the structural challenges of the business model. However, the model is not that
sensitive to the discount rate as we show in Exhibit 109, where a -200 bps change in
the discount rate doesn't materially move the CLTV:CAC ratio.
◼ CAC: HelloFresh has never disclosed its CAC, but we calculate it to be around €75-
€150 based on net new customer adds divided by marketing spend over time. We use
€75 as guided by the company but also provide the sensitivity to CAC in Exhibit 108.
Even at €25 and the same retention rates, the CLTV:CAC ratio is still only 2.4x (weak
vs. best practice).
EXHIBIT 108: Sensitivity to retention and CAC is strong; to believe in a best practice CLTV:CAC ratio, you need to
believe CAC is divided by three and retention improves by +1000 bps
Source: Company reports, and Bernstein estimates (all data) and analysis
EXHIBIT 109: Discount rate has a limited impact on the
CLTV:CAC ratio
EXHIBIT 110: Product discount levels also have a limited
impact on the CLTV:CAC ratio
Source: Company reports, and Bernstein estimates (all data) and analysis
Source: Company reports, and Bernstein estimates (all data) and analysis
-1000bps -500bps -200bps -100bps 0bps 100bps 200bps 500bps 1000bps
€ 25
1.5x 1.9x 2.2x 2.3x 2.4x 2.4x 2.5x 2.8x 3.2x
€ 50
0.8x 1.0x 1.1x 1.1x 1.2x 1.2x 1.3x 1.4x 1.6x
€ 75
0.5x 0.6x 0.7x 0.8x 0.8x 0.8x 0.8x 0.9x 1.1x
€ 100
0.4x 0.5x 0.5x 0.6x 0.6x 0.6x 0.6x 0.7x 0.8x
€ 125
0.3x 0.4x 0.4x 0.5x 0.5x 0.5x 0.5x 0.6x 0.6x
CLTV:CAC
Retention rate
CAC
Discount
rate
3-year
CLTV
CLTV:CAC
6.0% € 142 1.9x
6.5% € 141 1.9x
7.0% € 139 1.9x
7.5% € 137 1.8x
8.0% € 135 1.8x
8.5% € 134 1.8x
9.0% € 132 1.8x
9.5% € 130 1.7x
10.0% € 129 1.7x
Product
discount
%
3-year
CLTV
CLTV:CAC
0%
€ 72 1.0x
5%
€ 69 0.9x
10%
€ 65 0.9x
15%
€ 62 0.8x
20.0%
€ 59 0.8x
25%
€ 56 0.7x
30%
€ 52 0.7x
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HELLOFRESH: PAYING PEOPLE TO EAT
EXHIBIT 111: Reactivations are not a good thing, and are
growing (driving the retention improvement)
EXHIBIT 112: We expect retention ex. reactivations to be
low at ~10% in Q4
Source: Company reports
Source: Bernstein estimates (all data) and analysis
EXHIBIT 113: US segment discounts average 20-23%
EXHIBIT 114: International segment discounts average
16-20%
Source: Company reports, and Bernstein estimates (all data) and analysis
Source: Company reports, and Bernstein estimates (all data) and analysis
0%
20%
40%
60%
80%
100%
Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8
HelloFresh estimated customer
retention rates (Q1-Q8)
Discount & Ditch Regularly reactivated
Seasonal customers Frequent customers
US 2019FY 2020FY H1-2021
Orders 21 39 31
Meals 138 278 232
Revenue 1025 2073 1649
Revenue per meal (EUR) 7.4 7.5 7.1
Revenue per meal (USD) 8.6 8.7 8.2
Meals per order 6.7 7.2 7.6
Full price box for 8 meals
(inc. delivery) (USD)
85.9 85.9 85.9
Price per meal 10.7 10.7 10.7
Average discount % -20% -19% -23%
International 2019FY 2020FY H1-2021
Orders
17 36 30
Meals
143 323 261
Revenue
784 1676 1348
Revenue per meal (EUR)
5.5 5.2 5.2
Meals per order
8.5 9.1 8.8
Price per meal
6.5 6.5 6.5
Average discount %
-16% -20% -20%
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77
EXHIBIT 115: Standard trial offer in pop-up on HFG UK website
Source: Company website
If we use our trial experience as a benchmark (60% off + 3 x boxes at 40% off), although
we contributed €6.70, HelloFresh effectively paid us to eat at a -€45 EBIT when
accounting for marketing spend and SG&A (see Exhibit 117). This further demonstrated
the weakness in HelloFresh's pricing power, where it is giving away food for free on the idea
that consumers will change their behavior and stick with meal kits. However, based on our
retention analysis, this is not the case, with >90% of customers abandoning the product
after purchasing.
Given the high levels of markup (60-140%) on a commoditized food product, orders at a
40% discount are still contribution margin positive (12%) (see Exhibit 116). However, when
accounting for marketing spend and SG&A on a per order basis, EBIT contribution is
negative at -17%. Many reactivation offers that we receive are for 40% discounts, which
suggest that HelloFresh is propping up customer growth at the expense of profitability.
Our analysis below also reinforces our perspective that discounting is around the 20-25%
level. When we flow through procurement, fulfilment, marketing, and SG&A, we get to a
12% EBIT margin contribution. This is not too dissimilar to HelloFresh's contribution
margin in H1-21 of 10%. Exhibit 116 is slightly too generous on contribution margin, but
less aggressive on marketing & SG&A spend.
ANOTHER WAY TO LOOK AT IT:
TRIAL CUSTOMER ECONOMICS
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HELLOFRESH: PAYING PEOPLE TO EAT
EXHIBIT 116: Given the high levels of markup, orders at 40% discount are still contribution margin positive at
12%, but EBIT margin negative (-17%)
Source: Company reports, and Bernstein estimates (all data) and analysis
EXHIBIT 117: During our trial, we paid €6.70 to HFG, but it effectively paid us to eat with a -€45 EBIT
Source: Company reports, and Bernstein estimates (all data) and analysis
Discount level 0% 20% 40% 60%
Full-price AOV (2 people, 4
recipes) - $86 in USD
€ 74.1 € 74.1 € 74.1 € 74.1
Discount € 0.0 -€ 14.8 -€ 29.6 -€ 44.4
Net AOV (reported revenue) € 74.1 € 59.2 € 44.4 € 29.6
Procurement expenses per order
-€ 15.9 -€ 15.9 -€ 15.9 -€ 15.9
Fulfilment expenses per order -€ 23.2 -€ 23.2 -€ 23.2 -€ 23.2
Contribution margin € 35.00 € 20.19 € 5.38 -€ 9.43
Contribution margin % 47% 34% 12% -32%
Marketing spend per order -€ 8.3 -€ 8.3 -€ 8.3 -€ 8.3
Marketing as % revenue -11% -14% -19% -28%
SG&A per order -€ 4.7 -€ 4.7 -€ 4.7 -€ 4.7
SG&A as % revenue -6% -8% -11% -16%
EBIT € 22.00 € 7.19 -€ 7.62 -€ 22.43
EBIT margin % 30% 12% -17% -76%
My order contribution
Revenue
Contribution
Margin
EBIT
1 60% off € 29.6 -€ 9.4 -€ 22.4
2 40% off € 44.4 € 5.4 -€ 7.6
3 40% off € 44.4 € 5.4 -€ 7.6
4 40% off € 44.4 € 5.4 -€ 7.6
Total € 162.9 € 6.7 -€ 45.3
Margin % 4% -28%
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79
COMPANY CLTV CALCULATION
In its CMD presentation in December 2021, management also disclosed Exhibit 118 and
Exhibit 119 as an attempt to show its positive customer economics. However, we remain
unconvinced and do not think this disclosure contradicts our analysis. The big problem is
that HelloFresh looks at the issue at a contribution margin level, therefore failing to account
for marketing & SG&A (20% of sales), and the CAC.
◼ Exhibit 118 only shows the profitability to the contribution margin level, therefore
failing to consider the high cost of marketing (15%) and SG&A (4%). It is not a
particularly useful representation of customer profitability.
◼ Even at 40% discount (potentially order#2), HelloFresh can still turn a profit at the
contribution margin level (see Exhibit 116), which shows that order#2 can still be
heavily discounted and "profitable" at a contribution margin level. This is because it is
selling a commoditized product at significant markups (60-140% more expensive),
which leads to very strong gross margins. This means that Deliveries 2 and 3 in Exhibit
118, even if heavily discounted, will show a marginal contribution profit. It also means
that Delivery 1 in its exhibit is shown to be at a discount of 50-60% on average,
highlighting the high levels of discounting on the first order. We would also disagree
that orders 2, 3, and 4 lead to improved marginal contribution profit when many of the
introductory offers are 60% off on the first box and 40% off on the subsequent three
boxes (with that offer, there would be no change to profit over orders 2, 3, and 4).
◼ Exhibit 118 also fails to consider high churn levels, which means that the cumulative
lifetime value or cumulative marginal contribution profit is not as attractive, given that
many customers drop out somewhere between their first and fourth order.
◼ Looking at the CAC payback period, disclosed in the 2021 CMD (see Exhibit 119), we
also challenge the analysis because it again is only at a contribution margin level
(omitting wider marketing spend costs and SG&A), the calculation of CAC is unclear
(which marketing costs does it account for?), and the pandemic might've been a boost
(significant operating leverage on marketing spend and capacity constraints). We
don't think this CAC payback period disagrees with our analysis. If we stripped out
marketing spend and SG&A, our CLTV:CAC ratio would be 1.8x, but marketing spend
as a percentage of revenue would only be 3.3% (see Exhibit 120).
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EXHIBIT 118: HelloFresh's "CLTV" disclosure fails to consider marketing, SG&A, and high levels of churn
Source: Company reports
EXHIBIT 119: Marketing payback periods are improving, but the pandemic has been a boost; the analysis only
includes fulfillment and procurement expenses, and the CAC calculation is unclear
Source: Company reports
EXHIBIT 120: Excluding marketing spend & SG&A, CLTV:CAC ratio would be 1.8x, but this fails to account for
significant costs
Source: Company reports, and Bernstein estimates and analysis
Gross revenue per order € 62 € 62 € 62 € 62 Full price for 2 people, 3 meals in the US
Discount -€ 37 -€ 19 -€ 12 -€ 12 Calculation
% discount 60% 30% 20% 20% Bernstein calculation
Net / reported revenue per order € 25 € 43 € 50 € 50 Reported AOV ~50 EUR
Frequency per year 1 16 16 16 Reported order frequency
Contribution margin % 27% 27% 27% 27% Avg. achieved CM % over last few years
Retention marketing spend % 0% 0% 0% Backcalculated based on CAC to achieve target marketing spend
SG&A % 0% 0% 0% 0% Reported SG&A
Contribution € 13 € 214 € 214 € 214 Calculation
Net retention rate 30% 25% 20% Bernstein calculation
Net contribution € 7 € 64 € 54 € 43 Calculation
Discount rate 8%
3 year CLTV inc. discounting (NPV) € 135 Calculation
Customer Acquisition Cost (CAC) € 75
CLTV:CAC 1.8x Calculation
Total marketing spend modelled 3.3% Reported marketing spend ~15%
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WOULD YOU PAY 2X, 3X, OR 4X MORE TO EAT?
81
WOULD YOU PAY 2X, 3X, OR 4X MORE
TO EAT?
Putting HelloFresh's high price points into context
One of our key arguments against the long-term sustainability of HelloFresh is the relative
expense of a meal kit vs. cooking from scratch and the limitations on the TAM. In this
chapter, we look at the different recipes available over a five-week period and compare
them to the cost of cooking from scratch. We're also often asked about our thoughts on the
proposition in terms of recipes (variety and breadth) and the cost of the proposition, which
we dive into in depth in this chapter.
◼ Expensive and unaffordable. HelloFresh is ~125-300%+ more expensive than
cooking from scratch. On average, a HelloFresh meal for two people costs £3.90 to
cook vs. £11.60 for the meal kit box. This limits the TAM to the top two quintiles of
earners at a maximum and those who are least price-sensitive/elastic. Given the
pressures on global consumer spending and the high cost of the product, we are very
concerned about trading down over the next 12 months.
◼ Gross margins are high but should be higher. HelloFresh achieves a +65% gross
margin vs. a supermarket at 25-30%. HFG's procurement costs are roughly £3.70 vs.
£3.90 (retail price). Compared with a retailer's COGS, HelloFresh's are +35% higher
than a grocer. This could present long-term upside, but inflation and discounting will
pressure margins in the short term.
◼ Reducing prices by not passing on inflation is not enough. To open the TAM and be
competitive vs. grocers, HFG prices would need to be reduced by 30-50%. We've had
even more discounting — salespeople at the door (60% off), 15% off for a year, and
low ROI tube advertising! Pushing discounts to prop up sales is not a good thing.
◼ Value proposition is good. Lots of new flavors and recipes each week. Number of
repeat recipes is limited. More work could be done to vary themes (e.g., cheesy
caramelized pork/chicken) and to bring in more dietary alternatives.
In this chapter, we deconstruct the price of a HelloFresh box vs. the alternative of cooking
from scratch (using ingredients bought from a supermarket). Our view that the long-term
HelloFresh TAM is limited by affordability is reinforced by this analysis with the cost of a
HelloFresh meal being ~125-300%+ more expensive than cooking from scratch (see
Exhibit 122). Even if you were forced to buy whole items (e.g., one kilo of rice for a 200g
recipe and a whole jar of redcurrant sauce for a serving), HelloFresh meals would still be
more expensive on average at 20-30%+ (see Exhibit 123). On average, a HelloFresh meal
OVERVIEW
KEY CONCLUSIONS
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costs £3.90 to cook from scratch vs. £11.60 for one meal for two people using a
HelloFresh box (see Exhibit 121). This reinforces our view that HelloFresh is an expensive
product, that the TAM is limited to the top two quintiles of the population at maximum, and
that during a period of inflation, you would expect to see trading down to supermarkets as
a way to save money and offset inflationary pressures. To become more affordable,
HelloFresh has not historically passed on inflation as much as supermarkets, thereby
making its product relatively more affordable over 2016-21. However, not passing on
inflation is not enough to make the product more affordable. We think HelloFresh would
need to reduce its prices by over 30-50% to become price competitive (which would
significantly hurt margins). Price is the most important metric in grocery competition, and
almost all excess returns on pricing are competed away in a traditional grocery model. We
struggle to see HelloFresh's pricing strategy to be sustainable in the medium-to-long term.
◼ Methodology: We take the current HelloFresh meal box pricing of £33.48 for three
meals for two people (£28.49 cost of box and £4.99 delivery cost). We then get to a
cost per meal (i.e., for two people) of £11.16. We then take the ingredients and
quantities as listed on the HelloFresh website and gather prices for similar items from
Tesco's website. We take a mix of private label and branded products depending on
the type of product. We don't take the economy private label price but typically aim for
a mid-priced product. We create two measures: (1) adjusting for quantity used in the
recipe (e.g., 50% of a 500g bag of rice to represent the 250g used in the recipe); and
(2) buying whole items for recipes (e.g., attributing the full cost of a 500g bag of rice
for a recipe that only uses 250g).
Many would argue that over time, HelloFresh should be able to leverage its scale to improve
its gross margin and compete with grocers more effectively. We remain unconvinced on a
scale basis that the volume that a supermarket buys is significantly larger than HelloFresh.
HelloFresh bought food worth only €1Bn in the US in FY21, whereas Kroger bought up to
40x as much. HelloFresh is currently at ~65% gross margin vs. a supermarket at 25-30%.
We question why HelloFresh isn't making a higher gross margin when its procurement
costs per order are roughly £3.79 vs. the cost of buying the items at a supermarket of £3.90
(see Exhibit 124). If you assume that a supermarket is also making a 28% gross margin on
its products, then HelloFresh's COGS is approximately +35% more than a supermarket's
COGS. While this might suggest there is room to improve gross margin, we still think
HelloFresh is not big enough to drive scale and has fragmented sourcing (e.g., small scale
in Phoenix and New Jersey) (see Exhibit 124).
As a team, we're hypersensitive to any HelloFresh offer, but over the last few weeks, I've
had a traveling salesperson turn up at my door to sell me 60% off and 35% off for a month,
we've seen more tube advertising (which is low ROI above-the-line (ATL) advertising that
D2C brands shouldn't engage in), and recently we got an offer through our work "perks"
scheme to get 50% off and then 15% off for the next year (see Exhibit 127 and Exhibit
128). This level of discounting is clearly going to prop up the top line, but we don't think it is
sustainable in the long term.
GROSS MARGIN AND BUYING
SCALE ARE KEY TOPICS FOR
MANY INVESTORS
DISCOUNTING LEVEL APPEARS
TO BE INCREASING
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83
◼ When I told the salesperson at the door that I had already signed up to HelloFresh and
therefore the offer probably wasn't relevant, I was told that I should just sign up with
different email addresses. They encourage many people to sign up multiple times to
take advantage of the discounts. We think if you were to audit the HelloFresh customer
base and the real number of gross adds, it would be potentially a lot lower. Good for
the TAM (not quite as penetrated as expected), but bad for the health of the underlying
customer base.
There are 38 recipes on offer in the UK each week (see Exhibit 125), which we think offers
customers a strong range of choice, and we don't think HelloFresh needs to extend this out
to more recipes (at the expense of additional complexity). Repeated meals are relatively
limited, with only three to six meals (8-16% recipes) being repeated each week (see Exhibit
125), which we think is important to keeping the proposition fresh and interesting. These
are typically branded as "customer favorites" and are often on offer for several weeks
running (e.g., for the five weeks that we looked at, the halloumi and roasted pepper rigatoni
was on offer for all five weeks, and a Thai style pork rice bowl was on offer for four weeks).
◼ Although the number of repeated meals is relatively limited, when using HelloFresh for
a long period, several repetitive concepts are recycled (see Exhibit 129). While we
don't think this is necessarily a bad thing (in reality, if you were cooking for
yourself/your family, you are likely limited to a small number of recipes that you
repeat). However, we think when there is such a high premium for the product, that a
choice fatigue can set in with many of the recipes being similar in nature. For example,
Cheese and caramelized onion pork steaks are replaced by cheese and
caramelized chicken, which is basically the same. Or the cheesy Mexican style
beef hash becomes the cheesy Mexican style spiced burger. Or the curried
cottage pie becomes classic cottage pie.
Pasta fatigue: Of the 38 recipes on offer, seven or eight are typically pasta-based
each week.
◼ The types of meals have expanded recently with several different varieties, which
charge a premium vs. the standard offer. These categories allow for additional AOV
expansion, but are limited by the TAM (given the relative expense of the product
anyway), and add additional complexity with limited volume expected to be going
through these recipes. The categories include Premium (£2.99 extra per serving),
Street Food (£1.65-£2.99 extra per serving), Dinner & Dessert (£4.49 extra per
serving), Gastropub (£2.99 extra per serving), Steak Night (£3.49-£3.99 extra per
serving), Ultimate (£0.99-£1.49 extra per serving), and Premium Plus (£5.99 extra per
serving).
◼ Special meals: HelloFresh has several different meals on offer catering to different
diets. There are typically eight or nine vegetarian meals as well as six Weight Watchers
meals. This is good because it opens the TAM to a wider range of customers. Adding
more specialist dietary requirements could open the TAM further, but add significant
complexity to the business.
RANGE OF MEALS ON OFFER IS
RELATIVELY BROAD AND GOOD
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EXHIBIT 121: Cost of cooking from scratch for HelloFresh recipes
Source: Tesco website, company website, and Bernstein analysis
EXHIBIT 122: Premium of HelloFresh meal vs. cooking from scratch (adjusted for recipe quantities)
Source: Tesco website, company website, and Bernstein analysis
£4.97
£4.69
£4.48
£4.33
£4.22
£4.11
£4.03
£3.89
£3.81
£3.61
£3.59
£3.55
£3.51
£2.98
£2.79
£-
£2
£4
£6
£8
£10
£12
HelloFresh vs. cooking from scratch - HFG pricing vs. cost of items (adjusted for quantity
used in recipe)
£11.60 cost of HFG
meal for 1 meal for 2
people
300%
275%
218%
215%
211%
209%
193%
187%
177%
172%
164%
158%
149%
138%
125%
0%
50%
100%
150%
200%
250%
300%
350%
HelloFresh vs. cooking from scratch - HFG pricing vs. cost of items (adjusted for
quantity used in recipe)
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EXHIBIT 123: Premium of HelloFresh meal vs. cooking from scratch (buying whole items)
Source: Tesco website, company website, and Bernstein analysis
EXHIBIT 124: HelloFresh COGS breakdown vs. retail COGS
Source: Company website and Bernstein analysis
52%
45%
44%
39%
37%
36%
31%
23%
17%
13%
12%
0%
-1%
-2%
-8%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
HelloFresh vs. cooking from scratch - HFG pricing vs. cost of items
(buying whole items for recipes)
Metric
Average HFG meal cost £11.16
HelloFresh's cost of procurement 34%
COGS (HelloFresh) £3.79
Bernstein bottom up (Retail pricing) £3.90
HFG COGS vs. buying at a supermarket -3%
Retail gross margin % 28%
Retail COGS £2.81
HFG vs. retail COGS 35%
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EXHIBIT 125: HelloFresh — number of meals on offer
and repeated meals
EXHIBIT 126: HelloFresh time to prepare meals
Source: Company website and Bernstein analysis
Source: Company website and Bernstein analysis
EXHIBIT 127: Perks at Work HelloFresh offer — 15% off
on next 52 boxes!
EXHIBIT 128: HelloFresh London tube advertising —
60% off and 35% off on next three boxes
Source: Perks at Work email
Source: Bernstein photo
38 38 38 38 38
4 4
3 3
6
0
10
20
30
40
1 2 3 4 5
HelloFresh - no. of meal options and
repeated meals
No. of options Repeated meals
26%
7%
14%
22%
28%
3%
1%
0%
5%
10%
15%
20%
25%
30%
20 30 35 40 45 50 60
% of orders over five
-week
period
Minutes to prepare meal
HelloFresh - time to prepare meals
(% of orders over five weeks)
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EXHIBIT 129: HelloFresh recipes by type
Source: Company websites and Bernstein analysis
13%
16%
18%
21% 21%
13%
11%
11%
11% 11%
13%
11%
8%
8%
11%
5%
3% 3%
5%
8%
5%
5%
8%
5%
5%
8%
8%
5%
3%
5%
5%
5%
5%
3%
5%
3%
3%
8%
3%
3%
5%
3%
3%
11%
5%
5%
5%
3%
3%
5%
3%
5%
5%
5%
37%
26%
21%
18%
13%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
17th May 24th May 31st May 7th June 14th June
HelloFresh - mix of recipes by type (May-June 2022)
Pasta Curry Chicken & Noodles / stir-fry Fish &
Steaks Risotto Chilli Burger Mexican style
Rice bowl Skewers / kebabs Other
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EXHIBIT 130: Detailed HelloFresh ingredients by recipe and supermarket prices
Source: HelloFresh website, Tesco website, and Bernstein analysis
Recipe Ingredient Weight
Price per
ingredient
Item
weight
% used in
recipe
Weighted
price
Cheese and caramelised onion chicken Potatoes 450g £1.00 1kg 45% £0.45
Cheese and caramelised onion chicken Green beans 150g £0.77 220g 68% £0.53
Cheese and caramelised onion chicken Cheddar 30g £2.50 400g 8% £0.19
Cheese and caramelised onion chicken Onion marmalade 40g £1.00 295g 14% £0.14
Cheese and caramelised onion chicken Garlic 2 £0.25 Bulb 20% £0.05
Cheese and caramelised onion chicken Chicken fillet 2 £2.20 300g 100% £2.20
Beef meatballs in onion & redcurrant sauce Potatoes 450g £1.00 1kg 45% £0.45
Beef meatballs in onion & redcurrant sauce Garlic clove 2 £0.25 Bulb 20% £0.05
Beef meatballs in onion & redcurrant sauce Italian style herbs 1 sachet £1.00 18g 20% £0.20
Beef meatballs in onion & redcurrant sauce Panko breadcrumbs 10g £2.00 180g 6% £0.11
Beef meatballs in onion & redcurrant sauce Beef mince 240g £1.79 250g 100% £1.79
Beef meatballs in onion & redcurrant sauce Red onion 0.50 £0.21 1.00 50% £0.11
Beef meatballs in onion & redcurrant sauce Cheddar cheese 30g £2.50 400g 8% £0.19
Beef meatballs in onion & redcurrant sauce Broccoli fillets 200g £0.52 375g 53% £0.28
Beef meatballs in onion & redcurrant sauce Red wine stock paste 1 sachet £1.30 4.00 25% £0.33
Beef meatballs in onion & redcurrant sauce Redcurrant jelly 25g £1.50 340g 7% £0.11
Sausages and parsley mash Bell pepper 1 £0.48 1.00 100% £0.48
Sausages and parsley mash Red onion 1 £0.21 1.00 100% £0.21
Sausages and parsley mash Chantenay carrot 225g £0.04 1.00 300% £0.12
Sausages and parsley mash Caribbean style jerk 1 sachet £1.25 51g 20% £0.25
Sausages and parsley mash Caramelised onion sausages 4 £2.75 6.00 67% £1.83
Sausages and parsley mash Potatoes 450g £1.00 1kg 45% £0.45
Sausages and parsley mash Chicken stock paste 10g £1.19 4.00 25% £0.30
Sausages and parsley mash Mango chutney 1 sachet £1.10 230g 10% £0.11
Sausages and parsley mash Flat leaf parsley 1 bunch £0.47 30g 100% £0.47
Korma spiced prawn pilaf Basmati rice 150g £1.85 1kg 15% £0.28
Korma spiced prawn pilaf Vegetable stock paste 10g £1.19 4.00 25% £0.30
Korma spiced prawn pilaf Green beans 80g £0.77 220g 36% £0.28
Korma spiced prawn pilaf Carrot 1 £0.04 1.00 100% £0.04
Korma spiced prawn pilaf Lime 0.5 £0.17 1.00 100% £0.17
Korma spiced prawn pilaf Coriander 1 bunch £0.47 30g 100% £0.47
Korma spiced prawn pilaf King prawns 150g £1.99 150g 100% £1.99
Korma spiced prawn pilaf Low fat natural yoghurt 75g £0.85 500g 15% £0.13
Korma spiced prawn pilaf Onion marmalade 40g £1.00 295g 14% £0.14
Korma spiced prawn pilaf Garlic clove 1 £0.25 Bulb 20% £0.05
Korma spiced prawn pilaf Korma style paste 1 sachet £1.35 200g 20% £0.27
Cheesy chicken in tomato sauce and starchips Potatoes 450g £1.00 1kg 45% £0.45
Cheesy chicken in tomato sauce and starchips Green beans 200g £0.77 220g 100% £0.77
Cheesy chicken in tomato sauce and starchips Chicken breast 150g £2.20 300g 50% £1.10
Cheesy chicken in tomato sauce and starchips Shallot 1 £1.20 400g 10% £0.12
Cheesy chicken in tomato sauce and starchips Garlic 2 £0.25 Bulb 20% £0.05
Cheesy chicken in tomato sauce and starchips Cheddar cheese 30g £2.50 400g 8% £0.19
Cheesy chicken in tomato sauce and starchips Tomato passata 1 £0.45 1.00 1% £0.00
Cheesy chicken in tomato sauce and starchips Chicken stock paste 10g £1.19 4.00 25% £0.30
Cheese and caramelised onion pork steaks Potatoes 450g £1.00 1kg 45% £0.45
Cheese and caramelised onion pork steaks Pork steak 2 £3.00 4 (540g) 50% £1.50
Cheese and caramelised onion pork steaks Broccoli 1 £0.52 375g 100% £0.52
Cheese and caramelised onion pork steaks Mature cheddar cheese 30g £2.50 400g 8% £0.19
Cheese and caramelised onion pork steaks Onion marmalade 40g £1.00 295g 14% £0.14
Speedy sausage rigatoni Pork sausage meat 225g £2.00 375g 60% £1.20
Speedy sausage rigatoni Wheat rigatoni pasta 180g £0.75 500g 36% £0.27
Speedy sausage rigatoni Balsamic vinegar 1 sachet £1.00 250ml 10% £0.10
Speedy sausage rigatoni Sun dried tomato paste 1 sachet £2.20 130g 20% £0.44
Speedy sausage rigatoni Finely chopped tomatoes 1 pack £0.45 400g 100% £0.45
Speedy sausage rigatoni Chicken stock paste 10g £1.19 4.00 25% £0.30
Speedy sausage rigatoni Baby spinach 100g £0.93 250g 40% £0.37
Speedy sausage rigatoni Grated hard Italian style cheese 40g £1.35 50g 100% £1.35
Veggie bean chilli Bell pepper 1 £0.48 1.00 100% £0.48
Veggie bean chilli Red kidney beans 1 £0.60 400g 100% £0.60
Veggie bean chilli Basmati rice 150g £1.85 1kg 15% £0.28
Veggie bean chilli Mexican style spice mix 2 sachets £1.25 44g 50% £0.63
Veggie bean chilli Tomato puree 1 sachet £0.40 200g 20% £0.08
Veggie bean chilli Vegetable stock paste 10g £1.19 4.00 25% £0.30
Veggie bean chilli Finely chopped tomatoes 1 pack £0.45 400g 100% £0.45
Veggie bean chilli BBQ sauce 32g £1.15 250ml 15% £0.17
Veggie bean chilli Soured cream 75g £0.75 150ml 50% £0.38
Veggie bean chilli Baby spinach 40g £0.93 250g 16% £0.15
Creamy pea and onion marmalade linguine Hazelnuts 25g £2.60 200g 10% £0.26
Creamy pea and onion marmalade linguine Panko breadcrumbs 10g £2.00 180g 10% £0.20
Creamy pea and onion marmalade linguine Linguine 180g £0.75 500g 36% £0.27
Creamy pea and onion marmalade linguine Garlic clove 2 £0.25 Bulb 20% £0.05
Creamy pea and onion marmalade linguine Onion marmalade 40g £1.00 295g 14% £0.14
Creamy pea and onion marmalade linguine Vegetable stock paste 10g £1.19 4.00 25% £0.30
Creamy pea and onion marmalade linguine Crème fraiche 150g £0.95 300ml 50% £0.48
Creamy pea and onion marmalade linguine Peas 120g £0.55 900g 13% £0.07
Creamy pea and onion marmalade linguine Grated hard Italian style cheese 40g £1.35 50g 100% £1.35
Creamy pea and onion marmalade linguine Chives 1 bunch £0.70 20g 100% £0.70
Creamy tomato and green bean rigatoni Onion 1 £0.10 1.00 100% £0.10
Creamy tomato and green bean rigatoni Green beans 150g £0.77 220g 68% £0.53
Creamy tomato and green bean rigatoni Premium tomatoes 125g £1.70 250g 50% £0.85
Creamy tomato and green bean rigatoni Flat leaf parsley 1 bunch £0.47 30g 100% £0.47
Creamy tomato and green bean rigatoni Garlic 1 £0.25 Bulb 20% £0.05
Creamy tomato and green bean rigatoni Lemon 1 £0.30 1.00 100% £0.30
Creamy tomato and green bean rigatoni Wheat rigatoni pasta 180g £0.75 500g 36% £0.27
Creamy tomato and green bean rigatoni Courgette 1 £0.40 1.00 100% £0.40
Creamy tomato and green bean rigatoni Vegetable stock paste 10g £1.19 4.00 25% £0.30
Creamy tomato and green bean rigatoni Crème fraiche 112.5g £0.95 300ml 37% £0.35
Creamy tomato and green bean rigatoni Grated hard Italian style cheese 40g £1.35 50g 100% £1.35
Veggie fajita supernova tortizzas Corn on the cob 2 £1.19 2.00 100% £1.19
Veggie fajita supernova tortizzas Bell pepper 1 £0.48 1.00 100% £0.48
Veggie fajita supernova tortizzas Green pepper 1 £0.48 1.00 100% £0.48
Veggie fajita supernova tortizzas Tomato puree 1 sachet £0.40 200g 10% £0.04
Veggie fajita supernova tortizzas Mexican style spice mix 1 sachet £1.25 44g 20% £0.25
Veggie fajita supernova tortizzas Cheddar cheese 90g £2.50 400g 23% £0.56
Veggie fajita supernova tortizzas Soft tortilla 4 £1.00 8.00 50% £0.50
Veggie fajita supernova tortizzas Natural yoghurt 50g £0.85 500g 10% £0.09
Beef rogan josh style curry Green pepper 1 £0.48 1.00 100% £0.48
Beef rogan josh style curry Garlic clove 2 £0.25 Bulb 20% £0.05
Beef rogan josh style curry Ginger 1 £0.53 1.00 100% £0.53
Beef rogan josh style curry Basmati rice 150g £1.85 1kg 15% £0.28
Beef rogan josh style curry Flaked almonds 15g £1.50 100g 15% £0.23
Beef rogan josh style curry Beef mince 240g £1.79 250g 100% £1.79
Beef rogan josh style curry Rogan josh curry paste 1 sachet £2.30 283g 20% £0.46
Beef rogan josh style curry Tomato passata 1 pack £0.45 1.00 100% £0.45
Beef rogan josh style curry Chicken stock paste 10g £1.19 4.00 25% £0.30
Beef rogan josh style curry Natural yoghurt 75g £0.85 500g 15% £0.13
Serrano ham and butternut linguine Butternut squash 1 £1.20 1.00 100% £1.20
Serrano ham and butternut linguine Red onion 1 £0.21 1.00 100% £0.21
Serrano ham and butternut linguine Tenderstem broccoli 80g £1.60 200g 40% £0.64
Serrano ham and butternut linguine Garlic clove 1 £0.25 Bulb 20% £0.05
Serrano ham and butternut linguine Serrano ham 4 slices £1.19 80g 100% £1.19
Serrano ham and butternut linguine Linguine 180g £0.75 500g 36% £0.27
Serrano ham and butternut linguine Chicken stock paste 10g £1.19 4.00 25% £0.30
Serrano ham and butternut linguine Crème fraiche 150g £0.95 300ml 50% £0.48
Curried paneer style dal pie Puff pastry 1/2 roll £1.60 320g 50% £0.80
Curried paneer style dal pie Onion 1 £0.10 1.00 100% £0.10
Curried paneer style dal pie Carrot 1 £0.04 1.00 100% £0.04
Curried paneer style dal pie Garlic 2 £0.25 Bulb 20% £0.05
Curried paneer style dal pie Brown lentils 1 pack £0.60 390g 100% £0.60
Curried paneer style dal pie Paneer 1 pack £1.40 200g 100% £1.40
Curried paneer style dal pie Tomato puree 1 sachet £0.40 200g 10% £0.04
Curried paneer style dal pie Pasanda style seasoning 2 sachets £1.25 44g 20% £0.25
Curried paneer style dal pie Coconut milk 200ml £0.90 400ml 50% £0.45
Curried paneer style dal pie Vegetable stock paste 10g £1.19 4.00 25% £0.30
Chipotle pork taco and wedges Garlic 1 £0.25 Bulb 20% £0.05
Chipotle pork taco and wedges Tomato 1 £0.75 1.00 100% £0.75
Chipotle pork taco and wedges Lime 0.5 £0.17 1.00 100% £0.17
Chipotle pork taco and wedges Cheddar cheese 30g £2.50 400g 8% £0.19
Chipotle pork taco and wedges Sweetcorn 150g £0.45 200g 50% £0.23
Chipotle pork taco and wedges Potatoes 450g £1.00 1kg 45% £0.45
Chipotle pork taco and wedges Pork mince 240g £2.25 500g 48% £1.08
Chipotle pork taco and wedges Tomato puree 1 sachet £0.40 200g 10% £0.04
Chipotle pork taco and wedges Chipotle paste 1 sachet £1.35 95g 10% £0.14
Chipotle pork taco and wedges Chicken stock paste 10g £1.19 4.00 25% £0.30
Chipotle pork taco and wedges Plain taco tortilla 4 units £1.00 8.00 50% £0.50
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READY, STEADY, COOK — A MEAL KIT
TASTE TEST
How meal kits from different providers compare
We often get asked: "Do you like the product?" Hence, we thought we'd test out a couple
of the options available to us in the UK: HelloFresh, Gousto, and Mindful Chef. Of course,
we signed up with heavy discounts, which were plentiful and, in this chapter, we walk
through the process, identifying the pros and cons of meal kits, and share lots of pictures
of our meals.
A meal kit service includes pre-portioned ingredients for three to five different recipes
packed into a box and delivered to home. It's meant to be easier and more varied than what
you might cook yourself. Plus, there are added benefits of saving time on deciding what to
cook and less wastage. All the ingredients are perfectly portioned for each meal; therefore,
you don't buy too much vs. a typical grocery shop.
EXHIBIT 131: Why HelloFresh? Reduce food waste, extensive choice, and convenience and quality
Source: Company website
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KEY CONCLUSION
Overall, we liked the food and thought it was a bargain with the heavy levels of discounting.
The recipes that we chose were newish or things we wouldn't typically cook. However, the
meals typically took a lot longer to cook than expected, with more complexity and clean up
than typical weekday meals. As the food retail & delivery team, we like food and cooking,
and meal kits didn't work for us during the week. Plus, while we were happy with value for
money at a discounted level, at full price, it's expensive and would add maybe 30% to the
weekly shopping.
There was relatively limited differentiation between the brands. Mindful Chef was the most
differentiated with a slightly more premium, better-quality offering.
The big question after trying the products was the trade-off between convenience and
value for the target audience. We found that we were spending more time each night
cooking (and the recipes typically took longer than expected). If the argument for the TAM
is to target more affluent, time-poor consumers, we don't think a meal kit solution solves
that problem. Ultimately, we think there's a contradictory customer proposition at the heart
of meal kits.
Verdict: Probably wouldn't use again.
HelloFresh and Gousto are broadly aligned on price, while Mindful Chef was more
expensive.
HelloFresh: We got a box for three meals for two people at 50% discount, which cost
£15.99 instead of £35.99 (£6 per serving).
Gousto: We paid £20.49 for four meals for two people with 50% off. Typically, a box for
three meals for two people would be £34.99 (£5.80 per serving).
Mindful Chef: We paid £39 with a £10 discount code for three meals for two people.
Typically, the box would cost around £49 (£8 per serving).
HelloFresh: (1) Baharat roasted chantenay carrot salad; (2) Roasted pepper and mushroom
linguine; and (3) Crispy Szechuan tofu
Gousto: (1) One-pot creamy chicken & vegetable fricassee; (2) Spicy chicken with green
quinoa and avocado; (3) Ultimate bacon cheeseburger with rosemary salted fries; and (4)
Joe's Popeye's Chicken with crispy potatoes
Mindful Chef: (1) Venison with roasted chestnuts, parsnips, and carrot; (2) Thai pork
meatballs with courgetti soup; and (3) West Indian red pepper and fish curry with rice
WHAT DID WE THINK?
BRAND/PRICE COMPARISON
RECIPE LIST
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Try new things: We both enjoyed cooking things that we might never have cooked at home
before. Or at the very least, using spices and ingredients that we don't use on a daily basis.
We had Zanzibar spiced carrots, Szechuan tofu, Popeye's chicken, and a chicken fricassee.
It made the week's food interesting vs. a typical week's meal plan.
Wide variety of choice available: Across all three players, there were 20-30 different
recipes to choose from in any given week. We didn't struggle to find the several different
recipes we liked.
Portion sizes: Overall, portion sizes were good, with enough food for two (and sometimes
leftovers for lunch the next day). There didn't appear to be any stinginess with meat or fish
(the more expensive components). Equally, there wasn't much food wastage.
Quality of ingredients: There were no issues with the quality of ingredients, with Mindful
Chef standing out with very good quality meat and fish. The venison steaks stood out as
great quality that you might not get in a local supermarket.
Time taken and complexity: Most of the meals took longer to prepare than expected, with
some taking over an hour to cook. They often used up three or four different dishes to cook
and prepare, and required equipment that you might not use on a weekday (e.g., a spiralizer
and a food processor).
Cost and value for money: While the deep discounts were attractive, it's an expensive
proposition at full price for which we couldn't see the value add. Even though the food was
more interesting, the trade-off of convenience and value didn't work for us.
EXHIBIT 132: Before — bacon cheeseburger
EXHIBIT 133: After — bacon cheeseburger with rosemary
salted fries
Source: Bernstein photo
Source: Bernstein photo
WHAT WE LIKED
WHAT WE DIDN'T LIKE
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HELLOFRESH
We tried a standard HelloFresh box consisting of three meals for two people, which we got
at a 50% discount, so it was £15.99 instead of £35.99. Overall, it was a positive experience
as we got to try meals that we might not usually cook (Szechuan, Zanzibar spiced food), and
the food was of decent quality and portion sizes. The downside is the packaging and the
value for money. We're conscious of how much waste we create and particularly with online
orders, we get through a lot of cardboard, but we felt the HelloFresh experience was very
wasteful (particularly the tiny 2-3g sachets of chili flakes). Plus, it wasn't great value for
money (particularly with vegetarian options) — we could have easily cooked the pasta meal
for four people for the same price as one HelloFresh serving.
Verdict: Enjoyed it as something to try, but won't be rushing back (particularly at full price).
New flavors were interesting: I like to consider myself a relatively competent and
adventurous cook, but three of the four recipes were nice surprises. Admittedly, this is
because I chose the most interesting recipes, but I'd never cooked a Zanzibar curry before,
nor made Szechuan tofu or Baharat spiced carrots. However, I later realized that many of
these flavors and concepts are just repeated with a different spice or name — so the
Zanzibar curry might become the Sri Lankan curry next week with very limited changes to
the recipe.
Portion sizes were generally good: Any meal with substantial carbs (pasta and rice) was
substantial and easily enough for two people. The only bit that was a slight letdown was on
some of the fresh items. If you're given small carrots for a carrot-based salad, it can leave
you hungry at the end of the meal.
Lots of packaging: There was lots of packaging for the box, the ingredients, and the chilled
items. Even the cardboard box that the food was delivered in was big (waste that you don't
get with an online grocery delivery). The ingredients themselves used lots more packaging
than cooking yourself. You get individual sachets of honey, stock powder, and seasoning
(see Exhibit 141 and Exhibit 142), which are often used in multiple recipes. The plastic
sachets add up!
Value for money: It didn't feel very value add or good value for money on some of the meals.
The pasta recipe in Exhibit 138 to Exhibit 140 was quite simple (tomato pasta with some
peppers and mushrooms) and would cost around £4.50 per service at full price. We sense
checked this vs. a Sainsbury's online shop, and could buy all the ingredients (except the
handful of walnuts) to make double the amount for £5.84, meaning that HelloFresh was 3x
as expensive.
WHAT WE LIKED
WHAT WE DID NOT LIKE
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EXHIBIT 134: Large cardboard box delivered, but clearly
branded
EXHIBIT 135: The box promotes the benefits of
sustainability: reducing waste, lower carbon
footprint, etc.
Source: Bernstein photo
Source: Bernstein photo
EXHIBIT 136: Each recipe individually bagged with a
clear number (linked to recipe) and chilled items in
separate bag
EXHIBIT 137: Recycled materials protecting chilled
items, but it is unclear if you could recycle the
packaging
Source: Bernstein photo
Source: Bernstein photo
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EXHIBIT 138: Example recipe card shows the required
ingredients and is numbered to link to the bag
EXHIBIT 139: Details and images of how to cook are
quite simple to follow, and there's lot of nutritional
information
Source: Bernstein photo
Source: Bernstein photo
EXHIBIT 140: Ingredients used in the pasta recipe
EXHIBIT 141: We got multiple sachets of stock powder,
which felt like a lot of plastic to throw away
Source: Bernstein photo
Source: Bernstein photo
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EXHIBIT 142: We liked the new and interesting spice
mixes
EXHIBIT 143: Szechuan tofu was something we'd not
cooked before
Source: Bernstein photo
Source: Bernstein photo
EXHIBIT 144: HelloFresh includes a booklet of
advertising with deeply discounted offers for other
D2C products
EXHIBIT 145: Finished article didn't look too dissimilar
to the recipe card
Source: Bernstein photo
Source: Bernstein photo
GOUSTO
We tried Gousto, a private competitor to HelloFresh, for eight meals. It cost £20.49,
because a 50% discount was automatically applied at the checkout — we didn't even need
a voucher code.
Overall, we liked the Gousto experience. The Ultimate Bacon Cheeseburger with rosemary
salted fries (who doesn’t love burger and fries) was our favorite. The experience and quality
were good. However, we think the relative cost of the product, the significant effort
required, and the need for equipment like a food processor means that the
convenience/value trade off didn't work for us.
Verdict: Convenience vs. value didn't work for us, and we probably wouldn't try it again.
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Food tasted good with generous portion size: The recipes tasted good, with one-pot
creamy chicken and bacon cheeseburger tying for first place. Although the ingredients
were recommended for two people, we think it can easily serve three (even without the little
blunder we experienced as discussed below).
Good overall packaging: The box itself was sturdy and well-designed, dividing into
chilled/non-chilled section, neatly with sustainable material (including icebag) (see Exhibit
150 and Exhibit 151).
Long use by dates and better quality than expected: The meat lasted between five and eight
days from the day of receipt (see Exhibit 152). This is much longer than our experience with
HelloFresh, which usually expires if we don’t finish them by Saturday for a Tuesday box.
Longer shelf life is a huge plus for us, as it allowed us some flexibility in our meal planning
throughout the week. For example, if we made plans for one evening, it meant that we didn't
cook. The fresh ingredients were also of relatively good quality.
Good value at 50% discount automatically applied: We were very happy about their
customer service in terms of automatically applying the 50% off our first box — we didn't
even have to Google it (not that it would take long to find a discount code in this instance)
(see Exhibit 153)!
Inaccurate time requirements: The indicated time requirement for each recipe assumes
that the user knows each of the steps by heart and can plan efficiently between the steps.
We timed our cooking from the second of starting to read the recipe to serving on plates
and it turned out to be 25-70% longer (average 40-50 minutes) than the indicated time
requirement. This is a big time investment, especially when you also consider the cleanup
afterwards.
Packaging of ingredients is terrible: We did not take the ingredients out of recipe bags to
take photos for Exhibit 147 to Exhibit 149 — they came loose in the box. While it helps
reduce packaging, it becomes a bit annoying when it comes to storage and cooking,
compared with HelloFresh, where ingredients for each recipe are bagged together. Apart
from the fact that one would have to check against the recipe back and forth to grab the
correct ingredients, it becomes a bit problematic when multiple recipes share same
ingredient, such as potatoes that vary by size — and we made the mistake of using up all
the potatoes between two recipes when they are in fact allocated for three.
No expiry date for fresh produce: Another problem with loose items is that we cannot
ascertain the expiry date of fresh produce, which can be frustrating. In addition, there was
no expiry date even for the very few that do have packaging (see Exhibit 158).
Need special equipment: Two of our recipes required special equipment as a key part of
the cooking process, particularly a food processor. It adds time and complexity to the
dishes, and we would imagine very few people use a food processor on a typical evening
cooking (see Exhibit 159). These requirements were not visible when choosing the recipes,
and one would have to delve into the details of each recipe (and deliberately look for it) in
order to find the information (see Exhibit 160 and Exhibit 161). Not having the food
WHAT WE LIKED
WHAT WE DID NOT LIKE
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processor means the user will not be able to enjoy the spicy chicken they ordered (at least
not with the sauce).
EXHIBIT 146: Our four recipes from Gousto, a marketing
brochure, and the celebratory red box
EXHIBIT 147: One-pot creamy chicken and vegetable
fricassee ingredients and recipe
Source: Bernstein photo
Source: Bernstein photo
EXHIBIT 148: Joe's Popeye's chicken with crispy
potatoes ingredients and recipe
EXHIBIT 149: Spicy chicken with green quinoa and
avocado ingredients and recipe
Source: Bernstein photo
Source: Bernstein photo
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EXHIBIT 150: Good box design with no plastic; very
sturdy with recyclable cardboard separating
chilled/non-chilled
EXHIBIT 151: Sustainable icebag for chilled food
Source: Bernstein photo
Source: Bernstein photo
EXHIBIT 152: Protein's shelf life ranges from five to
eight days from receipt
EXHIBIT 153: 50% off on first box automatically applied
Source: Bernstein photo
Source: Bernstein photo
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EXHIBIT 154: One-pot creamy chicken and vegetable
fricassee
EXHIBIT 155: Joe's Popeye's chicken with crispy potatoes
Source: Company website
Source: Bernstein photo
EXHIBIT 156: Spicy chicken with green quinoa and
avocado
EXHIBIT 157: Loose fresh produce lumped in the box
Source: Bernstein photo
Source: Bernstein photo
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EXHIBIT 158: No expiry date for cherry tomatoes either
EXHIBIT 159: We would have wasted the meal and
needed to look for alternative if we didn't have a food
processor
Source: Bernstein photo
Source: Bernstein photo
EXHIBIT 160: No sign of extra requirements when
asking for meal choices…
EXHIBIT 161: …until you click on recipe to see the details
Source: Company website
Source: Company website
MINDFUL CHEF
We tried a Mindful Chef box, which was acquired by Nestlé (covered by Bruno Monteyne).
Mindful Chef positions itself as a slightly more premium brand focused on the provenance
and quality of ingredients. We got three meals for two people, and it cost £39 with £10 off,
typically £49 (which is significantly more expensive than HelloFresh or Gousto).
We enjoyed the Mindful Chef box and had some interesting recipes (venison steaks, pork
meatball soup with courgetti, and a West Indian fish curry). The quality of the food was great
(particularly the venison steaks), and we felt as though it was better quality than both
HelloFresh and Gousto. However, all the meals took longer than expected to cook, and I
was surprised that I needed a spiralizer (which I don't own) for one recipe.
Verdict: Highest quality and most interesting food, but expensive.
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Differentiated food offer: The recipes were the most different. We really liked all three
meals, particularly the venison steaks and the meatball courgetti soup. The choice on the
website was also probably the broadest, and it felt like there was something for everyone.
Quality of ingredients: The fish and meat were of good quality. The venison steaks cooked
very well and weren't tough. The fresh ingredients were also of good quality, including
unusual ingredients such as fresh chestnuts, although it did look like the courgettes had
been nibbled on by some type of animal in transit (see Exhibit 165).
Long use by dates: All the fresh meat and fish had a use by date of over a week, which was
good and gave us some flexibility when planning to cook each meal.
Time to cook and complexity of the meals: This was by far the most complex meal kit to
prepare. We had to make our own courgetti, which took longer than expected. The venison
meal was meant to take about 40 minutes, but it ended up taking over an hour with three
different pans and things in the oven. There's no way a venison steak is done after three to
four minutes, unless you like it blue.
Special equipment: We didn't realize we needed a spiralizer, which we didn't have, so we
ended up having to try and peel the courgettes into strips.
Value for money and lower discounting: We were disappointed that we couldn't get as high
a discount as an introductory offer, and although the meals were of good quality, they would
be nearly £8 per serving at full price.
EXHIBIT 162: Very vibrant Mindful Chef box
EXHIBIT 163: Box promotes the benefits of sourcing,
food waste, quality, and CO2 neutrality
Source: Bernstein photo
Source: Bernstein photo
WHAT WE LIKED
WHAT WE DIDN'T LIKE
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EXHIBIT 164: Recipes organized into bags, with
numbers linked to the recipe book and chilled items
in a separate compartment
EXHIBIT 165: Food was generally of good quality apart
from some dubious looking courgettes
Source: Bernstein photo
Source: Bernstein photo
EXHIBIT 166: Lots of ingredients for the venison meal —
cooking the venison, cavolo nero, sauce, and
vegetables separately
EXHIBIT 167: Venison steaks were of very good quality
Source: Bernstein photo
Source: Bernstein photo
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EXHIBIT 168: Portion sizes were good
EXHIBIT 169: Thai meatball courgetti soup was tasty
Source: Bernstein photo
Source: Bernstein photo
EXHIBIT 170: West Indian fish curry was well-portioned, and the fish quality was good
Source: Bernstein photo
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PROPRIETARY US CONSUMER MEAL
KIT SURVEY – PART 1
Meal kit users
OVERVIEW
We conducted a proprietary survey of 1,000 US consumers to understand their use of meal
kits, brand awareness, demographics, and perceptions of the products. In this chapter, we
detail the results of our survey focusing on those who have used a meal kit. Key conclusions
below:
◼ Our view of high TAM penetration is reinforced. 30% of respondents had used meal
kits, and TAM penetration is closer to ~40%. This is in line with our deep dive into
retention, which suggested TAM penetration of 35%. HelloFresh is burning through
its TAM at a rapid pace.
◼ NPS is very poor at -29, with 50% of meal kit users being detractors and only 22%
actively promoting meal kits. Value for money and food wastage/packaging are the
least attractive factors, while convenience of ordering and ease of cooking are the
most attractive factors.
◼ Discounting is a key driver of customer signups, with >50% of meal kit users citing it
as a reason to choose the product. 40% of meal kit users have reactivated once or
more than once, higher than HelloFresh disclosure (potentially highlighting the issue
of customers with multiple accounts).
◼ Retention is still a problem. Customer relationships are not long-lived. 80% have
churned at some point, with only 17% of meal kits users as continuous users. Only
21% have been using the service for more than six months. HelloFresh has the worst
retention relative to peers.
◼ Meal kit users tend to be younger, more affluent with younger or no children. They are
time-poor, enjoying cooking but using ready meals and food delivery services more
often than average. Despite being less sensitive to pricing, more affluent consumers
use discounts more, and have worse retention.
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KEY FINDINGS
◼ Population penetration is high. 30% of respondents said they had used meal kits (see
Exhibit 171). This is even higher when excluding less affluent consumers and focusing
on the TAM. TAM penetration is closer to ~40% (see Exhibit 172 and Exhibit 174),
which is in line with our detailed retention deep dive where we identified a TAM
penetration of 35%. This reinforces our view that HelloFresh is burning through its
TAM at a rapid pace, leading to significant challenges to long-term growth. Even if you
believe in lower price elasticity/pressure for the most affluent consumers, the high
penetration is concerning.
◼ HelloFresh has the highest brand recognition, with 85% of meal kit users recognizing
the brand, and it is the most used brand (see Exhibit 177 and Exhibit 178). This is
closely followed by Blue Apron with 80% recognition. HelloFresh is the largest player
in the market, and we would expect strong customer recognition.
◼ The smaller HelloFresh brands (EveryPlate, Green Chef, and Factor 75) all have lower
brand recognition among meal kit users (10-30%), which provides for greater growth
upside, but this will require more marketing spend to increase awareness. These
brands are also cannibalistic, with 60-70% of Green Chef or EveryPlate customers
having also used HelloFresh.
◼ Discounting is a key driver of customer signups, with >50% of meal kit users citing it
as a reason to choose the product (see Exhibit 179). In Chapter 6, we identified the
weakness in HelloFresh's brand positioning, with heavy 40-60% introductory and
reactivation discounting devaluing the brand, and average discounting being around
20%.
◼ 60% of meal kit users are no longer using meal kits, but 33% still say that they're using
meal kits at least monthly (see Exhibit 180). This is better than our expectations, where
we would have expected churn to be higher — closer to the 90% level. However, when
we put retention in the context of length of time using the product and reactivations,
we can see that 40% of customers only used the product once or for the trial period
(see Exhibit 182), while 40% of meal kit users have re-signed up once or more than
once (see Exhibit 183). This is significantly higher than management's disclosure,
which potentially highlights the issue of customers with multiple accounts taking
advantage of discounts.
◼ Customer relationships are not long-lived; 80% have churned at some point, with only
17% of meal kits users not stopping the service after signing up (see Exhibit 183). Only
21% of users have been using the service for more than six months (see Exhibit 182).
HelloFresh also has the worst retention relative to other players, with only 45% still
buying (see Exhibit 181).
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◼ Although more affluent consumers may be less sensitive to pricing, they appear to
have worse churn metrics (see Exhibit 184) and a higher use of discounts (see Exhibit
185). This makes us more concerned about the lack of stickiness with affluent
consumers. We think the TAM is more limited than what management claims due to
the inability of most customers to be able to afford the product (see Exhibit 173).
However, the weakness to retain the core affluent demographic and the high levels of
penetration are concerning to long-term growth.
◼ NPS of -29 is not good, with the majority of meal kit users being detractors (50%) and
only 22% of respondents actively promoting meal kits (see Exhibit 186). Value for
money and food wastage/packaging are the least attractive factors, while
convenience of ordering and ease of cooking are the most attractive factors (see
Exhibit 187). This is broadly the same as our own experience where we taste tested
the product, covered in Chapter 9. 20% of meal kit users say that value for money is
poor or very poor (see Exhibit 188). Most meal kit users are broadly happy with the
proposition, with 66% saying food quality is good or very good, 75% liking the
convenience of ordering, and 71% liking the recipe quality and variety.
◼ The survey reinforces our view of meal kit demographics with a skew toward younger,
higher income consumers with younger children (see Exhibit 194 to Exhibit 196).
There's a higher skew toward people who are working from home (see Exhibit 198),
which reinforces the risk of post-pandemic reset. Regionally, the mix is skewed toward
the Northeast and the Midwest, with the West and South being under-represented
(see Exhibit 197) — this is likely driven by the growth of HelloFresh in the Northeast,
and it is now opening new larger sites to help fulfill the West Coast (e.g., in Phoenix,
Arizona).
◼ Consumers are also more likely to be time-poor, enjoying cooking but using ready meals
and food delivery services more often (see Exhibit 199 to Exhibit 202). They are also
generally more digitally savvy, with 30% typically ordering their groceries online (see
Exhibit 203).
Methodology note: We conducted a survey of ~1,000 US consumers on December 1 and
December 2, 2021, using the Survey Monkey Audience Panel. The responses were broadly
nationally representative, weighted by gender, age, and income. 30% of participants had used
meal kits, for which we present the answers below. We think this sample is adequate for our
general purposes, but the small sample size and potential skew should be considered when
interpreting the analysis.
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EXHIBIT 171: 30% of respondents had used meal kit boxes — in line with our TAM penetration estimates of
25-35%
Note: Sample = 1,055
Source: Survey Monkey Panel and Bernstein analysis
EXHIBIT 172: Around 40% penetration of core demographic groups is a concern for long-term growth
Note: Sample = 1,055
Source: Survey Monkey Panel and Bernstein analysis
66%
53%
53%
41%
30%
11%
0%
10%
20%
30%
40%
50%
60%
70%
Bought individual
items D2C
Online grocery buy
online, pick up in
store
Food delivery
platforms
Online grocery
home delivery
Meal kit boxes None of the above
Have you ever used any of the following products or services?
19%
24%
33%
38%
41%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Under $29,999 $30,000 to $49,999 $50,000 to $74,999 $75,000 to $99,999 Over $100,000
Meal kit users: penetration of income groups
High penetration
of core TAM
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EXHIBIT 173: Even for the highest quintile of earners
(US), a HFG box takes up 46% of weekly food
spending
EXHIBIT 174: With ~40% penetration of food spending
quintiles, we think it is difficult for HFG to extend
into lower income groups due to affordability
Source: USDA, US Census Bureau, company websites, and Bernstein analysis
Note: Sample = 327
Source: Survey Monkey Panel and Bernstein analysis
EXHIBIT 175: Due to high churn, including lost
customers, HelloFresh has worked its way through at
least 24-25% of management's TAM
EXHIBIT 176: Churn is higher for more affluent groups,
with only 40-50% of consumers still using the
product
Source: Company reports, and Bernstein estimates (all data) and analysis
Note: Sample = 327
Source: Survey Monkey Panel and Bernstein analysis
US food
spending by
income quintile
Food spending
at home per
week
HFG box (three
meals, two
people)
Lowest quintile $54 117%
2nd quintile $71 89%
3rd quintile $85 74%
4th quintile $100 63%
Highest quintile $137 46%
19%
25%
33%
36%
43%
40%
0%
10%
20%
30%
40%
50%
$0-50 $50-75 $75-100 $100-125 $125-150 $150+
Meal kit users: penetration of
consumers by food spending per
week
5%
6%
24%
25%
0%
5%
10%
15%
20%
25%
30%
US International
HelloFresh: Active vs. total customer
TAM penetration %, Q2-21
Active customer TAM penetration %
Total customer TAM penetration %
47%
49%
57%
49%
42%
0%
10%
20%
30%
40%
50%
60%
Under
$29,999
$30,000 to
$49,999
$50,000 to
$74,999
$75,000 to
$99,999
Over
$100,000
Meal kit users: still using meal kits
penetration by income band
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MEAL KIT USERS
We conducted a survey of ~1,000 US consumers on December 1 and December 2, 2021,
using the Survey Monkey Audience Panel. The responses were broadly nationally
representative weighted by gender, age, and income. 30% of participants had used meal
kits, for which we present the answers below. We think this sample is adequate for our
general purposes, but the small sample size and potential skew should be considered when
interpreting the analysis.
Note: We asked respondents for their perspectives on different brands. HelloFresh, Green
Chef, EveryPlate, and Factor 75 are HelloFresh brands; Marley Spoon and Blue Apron are
not covered; Freshly is owned by Nestlé (covered by Bruno Monteyne); Home Chef is owned
by Kroger (covered by Brandon Fletcher); and Sun Basket is private (not covered).
HelloFresh has the highest brand recognition, with 85% of meal kit users recognizing the
brand, and it is the most used brand (see Exhibit 177 and Exhibit 178). This is closely
followed by Blue Apron with 80% recognition. HelloFresh is the largest player in the
market, and we would expect strong customer recognition.
The smaller HelloFresh brands (EveryPlate, Green Chef, and Factor 75) all have lower
brand recognition among meal kit users (10-30%), which provides for greater growth
upside, but this will require more marketing spend to increase awareness. These brands
are also cannibalistic, with 60-70% of Green Chef or EveryPlate customers having also
used HelloFresh.
EXHIBIT 177: HelloFresh has the strongest brand recognition; followed by Blue Apron, indicating greater potential
upside vs. smaller brands, but more marketing spend required
Note: Sample = 327
Source: Survey Monkey Panel and Bernstein analysis
85%
80%
52%
40%
32%
28%
25%
13%
10%
2%
3%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Meal kit users: Which meal kit brands have you heard of?
MEAL KIT USER SURVEY
RESPONSES
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EXHIBIT 178: HelloFresh was the most used meal kit at 60%, followed by Blue Apron; only ~15-16% of meal kit
users had used EveryPlate or GreenChef
Note: Sample = 327
Source: Survey Monkey Panel and Bernstein analysis
Discounting is a key driver of customer signups, with >50% of meal kit users citing it as a
reason to choose the product (see Exhibit 179). In Chapter 6, we identified the weakness
in HelloFresh's brand positioning, with heavy 40-60% introductory and reactivation
discounting devaluing the brand, and average discounting being around 20%.
EXHIBIT 179: Discounting is cited as the key driver for >50% of meal kit users
Note: Sample = 327
Source: Survey Monkey Panel and Bernstein analysis
60%
38%
18%
16%
15%
14%
12%
8%
7%
0%
10%
20%
30%
40%
50%
60%
70%
HelloFresh BlueApron Freshly EveryPlate Green Chef Home Chef Sun Basket Marley
Spoon
Factor 75
Meal kit users: Which meal kit brands have you used?
52%
37%
31%
21%
21%
20%
15%
0%
10%
20%
30%
40%
50%
60%
Received a
discount
Recommended
by a friend
Saw an advert Food quality Value for money Recipe choice Liked the brand
Meal kit users: Why did you choose these brands?
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60% of meal kit users are no longer using meal kits, but 33% still say that they're using
meal kits at least monthly (see Exhibit 180). This is better than our expectations, where we
would have expected churn to be higher — closer to the 90% level. However, when we put
retention in the context of length of time using the product and reactivations, we can see
that 40% of customers only used the product once or for the trial period (see Exhibit 182),
while 40% of meal kit users have re-signed up once or more than once (see Exhibit 183).
HelloFresh also has the worst retention relative to other players, with only 45% still buying
(see Exhibit 181).
Customer relationships are not long-lived; 80% have churned at some point, with only 17%
of meal kits users not stopping the service after signing up (see Exhibit 183). Only 21% of
users have been using the service for more than six months (see Exhibit 182).
EXHIBIT 180: 60% of meal kit users are no longer using
the product, but 33% say they're using it at least
monthly
EXHIBIT 181: HelloFresh has the worst retention of all
the brands, with only 45% of customers sticking
around
Note: Sample = 327
Source: Survey Monkey Panel and Bernstein analysis
Note: Sample = 327
Source: Survey Monkey Panel and Bernstein analysis
13%
12%
8%
7%
60%
0%
10%
20%
30%
40%
50%
60%
70%
Yes,
weekly
Yes, twice
a month
Yes,
monthly
Yes, less
than once
a month
No
Meal kit users: Are you still using a
meal kit? If so, how frequently?
84%
76%
71%
60%
56%
55%
45%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Meal kit users: % of consumers who
say they still use the product split by
brand
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EXHIBIT 182: 40% of meal kits users only used them
once or for a short time; only 21% have used them for
more than six months
EXHIBIT 183: 40% of users have reactivated at some
point, with only 17% of users having not stopped
using meal kits
Note: Sample = 327
Source: Survey Monkey Panel and Bernstein analysis
Note: Sample = 327
Source: Survey Monkey Panel and Bernstein analysis
Although more affluent consumers may be less sensitive to pricing, they appear to have
worse churn metrics (see Exhibit 184) and a higher use of discounts (see Exhibit 185). This
makes us more concerned about the lack of stickiness with affluent consumers. We think
the TAM is more limited than what management claims due to the inability of most
customers to be able to afford the product (see Exhibit 173). However, the weakness to
retain the core affluent demographic and the high level of penetration are concerns for
long-term growth.
EXHIBIT 184: Churn is actually worse for more affluent
consumers — over-indexing by +800 bps vs. those still
using meal kits
EXHIBIT 185: More affluent consumers are more likely
to use discounts, with 72% of those earning over
$100k using a discount
Note: Sample = 327
Source: Survey Monkey Panel and Bernstein analysis
Note: Sample = 327
Source: Survey Monkey Panel and Bernstein analysis
40%
27%
12%
21%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Once or for
a short
time/trial
period
2-3 months 6 months More than 6
months
Meal kit users: How long have
you/did you use meal kits for?
22%
18%
43%
17%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Yes, re-
signed up
once
Yes, re-
signed up
more than
once
No, I didn't
want to re-
sign up
No, I haven't
stopped
using it
Meal kit users: Have you ever re-
signed up for meal kits?
15%
15%
14%
14%
23%
16%
20%
19%
28%
36%
0%
20%
40%
60%
80%
100%
Still using meal kits Churned customers
Meal kit users: income split by those
still using meal kits vs. churned
customers
Under $29,999 $30,000 to $49,999
$50,000 to $74,999 $75,000 to $99,999
Over $100,000
55%
56%
62% 62%
72%
0%
10%
20%
30%
40%
50%
60%
70%
80%
Under
$29,999
$30,000
to
$49,999
$50,000
to
$74,999
$75,000
to
$99,999
Over
$100,000
Meal kit users: use of discounts by
income band % penetration
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An NPS of -29 is not good, with most meal kit users being detractors (50%) and only 22%
of respondents actively promoting meals (see Exhibit 186). Value for money and food
wastage/packaging are the least attractive factors, while convenience of ordering and
ease of cooking are the most attractive factors (see Exhibit 187). This is broadly the same
as our experience from taste tests as detailed in Chapter 9. 20% of meal kit users say that
value for money is poor or very poor (see Exhibit 188). Most meal kit users are broadly happy
with the proposition, with 66% saying food quality is good or very good, 75% liking the
convenience of ordering, and 71% liking the recipe quality and variety.
EXHIBIT 186: NPS of -29, with the majority being detractors and only 22% of respondents actively promoting
meals
Note: Sample = 327
Source: Survey Monkey Panel and Bernstein analysis
EXHIBIT 187: Value for money and food wastage/packaging are the least attractive factors, while convenience of
ordering and ease of cooking are the most attractive factors
Note: Sample = 327
Source: Survey Monkey Panel and Bernstein analysis
7%
3%
4%
4%
6%
14%
12%
16%
12%
7%
15%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
0 - Not
likely
1 2 3 4 5 6 7 8 9 10 - Very
likely
Detractor Neutral Promoter
Meal kit users: How likely are you to recommend meal kits to a friend or
colleague?
NPS = -29
4.1
4.0
3.9
3.8
3.6
3.4
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
Convenience of
ordering & delivery
Ease of cooking &
preparing
Recipe quality &
variety
Food quality &
portion sizes
Food wastage &
packaging
Value for money &
cost
Meal kit users: How would you rate your meal kit across these factors?
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EXHIBIT 188: Rating distribution for value for money
and cost
EXHIBIT 189: Rating distribution for food quality and
portion sizes
Note: Sample = 327
Source: Survey Monkey Panel and Bernstein analysis
Note: Sample = 327
Source: Survey Monkey Panel and Bernstein analysis
EXHIBIT 190: Convenience of ordering and delivery
EXHIBIT 191: Recipe quality and variety
Note: Sample = 327
Source: Survey Monkey Panel and Bernstein analysis
Note: Sample = 327
Source: Survey Monkey Panel and Bernstein analysis
17%
24%
38%
17%
3%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Very good Good Ok Poor Very poor
Meal kit users: How would you rate
meal kits for "value for money &
cost"?
24%
42%
26%
7%
1%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Very good Good Ok Poor Very poor
Meal kit users: How would you rate
meal kits for "food quality & portion
sizes"?
37%
38%
21%
3%
1%
0%
10%
20%
30%
40%
50%
Very good Good Ok Poor Very poor
Meal kit users: How would you rate
meal kits for "convenience of
ordering & delivery"?
28%
43%
24%
3%
1%
0%
10%
20%
30%
40%
50%
Very good Good Ok Poor Very poor
Meal kit users: How would you rate
meal kits for "recipe quality &
variety"?
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HELLOFRESH: PAYING PEOPLE TO EAT
EXHIBIT 192: Ease of cooking and preparing
EXHIBIT 193: Food wastage and packaging
Note: Sample = 327
Source: Survey Monkey Panel and Bernstein analysis
Note: Sample = 327
Source: Survey Monkey Panel and Bernstein analysis
◼ The survey reinforces our view of meal kit demographics with a skew towards
younger, higher income consumers with younger children (see Exhibit 194 to Exhibit
196). There's a higher skew toward people who are working from home (see Exhibit
198), which reinforces our thoughts on the risk of post-pandemic reset. Regionally,
the mix is skewed toward the Northeast and the Midwest, with the West and South
being under-represented (see Exhibit 197) — this is likely driven by the growth of
HelloFresh in the Northeast, and it is now opening new larger sites to help fulfil the
West Coast (e.g., in Phoenix, Arizona).
◼ Consumers are also more likely to be time-poor, enjoying cooking but use ready meals
and food delivery services more often (see Exhibit 199 to Exhibit 202). They are also
generally more digitally savvy, with 30% typically ordering their groceries online (see
Exhibit 203).
EXHIBIT 194: Meal kit consumers are more affluent…
EXHIBIT 195: …and younger…
Note: Sample = 327
Source: Survey Monkey Panel and Bernstein analysis
Note: Sample = 327
Source: Survey Monkey Panel and Bernstein analysis
32%
41%
19%
6%
2%
0%
10%
20%
30%
40%
50%
Very good Good Ok Poor Very poor
Meal kit users: How would you rate
meal kits for "ease of cooking &
preparing"?
25%
29%
30%
10%
5%
0%
5%
10%
15%
20%
25%
30%
35%
Very good Good Ok Poor Very poor
Meal kit users: How would you rate
meal kits for "food wastage &
packaging"?
15%
14%
19% 19%
32%
0%
5%
10%
15%
20%
25%
30%
35%
Under
$29,999
$30,000
to
$49,999
$50,000
to
$74,999
$75,000
to
$99,999
Over
$100,000
Meal kit users: income distribution
11%
33%
21%
16%
12%
7%
0%
5%
10%
15%
20%
25%
30%
35%
18-24 25-34 35-44 45-54 55-64 65+
Meal kit users: age distribution
MEAL KIT DEMOGRAPHICS
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EXHIBIT 196: …with a greater mix of people with
children under 10…
EXHIBIT 197: …and skewed toward the Northeast and
Midwest
Note: Sample = 327
Source: Survey Monkey Panel and Bernstein analysis
Note: Sample = 327
Source: Survey Monkey Panel and Bernstein analysis
EXHIBIT 198: High skew towards WFH
EXHIBIT 199: Meal kit users cook at home regularly…
Note: Sample = 327
Source: Survey Monkey Panel and Bernstein analysis
Note: Sample = 327
Source: Survey Monkey Panel and Bernstein analysis
20%
14%
23%
43%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Under 10 10-18 years
old
18 years old No children
Meal kit users: children
33%
22%
27%
17%
0%
5%
10%
15%
20%
25%
30%
35%
40%
Northeast West Midwest South
Meal kit users: regional distribution
29%
11%
18%
42%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
WFH all the
time
WFH 1-2
days p/w
WFH 3-4
days p/w
Not WFH
Meal kit users: WFH distribution
22%
40%
25%
13%
1%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Every day 3-5 times
per week
2-3 times
per week
Once or
twice a
week
Never
Meal kit users: Cook at home
frequency
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EXHIBIT 200: …but are more likely to use ready meals
EXHIBIT 201: …and to order food delivery regularly
Note: Sample = 327
Source: Survey Monkey Panel and Bernstein analysis
Note: Sample = 327
Source: Survey Monkey Panel and Bernstein analysis
EXHIBIT 202: They enjoy cooking…
EXHIBIT 203: …and over-index on online grocery
shopping
Note: Sample = 327
Source: Survey Monkey Panel and Bernstein analysis
Note: Sample = 327
Source: Survey Monkey Panel and Bernstein analysis
3%
16%
23%
38%
19%
0%
5%
10%
15%
20%
25%
30%
35%
40%
Every day 3-5 times
per week
2-3 times
per week
Once or
twice a
week
Never
Meal kit users: ready meal frequency
3%
6%
20%
43%
28%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Every day 3-5 times
per week
2-3 times
per week
Once or
twice a
week
Never
Meal kit users: food delivery
frequency
79%
21%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Yes No
Meal kit users: Do you like cooking?
69%
15%
15%
1%
0%
10%
20%
30%
40%
50%
60%
70%
80%
Go to the
store
Order online
for pick up in
store
Order online
for delivery
Other
Meal kit users: How do you typically
shop for groceries?
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PROPRIETARY US CONSUMER MEAL
KIT SURVEY – PART 2
Non-meal kit users and demographics
OVERVIEW
We conducted a proprietary survey of 1,000 US consumers to understand their use of meal
kits, brand awareness, demographics, and perceptions of the products. In this chapter, we
detail the results of our survey focusing on those who have never used a meal kit. This
complements part 1, which looked at meal kit users. Key conclusions below:
◼ High TAM penetration (30%+) and high brand recognition (70% non-meal kit users).
Non-meal kit users are aware of meal kits and highly aware of HelloFresh (70%
recognize it), which puts into question the ability to continue to grow at a 20% CAGR,
and the need for and effectiveness of marketing spend (e.g., is above-the-line TV
advertising required to grow brand awareness?)
◼ Price is important, and the product is too expensive. HelloFresh is a commoditized
grocery product, and grocery shoppers are highly price-sensitive. Within each income
group, nearly 60% of non-meal kit users said it was too expensive. The only exception
being those earning >$150k, where penetration was 40%. However, there are only
about 20 million US households that meet this definition, limiting the TAM potential.
◼ Discounting is strong, but not enough to make people buy. 40% non-meal kit users
have already received a discount code (mostly from HelloFresh) and chosen not to buy
the product. This reinforces our view that discounting is devaluing the proposition and
even at discounted prices, it is still relatively expensive compared to grocery shopping.
◼ We compare meal kit demographics vs. non-meal kit users. Meal kit customers skew
toward working from home (+1,800 bps over-index), earning over $100k (+1,200
bps), and have children under 10 years old (+800 bps). Meal kit customers tend to be
30-44-year-old.
KEY FINDINGS
Population penetration is high; 30% of respondents said they have used meal kits (see
Exhibit 204). This is even higher when excluding less affluent consumers and focusing on
the TAM. TAM penetration is closer to ~40%, in line with our detailed retention analysis in
Chapter 5, which identified a TAM penetration of 35%. This reinforces our view that
HelloFresh is burning through its TAM at a rapid pace, leading to significant challenges to
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long-term growth. Even if you believe in lower price elasticity/pressure for the most
affluent consumers, the high penetration is a concern.
HelloFresh has the highest brand recognition, with 70% of non-meal kit users recognizing
the brand, closely followed by Blue Apron at 63% (see Exhibit 205). This brings into
question the need for, and the effectiveness of, the high marketing spend. Brand
awareness is already there, but there needs to be targeted education on the products. We
question whether some of the more expensive, lower ROI marketing spend that HelloFresh
engages in (e.g., TV) is useful. As with meal kit users, recognition of other HelloFresh brands
(Green Chef, Every Plate, and Factor 75) was much lower at between 2% and 14%. This
provides greater upside for growth, but we think these brands are cannibalistic and require
greater marketing spend.
41% of non-meal kit users say they've received a discount code already, but decided not
to purchase (see Exhibit 206). Most of them received a HelloFresh code, but this is skewed
by HelloFresh's scale (see Exhibit 207). This reinforces our perspective that even at a
discounted price, the product is expensive, as it is essentially a commoditized grocery box.
We also think that the discounts are devaluing the brand proposition.
53% of non-meal kit users said they were too expensive and 33% said they don't like
subscriptions (see Exhibit 209). When looking at the demographics of those saying they're
too expensive, less affluent consumers are more likely to say they're too expensive, but
more affluent people were equally represented (see Exhibit 210 and Exhibit 211). Non-
meal kit users recognize the convenience of ordering and ease of cooking as the most
attractive factors, but are equally concerned about the cost of the product and food
wastage/packaging issues (see Exhibit 208).
Meal kit users skew toward 30-44-year-olds, over-indexing by +1,200 bps (see Exhibit
213). Meal kit users under-index on over 60-year-olds by -1,500 bps at 14% of users vs.
29% non-meal kit users.8
More likely to have children under 10 years old, over-indexing by +800 bps (see Exhibit
214). Less likely to have children over 18, but equally as likely to have no children.
Significant skew (1,700+ bps) toward more affluent consumers (those earning more than
$75k) (see Exhibit 215). 32% of meal kit users earn >$100k vs. 20% of the non-meal kit
population. Half as many meal kit users earn under $30k as non-meal kit users. 45% of
meal kit users spend >$100 on food p/w vs. 40% of total population (see Exhibit 216).
58% of meal kit users are currently working from home at least some of the time vs. only
40% of the non-meal kit users (see Exhibit 220). However, this is likely linked to the fact
that meal kit users are more affluent and, therefore, more likely to be in jobs that enable
remote working.
Meal kit users are likely to enjoy cooking (see Exhibit 224) and cook at home relatively
regularly. However, they are much more likely to also use ready meals (see Exhibit 222) and
DEMOGRAPHICS — MEAL KIT
USERS VS. NON-USERS
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121
use food delivery more regularly. 72% use food delivery at least once a week vs. only 37%
of non-meal kit users (see Exhibit 223).
Meal kit users are more likely to already buy their groceries online with digital penetration
of 30% vs. just 17% for non-meal kit users (see Exhibit 225).
Meal kit users are more likely to shop at Trader Joe's, Kroger, Whole Foods, Safeway, and
Stop & Shop,
2
which represents their focus on fresh food, quality, affluent demographics,
and regional skew towards the Northeast (see Exhibit 226).
Methodology note: We conducted a survey of ~1,000 US consumers on December 1 and
December 2, 2021, using the Survey Monkey Audience Panel. The responses were broadly
nationally representative weighted by gender, age, and income. 30% of participants had used
meal kits, for which we present the answers below. We think this sample is adequate for our
general purposes, but the small sample size and the potential skew should be considered when
interpreting the analysis.
NON-MEAL KIT USERS
We conducted a survey of ~1,000 US consumers on December 1 and December 2, 2021.
This was conducted using the Survey Monkey Audience Panel, and the responses were
broadly nationally representative weighted by gender, age, and income. We split our survey
after question 1 to focus on non-meal kit users vs. meal kit users to understand their
perspectives on meal kits. 30% of participants had used meal kits, for which we present
the answers below. We think this sample is adequate for our general purposes, but the
small sample size and the potential skew should be considered when interpreting the
analysis.
Note: We asked respondents for their perspectives on different brands. HelloFresh, Green
Chef, EveryPlate, and Factor 75 are HelloFresh brands; Marley Spoon and Blue Apron are
not covered; Freshly is owned by Nestlé (covered by Bruno Monteyne); Home Chef is owned
by Kroger (not covered); and Sun Basket is private (not covered).
Population penetration is high; 30% of respondents said they had used meal kits (see
Exhibit 204). This is even higher when excluding less affluent consumers and focusing on
the TAM. TAM penetration is closer to ~40% (see Exhibit 205 and Exhibit 207), in line with
our detailed retention deep dive, which identified a TAM penetration of 35%. This
reinforces our view that HelloFresh is burning through its TAM at a rapid pace, leading to
significant challenges to long-term growth. Even if you believe in lower price
elasticity/pressure for the most affluent consumers, the high penetration is a concern.
2
Trader Joe's (private, not covered); Whole Foods (owned by Amazon, covered by Mark Shmulik); Kroger (not covered);
Safeway (part of Albertsons, not covered); Stop & Shop (owned by Ahold Delhaize).
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EXHIBIT 204: 30% of respondents had used meal kit boxes — in line with our TAM penetration estimates of 25-
35%
Note: Sample = 1,055
Source: Survey Monkey Panel and Bernstein analysis
HelloFresh has the highest brand recognition, with 70% of non-meal kit users recognizing
the brand, closely followed by Blue Apron at 63% (see Exhibit 205). As with meal kit users,
recognition of other HelloFresh brands (Green Chef, Every Plate, and Factor 75) was much
lower at between 2% and 14%. This provides greater upside for growth, but we think these
brands are cannibalistic and require greater marketing spend to grow awareness.
EXHIBIT 205: HelloFresh has the highest brand recognition, but new brands are not known and will require
significant marketing spend in the future to build awareness
Note: Sample = 763
Source: Survey Monkey Panel and Bernstein analysis
66%
53%
53%
41%
30%
11%
0%
10%
20%
30%
40%
50%
60%
70%
Bought individual
items D2C
Online grocery buy
online, pick up in
store
Food delivery
platforms
Online grocery
home delivery
Meal kit boxes None of the above
Have you ever used any of the following products or services?
70%
63%
36%
20%
14%
13%
7%
4%
2%
0%
10%
20%
30%
40%
50%
60%
70%
80%
HelloFresh Blue Apron Freshly Home Chef Green Chef EveryPlate Sun Basket Marley
Spoon
Factor 75
Non-meal kit users: Which meal kit brands have you heard of?
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123
41% of non-meal kit users say that they've received a discount code already, but decided
not to purchase (see Exhibit 206). Most of them received a HelloFresh code, but this is
skewed by HelloFresh's scale (see Exhibit 207).
EXHIBIT 206: 41% of non-meal kit users have already
received a discount code
EXHIBIT 207: 66% of those who received a discount got
it from HelloFresh, well above other brands
Note: Sample = 763
Source: Survey Monkey Panel and Bernstein analysis
Note: Sample = 194
Source: Survey Monkey Panel and Bernstein analysis
EXHIBIT 208: For non-meal kit users, convenience of ordering and cooking came out as top-rated factors, while
value for money was rated as the least attractive feature of meal kits
Note: Sample = 763
Source: Survey Monkey Panel and Bernstein analysis
The top reason for not trying meal kits was that they are too expensive. 53% of non-meal
kit users said that they were too expensive, followed by not liking subscriptions as the
second reason. Interestingly, we found that 19% enjoy cooking, which means that they
41%
59%
0%
10%
20%
30%
40%
50%
60%
70%
Yes No
Non-meal kit users: Have you ever
received a discount code for a meal
kit?
66%
14%
23%
0%
10%
20%
30%
40%
50%
60%
70%
HelloFresh Blue Apron Not known
Non-meal kit users: Of those who
received a discount, which brand was
it from?
3.7
3.6
3.5
3.3
3.1
2.9
1
1.5
2
2.5
3
3.5
4
4.5
5
Convenience of
ordering & delivery
Ease of cooking &
preparing
Recipe quality &
variety
Food quality &
portion sizes
Food wastage &
packaging
Value for money &
cost
Score (1=Very Poor; 5=Very Good)
Non-meal kit users: When thinking about meal kits, how would you rate the idea
across the following factors? (Weighted average score)
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HELLOFRESH: PAYING PEOPLE TO EAT
wouldn't try, while only 10% said that they don't enjoy cooking. This suggests that the meal
kit box proposition is less likely to be attractive to those who cook regularly.
Amongst other free form entries for reasons for not trying meal kits, some of the most
common were: (1) Large family and wanting to teach kids to cook and eat healthily; (2)
allergies and dietary requirements; (3) being a picky eater; and (4) suspicious of food quality
and ingredients or like to choose ingredients in the store.
EXHIBIT 209: Top reasons for not using meal kits were that they are too expensive and people don't like the
business model
Note: Sample = 763
Source: Survey Monkey Panel and Bernstein analysis
EXHIBIT 210: Less affluent consumers more likely to
say they're too expensive…
EXHIBIT 211: …but still a relatively broad mix of
families says they're too expensive
Note: Sample = 408
Source: Survey Monkey Panel and Bernstein analysis
Note: Sample = 408
Source: Survey Monkey Panel and Bernstein analysis
53%
33%
25%
20%
19%
18%
10%
7%
8%
0%
10%
20%
30%
40%
50%
60%
Too
expensive
Don't like
subscriptions
Doesn't fit
my lifestyle
Choice of
meals
Enjoy
cooking
Food quality
concerns
Don't like
cooking
Never heard
of meal kits
Other
Non-meal kit users: Why haven't you tried meal kits?
207
303
66
-266
-137
-197
-319
(400)
(300)
(200)
(100)
-
100
200
300
400
Non-meal kit users & too expensive:
over/under-index vs. sample
57%
58%
53%
49%
57%
58%
40%
0%
10%
20%
30%
40%
50%
60%
70%
Non-meal kit users: % say too
expensive by income group
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125
59% of those who hadn't tried the product said that they would try it if given a discount (see
Exhibit 212). 38% said they wanted more food choices. Amongst freeform text answers,
the most often cited reasons to make people try the product were: (1) free food and heavy
discounts, including "You'd have to pay me to try them"; (2) allergy and dietary
requirements; (3) larger portion sizes; (4) less packaging; and (5) nothing — "I have no
interest" was repeated several times.
EXHIBIT 212: Discounts were cited as the most important reason for making people try the product
Note: Sample = 750
Source: Survey Monkey Panel and Bernstein analysis
MEAL KIT VS. NON-MEAL KIT USER DEMOGRAPHICS
Meal kit users skew toward 30-44-year-olds, over-indexing by +1,200 bps (see Exhibit
213). Meal kit users under-index on over 60-year-olds by -1,500 bps at 14% users vs. 29%
of non-meal kit users.
◼ More likely to have children under 10 years old, over-indexing by +800 bps (see
Exhibit 214). Less likely to have children over 18, but equally as likely to have no
children.
◼ Significant skew (1,700+ bps) toward more affluent consumers (those earning more
than $75k) (see Exhibit 215). 32% of meal kit users earn >$100k vs. 20% of the non-
meal kit population. Half as many meal kit users earn under $30k as non-meal kit
users. 45% of meal kit users spend >$100 on food p/w vs. 40% of the total
population (see Exhibit 216).
◼ Weekly food spending is relatively stable, which makes meal kits an expensive product
for most households (affluent or not). It's also worth noting that food spending does
not change as much relative to the level of household income, as the difference
between users and non-users in high weekly food spending categories (>$100) is
much smaller than that of high household income categories (>$75k). This is
59%
38%
26%
20%
17%
8%
16%
0%
10%
20%
30%
40%
50%
60%
70%
Discount More food
choice
More information
about the
product
Easier / simpler
recipes
More convenient
delivery times &
ordering
Marketing
materials - e.g. a
flyer
Other (please
specify)
Non-meal kit users: what would make you try the product?
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HELLOFRESH: PAYING PEOPLE TO EAT
consistent with our findings on the high use of discounts across income brackets (see
Exhibit 218).
◼ 58% of meal kit users are currently working from home at least some of the time vs.
only 40% of non-meal kit users (see Exhibit 220). However, this is likely linked to the
fact that meal kit users are more affluent and, therefore, more likely to be in jobs that
enable remote working.
◼ Meal kit users are likely to enjoy cooking (see Exhibit 224) and cook at home relatively
regularly. However, they are much more likely to also use ready meals (see Exhibit 222)
and use food delivery more regularly. 72% use food delivery at least once a week vs.
only 37% of non-meal kit users (see Exhibit 223).
◼ Meal kit users are more likely to already buy their groceries online with digital
penetration of 30% vs. just 17% for non-meal kit users (see Exhibit 225).
◼ Meal kit users are more likely to shop at Trader Joe's, Kroger, Whole Foods, Safeway,
and Stop & Shop,
3
which represents their focus on fresh food, quality, affluent
demographics, and regional skew toward the Northeast (see Exhibit 226).
EXHIBIT 213: Over-indexing on 30-44-year-olds, under-
indexing on over 60-year-olds
EXHIBIT 214: More likely to have young children (<10
years old), but equally likely to have no children at all
Note: Sample = 1,055
Source: Survey Monkey Panel and Bernstein analysis
Note: Sample = 1,055
Source: Survey Monkey Panel and Bernstein analysis
3
Trader Joe's (private, not covered); Whole Foods (owned by Amazon, covered by Mark Shmulik); Kroger (not covered);
Safeway (part of Albertsons, not covered); Stop & Shop (owned by Ahold Delhaize).
27%
24%
35%
23%
24%
25%
14%
29%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Meal kit users Non-meal kit users
Meal kit vs. non-meal kit users: age
18-29 30-44 45-60 60+
20%
12%
14%
15%
23%
31%
43%
42%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Meal kit users Non-meal kit users
Meal kit vs. non-meal kit users: children
Under 10 10-18 years old 18 years old No children
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127
EXHIBIT 215: 1,700+ bps skew toward more affluent
consumers (earning >$75k)
EXHIBIT 216: Skew toward those who spend more on
food per week, with 45% spending >$100 p/w
Note: Sample = 1,055
Source: Survey Monkey Panel and Bernstein analysis
Note: Sample = 1,055
Source: Survey Monkey Panel and Bernstein analysis
EXHIBIT 217: Churn is worse for more affluent
consumers — over-indexing by +800 bps vs. those still
using meal kits
EXHIBIT 218: More affluent consumers are more likely
to use discounts, with 72% of those earning over
$100k using a discount
Note: Sample = 327
Source: Survey Monkey Panel and Bernstein analysis
Note: Sample = 205
Source: Survey Monkey Panel and Bernstein analysis
15%
29%
14%
19%
19%
18%
19%
14%
32%
20%
0%
20%
40%
60%
80%
100%
Meal kit users Non-meal kit users
Meal kit vs. non-meal kit users: income
Under $29,999 $30,000 to $49,999
$50,000 to $74,999 $75,000 to $99,999
Over $100,000
11%
20%
19%
26%
25%
23%
22%
17%
12%
7%
11%
7%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Meal kit users Non-meal kit users
Meal kit vs. non-meal kit users: weekly
spending on food
$0-50 $50-75 $75-100 $100-125 $125-150 $150+
15%
15%
14%
14%
23%
16%
20%
19%
28%
36%
0%
20%
40%
60%
80%
100%
Still using meal kits Churned customers
Meal kit users: income split by those
still using meal kits vs. churned
customers
Under $29,999 $30,000 to $49,999
$50,000 to $74,999 $75,000 to $99,999
Over $100,000
55%
56%
62% 62%
72%
0%
10%
20%
30%
40%
50%
60%
70%
80%
Under
$29,999
$30,000
to
$49,999
$50,000
to
$74,999
$75,000
to
$99,999
Over
$100,000
Meal kit users: use of discounts by
income band % penetration
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HELLOFRESH: PAYING PEOPLE TO EAT
EXHIBIT 219: Slight skew toward Northeast and
Midwest
EXHIBIT 220: Significant skew toward WFH
Note: Sample = 1,055
Source: Survey Monkey Panel and Bernstein analysis
Note: Sample = 1,055
Source: Survey Monkey Panel and Bernstein analysis
EXHIBIT 221: Meal kit users more likely to cook at
home…
EXHIBIT 222: …but also use ready meals more often…
Note: Sample = 1,055
Source: Survey Monkey Panel and Bernstein analysis
Note: Sample = 1,055
Source: Survey Monkey Panel and Bernstein analysis
33%
31%
22%
25%
27%
23%
17%
21%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Meal kit users Non-meal kit users
Meal kit vs. non-meal kit users: region
Northeast West Midwest South
29%
21%
11%
7%
18%
11%
42%
60%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Meal kit users Non-meal kit users
Meal kit vs. non-meal kit users: WFH
WFH all the time WFH 1-2 days p/w
WFH 3-4 days p/w Not WFH
22%
27%
40%
32%
25%
24%
13%
15%
1%
3%
0%
20%
40%
60%
80%
100%
Meal kit users Non-meal kit users
Meal kit vs. non-meal kit users: cooking at
home
Every day 3-5 times per week
2-3 times per week Once or twice a week
Never
3%
2%
16%
9%
23%
18%
38%
36%
19%
35%
0%
20%
40%
60%
80%
100%
Meal kit users Non-meal kit users
Meal kit vs. non-meal kit users: ready meal
usage
Every day 3-5 times per week
2-3 times per week Once or twice a week
Never
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129
EXHIBIT 223: …and much more likely to use food
delivery
EXHIBIT 224: Meal kit users enjoy cooking…
Note: Sample = 1,055
Source: Survey Monkey Panel and Bernstein analysis
Note: Sample = 1,055
Source: Survey Monkey Panel and Bernstein analysis
EXHIBIT 225: …and are more digitally savvy
EXHIBIT 226: Kroger, Trader Joe's, Whole Foods,
Safeway, and Stop & Shop over-index
Note: Sample = 1,055
Source: Survey Monkey Panel and Bernstein analysis
Note: Sample = 1,055
Source: Survey Monkey Panel and Bernstein analysis
APPENDIX: OUR SURVEY
We surveyed 1,055 US consumers on December 1 and December 2, 2021. The survey was
completed using Survey Monkey's Audience panel of US consumers and weighted
according to age and gender to be broadly nationally representative. Below, we show the
demographics of our sample across age, gender, income, and regions (see Exhibit 227 to
Exhibit 230).
3%
1%
6%
4%
20%
9%
43%
23%
28%
63%
0%
20%
40%
60%
80%
100%
Meal kit users Non-meal kit users
Meal kit vs. non-meal kit users: food
delivery usage
Every day 3-5 times per week
2-3 times per week Once or twice a week
Never
79%
72%
21%
28%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Meal kit users Non-meal kit users
Meal kit vs. non-meal kit users: do you like
cooking?
Yes No
69%
81%
15%
9%
15%
8%
0%
20%
40%
60%
80%
100%
Meal kit users Non-meal kit users
Meal kit vs. non-meal kit users: how do you
shop for groceries?
Other
Order online for delivery
Order online for pick up in store
Go to the store
-317
504
-1
83
145
-136
-246
560
165
-102
-400
-300
-200
-100
-
100
200
300
400
500
600
700
Meal kit vs. non-meal kit users: over/under-
index in shopping habits
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HELLOFRESH: PAYING PEOPLE TO EAT
EXHIBIT 227: Age distribution
EXHIBIT 228: Gender mix
Note: Sample = 1,055
Source: Survey Monkey Panel and Bernstein analysis
Note: Sample = 1,055
Source: Survey Monkey Panel and Bernstein analysis
EXHIBIT 229: Income distribution
EXHIBIT 230: Regional mix
Note: Sample = 1,055
Source: Survey Monkey Panel and Bernstein analysis
Note: Sample = 1,055
Source: Survey Monkey Panel and Bernstein analysis
12%
22%
18%
16%
15%
17%
HFG US Survey - Respondent age
distribution
18-24 25-34 35-44 45-54 55-64 65+
43.5%
56.5%
HFG US Survey - Respondent gender
mix
Male Female
10.4%
14.1%
17.7%
18.1%
15.8%
15.5%
8.3%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
HFG US Survey - Respondent income
distribution
Midwest,
22%
South,
33%
Northeast
, 21%
West,
24%
HFG US Survey - Respondent location
distribution
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131
FOUR KEY TAKEAWAYS FROM THE
2021 CMD
FY22 margins hit, medium-term guidance unchanged
HelloFresh disclosed the mid-term target on the FY21 CMD, which is expected to be
achieved through a suite of newly announced growth levers. We are not convinced of the
growth levers, and our view on the small TAM remains. We outline our thoughts along four
key themes below:
◼ Our fundamental views remain unchanged. The TAM is smaller, and the business
model is hard. TAM penetration is high (25-40%), pricing is a problem, and churn is
high (90% in Q4).
◼ Growth levers are unconvincing. New geographies and new product lines will likely
add to the top line, but other initiatives might have a small impact (e.g., breakfast, more
recipes, and grocery add-ons).
◼ The business is becoming more complex. New brands, customization, grocery add-
ons, and reduced lead times add to operational complexity, which puts into question
mid-term margins.
◼ Medium-term guidance was uninspiring and unchanged at €10Bn revenue and 10-
15% margins. We question mid-term margins as we expect growth investments to
continue.
◼ Our fundamental views remain unchanged. The TAM is smaller, and the business
model is hard. TAM penetration is high (25-40%), pricing is a problem, and churn is
high (90% in Q4). We are increasingly concerned that HelloFresh is burning its way
rapidly through its addressable market and will struggle to grow in the long term.
◼ Growth levers are unconvincing. New geographies and new product lines will likely
add to the top line, but other initiatives might have a small impact (e.g., breakfast, more
recipes, and grocery add-ons). We find management's attempt to grow into new areas
such as ready meals, add-ons, grocery items, and new categories confusing.
Management appears to be claiming that it can unbundle the current weekly shop and
rebundle it within its proposition (in its move toward being a food solutions group). This
will not work — HelloFresh cannot compete on range, price, or speed. It has cleverly
renamed "grocer" to "food solutions group."
◼ The business is becoming more complex. New brands, customization, grocery add-
ons, and reduced lead times add to operational complexity, which puts into question
OVERVIEW
SUMMARY
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HELLOFRESH: PAYING PEOPLE TO EAT
medium-term margins. Automation investments were vague, and we don't think the
technology is there yet. We cannot understand the rationale for investing in its own
last-mile delivery solution.
◼ Medium-term guidance was uninspiring and unchanged at €10Bn revenue and 10-
15% margins. We question mid-term margins as we expect growth investments to
continue. 2025 is not the end point — further investments will be required.
Nothing in the CMD changed our perspectives on the fundamentals of the business. We are
still concerned about the smaller TAM and the hard business model with high levels of
churn, discounting, and marketing spend.
◼ The TAM is smaller and far more penetrated than management claims. For example,
in the US, management claims a TAM of the top 60% of households (see Exhibit 231).
As we show in Exhibit 233, a HelloFresh (or EveryPlate) box would be completely
unaffordable for most third quintile households, as it would take up 74% of their
weekly spending. Suggesting that a third quintile family could sustainably purchase a
meal kit on a regular basis vastly overestimates consumer spending power and is out
of touch with how tightly most families control their food spending.
On TAM penetration, we think HelloFresh is at risk of burning through its
addressable market. Based on our analysis (when including lost customers), 25-
40% of the addressable customer base has already used a meal kit box and
churned (see Exhibit 232 and Exhibit 234). The flywheel of high churn, high
discounting, and high marketing spend is hurtling HelloFresh towards a brick wall
of TAM saturation. It'll have to maintain high levels of marketing spend to keep
acquiring the same customers over and over again (as we've seen with
reactivations increasing but marketing spend holding flat YoY). The effectiveness
of the marketing spend is in question, given the high levels of brand awareness
and high levels of reactivation.
◼ Pricing is an issue. Management tried to dismiss claims that the product was
expensive and that it has increasingly represented good value for customers.
However, it just pointed out its weak pricing power and inability to pass on price
increases given the high cost of the product as HelloFresh boxes have stayed the same
price even though the prices of other foodstuffs have increased due to inflation, while
still being poor value for money (see Exhibit 239). Relative to grocery products, a meal
kit is 1.6-2.4x more expensive than cooking from scratch or ready meals (see Exhibit
240), and 53% of those who don't use meal kits said they were too expensive (see
Exhibit 241). This is supplemented by a very poor net promoter score of -29 (when it
should be positive), as customers do not see meal kits as good value for money, and
don't like the wastage and packaging (see Exhibit 242).
◼ Retention is still very poor and reactivations are not a good thing. Management
showed a graph which shows net revenue retention improving over time (see Exhibit
235). However, we think this is reflective of growing reactivations (driven by discounts)
rather than a fundamental improvement in customer relationships (see Exhibit 236). If
(1) FUNDAMENTAL VIEWS
REMAIN UNCHANGED: TAM IS
SMALLER AND BUSINESS
MODEL IS HARD
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FOUR KEY TAKEAWAYS FROM THE 2021 CMD
133
you overlay the increasing reactivations for each year with their respective cohorts,
there is a relationship between improving retention and increasing reactivations. As
we identified in our deep dive into retention in Chapter 5, we expect retention ex.
reactivations to be low at ~10% of customers in Q4 (see Exhibit 237), and we are
increasingly concerned about how quickly HelloFresh is burning through customers
(see Exhibit 238) with very high TAM penetration of 25-40% (see Exhibit 232 and
Exhibit 234).
Reactivations are not a good thing. Typically driven by discounts, they
demonstrate poor consumer relationships and a lack of product fit with customer
lifestyles. Management often confusingly talks about two types of reactivations:
(1) a pause within a quarter when someone goes on holiday; and (2) a reactivation
after not purchasing for a quarter. A pause is not included in the numbers in Exhibit
236 and isn't an issue (people will naturally not buy every week). However, a
reactivation after a quarter of not buying reflects poor customer engagement in a
high frequency category (e.g., we buy groceries every week). We think most of
these are discount-driven (we get lots of high discounts close to quarter-end) and
built to prop up customer numbers in a quarter. Even if they have lower CAC, we
haven't seen marketing spend come down (we should have), which questions the
efficiency of marketing spend, and management has stated previously that
reactivated customers act just like new customers (e.g., 90% of them will churn
again by Q4).
EXHIBIT 231: Management claims very low TAM
penetration and a high TAM of 60% of US households
EXHIBIT 232: Based on our proprietary consumer
survey, ~40% of high earners had used a meal kit
*Total addressable market
Note:
1
Assumes 2.5 heads per household with 10 weekly meals from home
over 52 weeks;
2
Delivering 1 billion meals annually
Source: Company reports
Note: Sample = 327
Source: Survey Monkey Panel and Bernstein analysis
19%
24%
33%
38%
41%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Under
$29,999
$30,000 to
$49,999
$50,000 to
$74,999
$75,000 to
$99,999
Over
$100,000
Meal kit users: penetration of income
groups
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HELLOFRESH: PAYING PEOPLE TO EAT
EXHIBIT 233: A HelloFresh box is unaffordable for the
third quintile of families and challenging for the
fourth quintile
EXHIBIT 234: Based on our retention deep dive,
penetration of management's TAM is ~25%
Source: USDA, US Census Bureau, company websites, and Bernstein analysis
Source: Company reports, and Bernstein estimates (all data) and analysis
EXHIBIT 235: We don't think underlying retention is improving; instead, it is being propped up by reactivations
(which are not a good thing)
Source: Company reports
US food
spending by
income quintile
Food spending
at home per
week
HFG box (three
meals, two
people)
Lowest quintile $54 117%
2nd quintile $71 89%
3rd quintile $85 74%
4th quintile $100 63%
Highest quintile $137 46%
5%
6%
24%
25%
0%
5%
10%
15%
20%
25%
30%
US International
HelloFresh — Active vs. total
customer TAM penetration % Q2-21
Active customer TAM penetration %
Total customer TAM penetration %
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135
EXHIBIT 236: Reactivations are not a good thing and are
growing (driving the retention improvement)
EXHIBIT 237: We expect retention ex. reactivations to
be low at ~10% in Q4
*Company data - Being the reactivation % of total conversions for longest-
standing markets (DE, AU, BENELUX, GB) in the given quarter; Reactivation is
a canceled customer who restarts their subscription plan. Pausing and
unpausing customers are not treated as canceled
Source: Company reports
Source: Bernstein estimates (all data) and analysis
EXHIBIT 238: 13 million customers have been acquired and lost in the US, trying HelloFresh and not sticking with
the product over the last four years; we question the long-term trajectory for growth
Source: Company reports, and Bernstein estimates (all data) and analysis
0%
20%
40%
60%
80%
100%
Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8
HelloFresh estimated customer
retention rates (Q1-Q8)
Discount & Ditch Regularly reactivated
Seasonal customers Frequent customers
-0.3
-0.6
-0.9
-1.2
-1.6
-2.1
-2.7
-3.2
-3.6
-4.1
-4.7
-5.3
-5.9
-6.8
-8.2
-8.8
-10.0
-11.1
-13.0
0.4
0.6
0.7
0.8
0.9
1.2
1.1
1.1
1.1
1.4
1.4
1.5
1.8
2.6
2.0
2.5
2.6
3.7
3.8
-14
-12
-10
-8
-6
-4
-2
0
2
4
6
2016
Q3
2016
Q4
2017
Q1
2017
Q2
2017
Q3
2017
Q4
2018
Q1
2018
Q2
2018
Q3
2018
Q4
2019
Q1
2019
Q2
2019
Q3
2019
Q4
2020
Q1
2020
Q2
2020
Q3
2020
Q4
2021
Q1
2021
Q2
HFG - Total customer base (millions): active and lost customers (US)
Cumulative customers lost Active customers
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HELLOFRESH: PAYING PEOPLE TO EAT
EXHIBIT 239: HFG hasn't passed on price increases and,
therefore, has reduced price relative to other
foodstuffs, but it's still not good value
EXHIBIT 240: Meal kits are 1.6-2.4x the cost of cooking
from scratch or ready meals
Source: Company reports
Source: Company websites, and Bernstein estimates (all data) and analysis
EXHIBIT 241: 53% of non-meal kit users said they were
too expensive
EXHIBIT 242: Net promoter score of meal kit users is
very poor at -29 (should be at least positive)
Note: Sample = 763
Source: Survey Monkey Panel and Bernstein analysis
Note: Sample = 327
Source: Survey Monkey Panel and Bernstein analysis
The approach to growth was all encompassing with a wide range of growth levers. None of
these was new and seemed to build on 2020's strategy rather than convincing us of
materially new levers to grow TAM. We found management's description of the consumer
trends in the food industry contradictory. While we agree that the weekly shop is being
unbundled, we find management's attempt to grow into new areas such as ready meals,
add-ons, grocery items, and new categories confusing. Management appears to be
claiming that it can unbundle the current weekly shop and rebundle it within its proposition
(in its move toward being a food solutions group). This will not work — HelloFresh cannot
compete on range, price, or speed. It is 60-140% more expensive than a grocery store, is
£3.0
£2.1
£5.0
£11.3
£0
£4
£8
£12
Cook from
scratch
Ready meal Meal Kits Delivery
Avg. lasagna meal price (GBP)
Avg. lasagna meal price - UK
1.6 – 2.4x more
expensive
53%
33%
25%
20%
19%
18%
10%
7%
8%
0%
10%
20%
30%
40%
50%
60%
Non-meal kit users: Why haven't you
tried meal kits?
7.4%
3.1%
4.0%
3.7%
6.4%
14.1%
11.7%
16.0%
12.0%
6.7%
15.0%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
0 -
Not
likely
1 2 3 4 5 6 7 8 9 10 -
Very
likely
Detractor Neutral Promoter
Meal kit users: How likely are you to
recommend meal kits to a friend or
colleague?
NPS = -29
(2) GROWTH LEVERS ARE
UNCONVINCING
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at least 5x slower (five day lead time vs. next day for groceries), and 15x+ smaller (~1,000
market SKUs vs. a grocery store at 15-30k SKUs). Having said that, stocking up behavior is
"antiquated"; it wants to create a solution where you order weekly with a range of meals for
the week — this seems contradictory. There is nothing innovative in the solution except a
less consumer-friendly grocery offer delivered in a box with a less efficient supply chain,
worse consumer relationships, and less buying power. It has cleverly renamed "grocer" as
a "food solutions group."
EXHIBIT 243: The world of food and the weekly food shop is being unbundled — we agree!
Source: Company report
EXHIBIT 244: HelloFresh cannot compete with grocers on range, price, or speed; there is nothing innovative — it's
just renaming "grocer" to "food solutions group"
Source: Company report
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HELLOFRESH: PAYING PEOPLE TO EAT
As before, the growth levers focus on:
◼ (1) TAM Penetration: Continued growth in existing markets, acquiring new customers,
and capturing additional share of customer spend on food; this is supported by
increased convenience (quicker lead times), selection (more recipes), and value (better
price vs. market);
◼ (2) TAM Expansion: New brands (e.g., EveryPlate and GreenChef), new geographies
(e.g., Japan, Norway, and Italy), and new product lines (e.g., Ready to Eat (RTE) — Factor
75, YouFoodz); and
◼ (3) Additional monetization: Focuses on new meal occasions (e.g., breakfast) and add-
ons (e.g., HelloFresh Market and recipe customization).
In Exhibit 245, we rate each of the levers in terms of business benefit and ease of
implementation.
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EXHIBIT 245: We think new geographies and product lines have the greatest business benefit
Source: Company reports and Bernstein analysis
We question how complex the business has become or is becoming. Previously, HelloFresh
ran a simple business model where 15-30 recipes were packed in a box a week in advance
and shipped to the consumer. This model (despite high discounting, churn, and marketing
spend) had perks with high levels of inventory forecasting and control and labor
forecasting, which helped reduce cost. However, this is changing with the introduction of
new brands, more recipes, and shorter lead time, which make the business increasingly
complex. We question whether the medium-term EBITDA margin guidance is achievable,
given the fundamental changes in the business model. We outline below key changes that
we think complicate HelloFresh and pressure on margins and Capex:
Lever Initiative What is it?
Business
benefit
Complexity Bernstein perspective
Quicker lead
times
Go from 4-5 day lead times to 2-
3 days, speeding up delivery to
customer & cut off times
Low Easy
Quicker lead times would increase
competitiveness vs. grocers but 2-3 days is still
uncompetitive. This would reduce the
effectiveness of the supply chain and
inventory/labor forecasting.
More recipes
Increase from 35 recipes to 50-
100 recipes and full market
rollout of all brands
Low Medium
More recipes would help order frequency and
may attract some new customers (e.g., vegan).
It adds to complexity of operations in handling
combinations.
Value
Become more competitive on
price, reducing price vs market
by -25 to 40% vs. the 2016
baseline (2021 at -20 to -30%)
High Hard
Reducing prices would open up the TAM but
present significant challenge unit economics.
Price gap is significant vs. grocers.
New meal kit
brands
Rollout GreenChef (premium
offer) and EveryPlate (reduced
cost offer)
Low Hard
New brands are cannibalistic, require more
marketing spend, and the operations are
duplicated with dedicated sites to each brand.
Limited synergies & the same TAM.
New
geographies
Expand into new markets such
as Italy and Norway (both in
2021), and Japan (2022)
High Medium
New markets are attractive as an organic
growth source. Italy and Norway are small.
Japan will be challenging, given no experience
in Asian markets or with Japanese cuisine.
New product
lines
Continue expansion of RTE
(ready to eat) products through
Factor 75 and YouFoodz.
Factor 75 to launch in a new
market in 2022
High Medium
High growth rates in short-term due to low
levels of sales today. TAM is very small, given
very high cost of the product, requires more
labor to prepare, complexity of ops is
increased, and sites are duplicated.
New meal
occasions
Focus on getting greater share
of weekly meal occasions (e.g.,
breakfast & lunch)
Low Easy
Meal kits have limited appeal to consumers
due to cost and take time to prepare. On
breakfast, we question the value added by a
meal kit compared with cheap options such as
cereal or toast. On lunch, we question the
value/time trade off vs. sandwiches & salads.
Grocery
product add-
ons
Rollout of HelloFresh Market to
4 new markets (as well as US)
with private label and ~1000
SKUs. Market is effectively a
grocery offering of ready meals,
and "solution-oriented" items
Low Hard
We don't think HelloFresh can compete on
range, price, or convenience vs. grocers.
Adding 1,000 SKUs to the warehouses will
increase food waste, add complexity to
picking, and require significant investment in
technology (e.g. WMS/IMS/OMS).
Recipe
customization
Driving additional AOV & orders
by allowing customers to swap
ingredients, upgrade
ingredients and add ingredients
to meal kits
Low Medium
Increases complexity of operations (e.g., not
just a single pick of individual recipes) whilst
driving limited incremental AOV growth.
TAM
penetration
TAM
expansion
Additional
monetization
(3) THE BUSINESS IS BECOMING
MORE COMPLEX
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HELLOFRESH: PAYING PEOPLE TO EAT
◼ New brands are duplicative, with extra marketing spend required, more production
facilities, and greater head office effort to develop recipes and content. From our
consumer survey, new brands are broadly cannibalistic with HelloFresh customers,
while awareness is low, meaning that more marketing spend is required to scale them
even though they have a limited impact on the top line. From an operational
perspective, HelloFresh is allocating specific production facilities to run brands such
as Factor 75, Green Chef, and EveryPlate; therefore, there are currently very limited
operational synergies. If HelloFresh would like to be able to offer customers the choice
to add one Factor 75 meal and one HelloFresh meal in a single box, it would further
fragment the supply chain and add complexity.
◼ New recipes increase the complexity within existing HelloFresh production facilities.
In the old model when there were 20-30 recipes, the picking and packing operations
were relatively simple. Recipes could be packed into individual bags, and when it came
to assembling orders, each bag could be selected and packed into a box. This is made
significantly more complex operationally by increasing the number of recipes where
the number of order combinations goes up 10x from 27,000 to 230,000.
◼ Recipe customization also adds to the complexity. It changes the ability for HelloFresh
to pre-package recipes in individual bags before customer orders are finalized. Recipe
bags will have to be individually customized to each customer's selection, which will
add time to pick and pack, and thus increase cost.
◼ HelloFresh Market, with a range of 1,000+ grocery SKUs, will equally affect the
complexity. Instead of having a product range of 30 recipe bags, there will now be a
range of 1,000 products, which may need to be packed into boxes. This turns
HelloFresh from a simple warehouse operation to a complex online grocery fulfilment
operation. It adds complexity to forecasting and stockholding — instead of being able
to order ingredients in time for orders to go out, HelloFresh will now likely have to hold
stocks of 1,000 SKUs, which further increases the complexity of technology and
systems. Many grocers have been trying to solve this problem for 20 years, and it is
hard. If HelloFresh wants to do this well, there will have to be significant investments
and changes to the current ways of operating.
◼ Reduced lead times from four to five days to two to three days will further challenge
operations and forecasting. Instead of operating a just-in-time supply chain and
inventory forecasting for the week's meal kits, HelloFresh will have to improve its
inventory management systems and hold stocks of recipe items in order to meet those
two- to three-day lead times. Moreover, it changes the ability of labor forecasting. It
will be less clear one week in advance how many staff will be needed to pick and pack
items on a given day.
◼ Automation can help, but management was vague on the opportunity, and the
technology isn't ready yet. We think management actually meant that it is going to
think about mechanization rather than automation (e.g., conveyors and goods-to-
picker type systems) instead of what a layperson may imagine by automation (e.g., the
packing of individual ingredients into boxes). We don't think the robotic arm
technology exists yet to do the latter. Plus, we think HelloFresh has underestimated
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FOUR KEY TAKEAWAYS FROM THE 2021 CMD
141
the spend required to "automate" its solution with only €200Mn committed (Ocado
has spent over €1.5Bn tackling a similar concept over the last 10 years to handle one-
third of HelloFresh's sales).
◼ We cannot understand the rationale for extending into last-mile delivery. HelloFresh
does not have the localized scale to develop its own logistics network. We question
how the solution could compete against a large-scale logistics provider such as UPS
or FedEx, given the scale challenges. We also question the investments in last-mile
delivery from a complexity and core business skill perspective. Logistics is not in
HelloFresh's core expertise, and developing its own transport management systems
and routing systems feels like a poor use of capital when other larger retailers wouldn't
dream of developing a similar solution.
We saw a significant step change in Capex with FY22 guided to be double from FY21 (see
Exhibit 246), which is more than what HelloFresh has ever spent. This is mainly driven by
the continued expansion of capacity in the US, expansion in international markets, and
investments in automation. We think this is also being driven by the increasing complexity
of the business and the requirement to invest to continue growing. This represents >7%
sales vs. historical levels of investment at 2% of sales.
We don't expect FY22 to be the end. We expect pressures on marketing spend, fulfillment
costs, and procurement costs to continue to weigh into FY23. Although scale might add
operating leverage to the G&A lines and production facilities will likely become more
mature, we still expect FY23 to be pressured and only achieve 8.7% EBITDA margins. This
is driven by a +90 bps improvement in contribution margins and a +60 bps improvement in
marketing spend. Consensus FY23 EBITDA margins are at 10.2%, which we think will
come down.
Long-term margin guidance is in question. While we think 10% EBITDA margins are
feasible and could get to 10.4% by FY25, we question the ongoing need to invest in growth.
As shown in Exhibit 247, management's claim that two of the levers to get to the 2025
margin target are driven by maturing fulfillment sites and maturing geographies. We
question whether this is accurate, as we would expect HelloFresh to still be in growth mode
by FY25 and therefore still invest in new geographies and new facilities to support future
growth. Management's presentation felt like 2025 and its mid-term guidance was the
endpoint of growth. We would not be surprised if FY25's margins are lower than expected
as a result of continued investment.
(4) FY22 AS THE END OF
GROWTH INVESTMENTS? WE
THINK NOT
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HELLOFRESH: PAYING PEOPLE TO EAT
EXHIBIT 246: Capex has been guided up significantly, doubling into FY22
Source: Company reports
EXHIBIT 247: We question FY25 margins, as we think there will still be a need for growth investments in the
future
Source: Company reports
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THE CASH COW POTENTIAL
If we were in control, how we would steer the company
OVERVIEW
In this chapter, we detail out our strategy for HelloFresh if we were in the driving seat. Our
strategy focuses on slower growth, lower discounts, simpler business model, higher
margins, and higher FCF, which is in direct contrast to its current strategy.
◼ The problem: Consensus expectations are too high. The TAM is smaller, and the
product is unaffordable. The business model is hard with high discounting, churn, and
marketing spend.
◼ The solution: Focus on the core affluent customer base that loves the product and
drives all the EBITDA of the business today. Prioritize bottom line over top line. Pull
back on the heavy discounting and reactivations. Pass on inflation to customers. Pull
back on capital-intensive growth that introduces unnecessary complexity to the
business, and focus on core efficiencies and rights to win (i.e., simple business model,
efficient processes, etc.).
◼ The upside: A sustainable five-year plan focused on profit, cash flow generation, and
shareholder returns. Our proposed strategy would lead to 20% EBITDA margins,
stronger FCF generation, faster EPS growth, and an ability to return up to €1.5Bn to
shareholders over five years (equivalent to 20% market cap today). We think the
company could be worth up to €54 per share (28% upside to today) vs. our current
forecasts, revenue would be 50% lower, but EBITDA would be 15% higher, margins
up by +1000 bps, FCF +121%, and EPS CAGR of 16.5%.
◼ Risks to the strategy include: (1) negative shareholder response to profit over growth;
(2) disintermediation from grocers and margin pressure; (3) greater customer loss
than expected from reduced discounting; and (4) less innovation driving less
consumer relevance.
OUR UNDERPERFORM CASE
Consensus expectations are too high at 15.4% revenue CAGR and +103 bps margin
expansion for FY21-26 (see Exhibit 248 and Exhibit 249). We think it will be difficult for
HelloFresh to have its cake and eat it too by achieving strong top line growth and have
limited impact on margin. We think it is possible to achieve one or the other at the expense
of each other. For example, to grow at a 15.4% CAGR, we think HelloFresh will need to
invest heavily in marketing and discounts, while to grow margin, we think HelloFresh will
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HELLOFRESH: PAYING PEOPLE TO EAT
have to pull back on marketing and investments for growth (recipe customization, new
production facilities, automation, grocery expansion, etc.). Our Underperform thesis hinges
around a few key points outlined below.
The HelloFresh TAM is smaller than what management claims, as the product is
unaffordable for most people and TAM penetration is high at ~40% of target customer
groups. Meal kits are 1.6-2.4x more expensive than cooking from scratch or ready meals
(see Exhibit 250), and a HelloFresh box is unaffordable for the average US family, making
up 74% of its weekly food spending for just three meals for two people (let alone children
and the other 18 meals) (see Exhibit 251). Of customers surveyed, TAM penetration is at
40% for affluent customers, given the high number of customers that HelloFresh has
churned through (see Exhibit 253), supported by our bottom up calculations, which see
TAM penetration at 35%. Plus, as it works through its TAM, we think future growth will be
more and more difficult to achieve as it acquires less attractive customers.
The business model is hard with high levels of discounting, churn, and marketing spend,
leading to HelloFresh working its way through its TAM at a rapid rate. Customers come in
and leave just as quickly, leading to an unhealthy customer database and weak
relationships with customers (see Exhibit 254). It makes us concerned for the next five
years.
◼ Churn is high at 90%; customers aren’t buying after Y1 (see Exhibit 252).
Reactivations are increasing (which the company is positive about), but we think they
are mainly discount-driven, which devalues the brand. Although this isn't a
subscription product and we don't expect customers to buy every week, when a
customer doesn't purchase for a whole quarter and is reactivated, we think this shows
that the product-market fit isn't there, reinforced by our survey data, which shows a
-29 NPS.
◼ Discounting is high, which devalues the brand and reduces pricing power. The product
is unaffordable for most people, and HelloFresh is artificially stimulating growth by
acquiring non-core TAM customers (e.g., students who buy on a discount), and by
propping up customer numbers at the end of a quarter with deep discount emails.
◼ Marketing spend is high, and there is limited operational leverage. This shows that
HelloFresh has to work the business quite hard to maintain the same levels of growth.
We struggle to see marketing spend getting below 15% in the long term unless it
manages to fix consumer relationships and improve retention.
The current strategy focuses on creating a food solutions group. The strategy is scattergun,
covering everything from recipe customization to automation, to in-house
last-mile delivery, to ready meals and grocery items (see Exhibit 255). Our big concern with
the strategy is that it adds significant complexity to a business pressuring on margins and
FCF in the future. Two of the best things about HelloFresh's business are its simple
operations and high markups, which lead to strong margins and FCF. We are also
concerned that management's attempt to rebundle the unbundling of the weekly shop in
its own proposition might not work. HelloFresh cannot compete on range, price, or speed.
It is 60-140% more expensive than a grocery store, at least 5x slower (five-day lead time
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BERNSTEIN
THE CASH COW POTENTIAL
145
vs. next day for groceries), and 15x+ smaller (~1,000 market SKUs vs. a grocery store at
15-30k SKUs). Having said that, stocking up behavior is "antiquated"; it wants to create a
solution where you order weekly with a range of meals for the week — this seems
contradictory. There is nothing innovative in the solution except a less consumer-friendly
grocery offer delivered in a box with a less efficient supply chain, worse consumer
relationships, and less buying power. It has cleverly renamed "grocer" to "food solutions
group."
EXHIBIT 248: High revenue expectations of +15.4%
CAGR…
EXHIBIT 249: …plus margin expansion of +103 bps
Source: Bloomberg, company reports, and Bernstein estimates and analysis
Source: Bloomberg, company reports, and Bernstein estimates and analysis
EXHIBIT 250: Meal kits are 1.6-2.4x the cost of cooking
from scratch or ready meals
EXHIBIT 251: A HelloFresh box is unaffordable for the
third quintile of families and challenging for the
fourth quintile
Source: Company website and Bernstein analysis
Source: USDA, US Census Bureau, company website, and Bernstein analysis
10.7%
15.4%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
Bernstein Consensus
HFG - Revenue CAGR expectations
Bernstein vs. Consensus (FY21-FY26E)
45
103
0
20
40
60
80
100
120
Bernstein Consensus
bps
HFG - EBITDA margin expansion
Bernstein vs. Consensus (FY21-FY26E)
£3.0
£2.1
£5.0
£11.3
£0
£4
£8
£12
Cook from
scratch
Ready meal Meal Kits Delivery
Avg. lasagna meal price (GBP)
Avg. lasagna meal price - UK
1.6 – 2.4x more
expensive
US food
spending by
income quintile
Food spending
at home per
week
HFG box (three
meals, two
people)
Lowest quintile $54 117%
2nd quintile $71 89%
3rd quintile $85 74%
4th quintile $100 63%
Highest quintile $137 46%
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HELLOFRESH: PAYING PEOPLE TO EAT
EXHIBIT 252: Churn is high, with 90% of customers
leaving by Q4
EXHIBIT 253: High TAM penetration — ~40% of high
earners had used a meal kit
Source: Bernstein estimates (all data) and analysis
Note: Sample = 327
Source: Survey Monkey Panel and Bernstein analysis
EXHIBIT 254: 13 million customers have been acquired and lost in the US, trying HelloFresh and not sticking with
the product over the last four years; we question the long-term trajectory for growth
Source: Company reports, and Bernstein estimates (all data) and analysis
0%
20%
40%
60%
80%
100%
Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8
HelloFresh estimated customer
retention rates (Q1-Q8)
Discount & Ditch Regularly reactivated
Seasonal customers Frequent customers
19%
24%
33%
38%
41%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Under
$29,999
$30,000 to
$49,999
$50,000 to
$74,999
$75,000 to
$99,999
Over
$100,000
Meal kit users: penetration of income
groups
-0.3
-0.6
-0.9
-1.2
-1.6
-2.1
-2.7
-3.2
-3.6
-4.1
-4.7
-5.3
-5.9
-6.8
-8.2
-8.8
-10.0
-11.1
-13.0
0.4
0.6
0.7
0.8
0.9
1.2
1.1
1.1
1.1
1.4
1.4
1.5
1.8
2.6
2.0
2.5
2.6
3.7
3.8
-14
-12
-10
-8
-6
-4
-2
0
2
4
6
2016
Q3
2016
Q4
2017
Q1
2017
Q2
2017
Q3
2017
Q4
2018
Q1
2018
Q2
2018
Q3
2018
Q4
2019
Q1
2019
Q2
2019
Q3
2019
Q4
2020
Q1
2020
Q2
2020
Q3
2020
Q4
2021
Q1
2021
Q2
HFG - Total customer base (millions): active and lost customers (US)
Cumulative customers lost Active customers
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EXHIBIT 255: Creation of a food solutions group provides significant upside
Source: Company reports
EXHIBIT 256: 53% of non-meal kit users said they were
too expensive
EXHIBIT 257: Net promoter score of meal kit users is
very poor at -29 (should be at least positive)
Note: Sample = 763
Source: Survey Monkey Panel and Bernstein analysis
Note: Sample = 327
Source: Survey Monkey Panel and Bernstein analysis
53%
33%
25%
20%
19%
18%
10%
7%
8%
0%
10%
20%
30%
40%
50%
60%
Non-meal kit users: Why haven't you
tried meal kits?
7.4%
3.1%
4.0%
3.7%
6.4%
14.1%
11.7%
16.0%
12.0%
6.7%
15.0%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
0 -
Not
likely
1 2 3 4 5 6 7 8 9 10 -
Very
likely
Detractor Neutral Promoter
Meal kit users: How likely are you to
recommend meal kits to a friend or
colleague?
NPS = -29
642734_50312053-cabc-445b-9541-3140c14c8c8d.pdf
BERNSTEIN
148
HELLOFRESH: PAYING PEOPLE TO EAT
OUR STRATEGY
The concept: At the core of HelloFresh, there is a small group of core affluent customers
who love the product and are highly profitable (see Exhibit 258 and Exhibit 259). Even with
very high churn, we expect there to be almost three million core customers at present.
The strategy: HelloFresh should pivot from being the Amazon of meal kits or creating a food
solutions group to targeting this core of affluent customers and focusing on growing strong
sustainable margins and FCF as opposed to discount-driven, churn-intensive, and Capex-
intensive growth at all costs. This will lead to much lower top line growth, but increase
margins significantly and increase FCF. It will increase the product-market fit, the company
can pass on inflation, and improve customer satisfaction. How to do it? Below, we outline
key features of our HelloFresh strategy.
Pull discounts: We think HelloFresh is giving away almost 20% of AOV in discounts to
attract and reactivate customers with deep discounts of 40-60%, which devalue the brand
and attract weak customers (see Exhibit 260). We would stop the majority of these
reactivation discounts immediately (only targeting customers who fit the affluent band or
who have purchased regularly before) and reduce the sign-up discount to ~10-20%, in line
with other meal kit brands. This will lead to an immediate reduction in customer numbers
(>50% reduction), but create a healthier, more sustainable cohort.
Stop reactivating at a discount: Reactivations are not a good thing. For the most part, we
think they are discount-driven attempts to prop up quarterly customer growth (we have
received multiple emails over the last year with up to 60% off, often towards the end of the
quarter) and create an unhealthy, brand-devaluing customer relationship. We would
immediately stop reactivating in the same way and instead focus on targeting selective
reactivation of customers who are either core customer types or who have shown specific
behaviors that are attractive (e.g., a history of consistent full price purchasing). This should
improve retention rates, customer relationships, and brand perception.
Increase pricing and pass on inflation: By targeting the core customer base, HelloFresh will
be more able to pass on food inflation, as its core customer base is more affluent and less
price-sensitive. Passing on a few percentage points of inflation each year will hardly be
noticed by the most affluent customer base. This avoids the difficult strategy of today of
trying to increase margins whilst reducing pricing, which rarely works (see Exhibit 261). It
will help grow AOV organically over the next few years.
Focus on target customer types: Despite the already high TAM penetration, we think
HelloFresh should double down on its core and attempt to drive further
acquisition/reacquisition of core customer types. We think this will lead to slower overall
growth (2-3% per year for the next couple of years) vs. a >20% consensus CAGR.
However, we believe this will create a more sustainable, long-lasting business model.
FOCUS ON MARGINS > TARGET
20% EBITDA MARGINS (2026E)
SLOW DOWN GROWTH >
TARGET -4% REVENUE DECLINE
(CAGR 2021-26E)
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BERNSTEIN
THE CASH COW POTENTIAL
149
Simplify the business model again: The best thing about HelloFresh's core business is its
simplicity. Picking 15 consistent ingredients into 20-25 recipe combinations, and then
packing three or four of those recipes into a box and shipping it to a customer is relatively
simple. Customers order a week in advance, and there is a fantastic ability to forecast both
inventory and labor, thereby reducing costs and food wastage. HelloFresh should focus on
the strengths of its business model rather than trying to be everything to everyone.
Pull grocery investments: HelloFresh might never be able to compete with food retailers on
the breadth of range, depth of range, quality, price, or margin, nor be able to compete on
speed of delivery. It should stop investing in the 1,000s SKU grocery option, which adds
significant operational complexity (wastage, technology, operations, and picking). Although
the investment in grocery is not directly quantified, we think this will drive lower SG&A and
lower Capex.
Pull last-mile investments: HelloFresh should stop growing its last-mile capabilities, as it
might never be able to drive the scale required to compete against a large parcel provider.
It should instead look to create strong partnerships with major parcel carriers. Yes, Amazon
has developed its own last-mile network, but HelloFresh is not Amazon.
Slow warehouse growth: We think HelloFresh will have enough capacity (ex. new market
entries) to support more stable growth in the long run. We think HelloFresh should pause
the majority of its new warehouse growth, which would reduce Capex significantly. In a
post-pandemic world and a higher inflationary environment, we think HelloFresh runs the
risk of overexpanding and being left with underutilized fixed assets. With lower revenue
growth, lower capacity is needed.
Focus on growing AOV of core customer base: Expanding the TAM through lots of growth
levers is great, but it pressures margin and pressures FCF with high Capex. We would
change the overall strategy to really understand what the core customer group wants and
push one or two of those levers to drive up retention and NPS. For example, we would try
breakfast options and see the relative uptake by those core customers, and if there is
insufficient uptake, we would pull the idea completely. We think selective recurring add-
ons that are high margin will drive the best upside (e.g., sides of vegetables at a reasonable
price), and surprise and delight items that are changing relatively frequently should drive
consistent engagement. We would have ~50-100 SKUs, not 1,000s.
One thing we are in two minds about is the speed of delivery: Currently, in most markets,
you need to order a HelloFresh box approximately five to seven days in advance. This brings
with it huge benefits of labor and inventory forecasting, as well as low product wastage. We
think this is uncompetitive vs. the push toward quicker grocery deliveries. However, we
don't quite understand how important speed is in the proposition to HelloFresh's core
customers. It would be margin-dilutive to reduce the lead times, but worth considering if it
improves core customer retention.
PULL INVESTMENTS THAT
INTRODUCE COMPLEXITY,
FOCUS ON EFFICIENCY, FREE UP
FCF
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BERNSTEIN
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HELLOFRESH: PAYING PEOPLE TO EAT
EXHIBIT 258: HelloFresh has a small core of customers who like the product and who will purchase at full price —
they should be treasured
Source: Company reports, and Bernstein estimates (all data) and analysis
EXHIBIT 259: We estimate that HelloFresh is making >100% of its EBITDA from its loyal recurring customer base
while losing money on its non-recurring reactivations due to heavy discounting
Source: Company reports, and Bernstein estimates (all data) and analysis
13%
25%
31%
35%
32%
41%
45%
43%
38%
45%
45%
43%
33%
41%
39%
43%
34%
40%
87%
75%
69%
65%
68%
59%
55%
57%
62%
55%
55%
57%
67%
59%
61%
57%
66%
60%
0%
20%
40%
60%
80%
100%
2017
Q1
2017
Q2
2017
Q3
2017
Q4
2018
Q1
2018
Q2
2018
Q3
2018
Q4
2019
Q1
2019
Q2
2019
Q3
2019
Q4
2020
Q1
2020
Q2
2020
Q3
2020
Q4
2021
Q1
2021
Q2
HFG - Recurring vs. non-recurring customers (FY17-21)
Recurring customers Non-recurring customers
EBITDA breakdown
HelloFresh
total
Recurring
customers
Non-recurring
customers
Active customers (year avg.) 7.28 2.5 4.7
Average frequency 16.2 20 14.2
AOV 51 € 60 € 44 €
Revenue 6,027 € 3,064 € 2,963 €
EBITDA margin % 8.8% 23% -6%
EBITDA 530 € 705 € -174 €
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BERNSTEIN
THE CASH COW POTENTIAL
151
EXHIBIT 260: If you stripped out all discounts, HelloFresh could make significantly higher margins and have
more sustainable customer relationships
Source: Company reports, and Bernstein estimates (all data) and analysis
EXHIBIT 261: HelloFresh hasn't been passing on inflation, and is aiming to reduce its price premium and margin
premium, which is a risky strategy
Source: Company reports
FY21 actuals
10%
discounting
5%
discounting
0%
discounting
Gross revenue per order € 63.9 € 63.9 € 63.9 € 63.9
Discount % -20% -10% -5% 0%
Net revenue per order € 51.1 € 57.5 € 60.7 € 63.9
Fulfilment cost per order -€ 20.9 -€ 20.9 -€ 20.9 -€ 20.9
Fulfilment costs (% sales) -40.9% -36.3% -34.4% -32.7%
Procurement cost per order -€ 17.4 -€ 17.4 -€ 17.4 -€ 17.4
Procurement costs (% sales) -34.1% -30.3% -28.7% -27.3%
Contribution margin € 12.8 € 19.2 € 22.4 € 25.6
Contribution margin % 25.0% 33.3% 36.9% 40.0%
Marketing cost per order -€ 7.3 -€ 7.3 -€ 7.3 -€ 7.3
Marketing costs (% sales) -14.4% -12.8% -12.1% -11.5%
SG&A per order -€ 2.1 -€ 2.1 -€ 2.1 -€ 2.1
SG&A (% sales) -4.1% -3.6% -3.4% -3.3%
D&A € 0.8 € 0.8 € 0.8 € 0.8
Special items & share based comp. € 0.3 € 0.3 € 0.3 € 0.3
AEBITDA € 4.5 € 10.9 € 14.1 € 17.3
AEBITDA margin % 8.8% 18.9% 23.2% 27.1%
642734_50312053-cabc-445b-9541-3140c14c8c8d.pdf
BERNSTEIN
152
HELLOFRESH: PAYING PEOPLE TO EAT
EXHIBIT 262: The business is becoming more capital-
intensive…
EXHIBIT 263: …which is pressuring FCF
Source: Company reports, and Bernstein estimates and analysis
Source: Company reports, and Bernstein estimates and analysis
IMPACT OF OUR PROPOSED CORPORATE ACTION STRATEGY
As a result of the change in strategy, we think HelloFresh would be operating a more
sustainable strategy focused on profit and cash flow generation instead of unstable top line
growth (driven by reactivations and discounts). We think our proposed strategy would lead
to higher profits (20% margins), stronger FCF, faster EPS growth, and an ability to return
>€1.5Bn to shareholders (20% market cap today) (see Exhibit 270).
◼ Price target: Using the same multiples that we use today (10x EBITDA and 21x P/E), if
HelloFresh were to implement our strategy, we would increase our price target to €54
as a result of our proposed corporate action, which would provide 28% upside to
today's share price and a change from our current €39 price target. This is driven by
stronger profitability and free cash flow generation, which increase both our DCF,
EV/EBITDA, and P/E valuations.
◼ Customer numbers: With our strategy, our customer number forecast would drop from
10 million in 2026 to 4.3 million, driven by a focus on the core affluent consumer base,
but retention rates and customer satisfaction would likely increase (see Exhibit 264).
◼ Revenue growth: Although AOV would increase as a result of discounting coming
down from 20% to 10%, our revenue forecast would decrease from a +9.6% CAGR
to a -4.3% CAGR for 2021-26. This would be driven by lower discounting and lower
customer acquisition, but we would see higher AOV (see Exhibit 265).
◼ Contribution margins: Contribution margins would increase by >700 bps as a result
of lower discounting and passing on food inflation to consumers. As a result,
contribution margins would be 33.5% in FY26 vs. our modeling of 26.1%.
37
14
24
39
85
252
544
404 404 404
405
0
100
200
300
400
500
600
CAPEX (EUR Mn)
HFG - CAPEX
-200
-100
0
100
200
300
400
500
600
FCF (EUR Mn)
HFG - Free Cash Flow
642734_50312053-cabc-445b-9541-3140c14c8c8d.pdf
BERNSTEIN
THE CASH COW POTENTIAL
153
◼ EBITDA: As a result of higher contribution margins and lower marketing (focused on
specific customer types), as well as greater operating leverage on SG&A (driven by
simple operations), we would expect EBITDA to grow at a 13% CAGR vs. a 10% CAGR
today. This would lead to 20% EBITDA margins instead of 9% EBITDA margins in
2026 in our current model (see Exhibit 266 and Exhibit 267). We think this would be a
more attractive, sustainable investment vs. lower margins propped up by weak
customer relationships, high churn, and high discounting.
◼ FCF: As a result of stronger EBITDA growth and lower Capex (driven by a focus on
simplicity), our FCF would grow at a 25% CAGR 2021-26 vs. our current expectation
of +7% CAGR. This would lead to a 7% FCF yield at current prices vs. 3% in our model
expectations (see Exhibit 269).
◼ Dividends and buybacks: With a focus on margins, the possibility for shareholder
returns increases. With our strategy, HelloFresh would end up sitting on total cash of
€2.3Bn vs. €0.8Bn in our current expectations. We think this would allow it to return
more than €1.5Bn to shareholders over the next five years. If this was used in buybacks
today, the company could buy back 20% of its stock at today's prices (see Exhibit 270).
EXHIBIT 264: Customer numbers
EXHIBIT 265: Revenue growth
Source: Company reports, and Bernstein estimates and analysis
Source: Company reports, and Bernstein estimates and analysis
7.2
8.1
8.7
9.3
9.6
10.0
7.2
4.9
4.1
4.1
4.2
4.3
0.0
5.0
10.0
15.0
FY21 FY22E FY23E FY24E FY25E FY26E
Active customers - Current strategy
vs. our corporate action strategy
(FY21-FY26E)
Model - HFG current strategy
Corporate Action strategy
6.0
7.1
7.8
8.4
8.9
9.5
6.0
4.7
4.2
4.4
4.6
5.1
0
2
4
6
8
10
FY21 FY22E FY23E FY24E FY25E FY26E
Billions
Revenue 4- Current strategy vs. our
corporate action strategy (FY21-
FY26E)
Model - HFG current strategy
Corporate Action strategy
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BERNSTEIN
154
HELLOFRESH: PAYING PEOPLE TO EAT
EXHIBIT 266: EBITDA
EXHIBIT 267: EBITDA margins
Source: Company reports, and Bernstein estimates and analysis
Source: Company reports, and Bernstein estimates and analysis
EXHIBIT 268: EPS
EXHIBIT 269: FCF
Source: Company reports, and Bernstein estimates and analysis
Source: Company reports, and Bernstein estimates and analysis
448
574
710
791
852
528
619
795
866
940
1046
0
500
1000
FY21 FY22E FY23E FY24E FY25E FY26E
EUR Million
EBITDA - Current strategy vs. our
corporate action strategy (FY21-
FY26E)
Model - HFG current strategy
Corporate Action strategy
6.3%
7.4%
8.4%
8.9%
9.0%
8.8%
13.2%
19.0%
19.7%
20.4%
20.4%
0%
5%
10%
15%
20%
25%
FY21 FY22E FY23E FY24E FY25E FY26E
EBITDA margin % - Current strategy
vs. our corporate action strategy
(FY21-FY26E)
Model - HFG current strategy
Corporate Action strategy
1.4
1.1
1.5
1.8
2.0
2.1
1.4
1.8
2.5
2.7
3.0
3.4
0
1
2
3
4
FY21 FY22E FY23E FY24E FY25E FY26E
EPS - Current strategy vs. our
corporate action strategy (FY21-
FY26E)
Model - HFG current strategy
Corporate Action strategy
181
-138
39
149
209
259
181
150
394
468
519
592
-200
0
200
400
600
800
FY21 FY22E FY23E FY24E FY25E FY26E
FCF - Current strategy vs. our
corporate action strategy (FY21-
FY26E)
Model - HFG current strategy
Corporate Action strategy
642734_50312053-cabc-445b-9541-3140c14c8c8d.pdf
BERNSTEIN
THE CASH COW POTENTIAL
155
EXHIBIT 270: HFG current strategy (our published model) vs. our proposed corporate action strategy
Source: Company reports, and Bernstein estimates and analysis
RISKS TO THE PROPOSED STRATEGY
◼ Capitulation to top line growth strategy isn't taken well with investors who appear
broadly supportive of management's current strategy. Switch in focus from growth to
cash generation is a significant change in the company strategy, suggesting TAM may
be smaller and opportunity size may be smaller.
◼ Disintermediation from grocers and margin defensiveness. Grocery is a low-margin
business, and typically any excess returns are competed away in high competition.
Traditional grocers are typically good at new product development, and if they offered
these meal kit products at significantly lower prices, this could impact our margin
strategy.
◼ Reducing discounting may lead to further customer loss than we expect. While we
model >50% active customers would disappear with the introduction of this strategy,
customer reduction may be even higher, leading to a spiraling effect where further
marketing spend is cut and more customers are lost.
FY21 FY22E FY23E FY24E FY25E
Model - HFG current strategy 7.2 8.1 8.7 9.3 9.6
Corporate Action strategy 7.2 4.9 4.1 4.1 4.2
Model - HFG current strategy 5993 7126 7788 8421 8933
Corporate Action strategy 5993 4674 4179 4390 4612
Model - HFG current strategy 59.8% 18.9% 9.3% 8.1% 6.1%
Corporate Action strategy 59.8% -22.0% -10.6% 5.1% 5.1%
Model - HFG current strategy 25.3% 23.9% 25.1% 25.9% 26.1%
Corporate Action strategy 25.3% 28.4% 32.0% 32.8% 33.5%
Model - HFG current strategy 528 448 574 710 791
Corporate Action strategy 528 619 795 868 940
Model - HFG current strategy 8.8% 6.3% 7.4% 8.4% 8.9%
Corporate Action strategy 8.8% 13.2% 19.0% 19.7% 20.4%
Model - HFG current strategy 1.4 1.1 1.5 1.8 2.0
Corporate Action strategy 1.4 1.8 2.4 2.7 3.0
Model - HFG current strategy 181 -138 39 149 209
Corporate Action strategy 181 150 394 468 519
Model - HFG current strategy 276 101 134 283 492
Corporate Action strategy 276 289 776 1244 1763
Basic EPS
FCF
Net Cash / (Debt)
Active Customers (m)
Group Revenue
Revenue growth %
Contribution margin %
Adj EBITDA
Adj EBITDA %
642734_50312053-cabc-445b-9541-3140c14c8c8d.pdf
BERNSTEIN
156
HELLOFRESH: PAYING PEOPLE TO EAT
◼ Management would argue its innovation is key to driving customer engagement and
that it needs to make the business more complex (quicker lead times, more options,
recipe customization, etc.) to maintain relevance with customers. A slower, less
innovative strategy may lead to being outcompeted by smaller rivals.
◼ Switching to a cash cow strategy brings into question the longevity of the cash flows
from the small group of core affluent customers. How long will the core be willing to
buy at full price and significant markups Does the meal kit proposition without
significant innovation and constant customer churn have longevity?
642734_50312053-cabc-445b-9541-3140c14c8c8d.pdf
Disclosure Appendix
REQUIRED DISCLOSURES
I. REQUIRED DISCLOSURES
Autonomous Research US is a unit within Sanford C. Bernstein & Co., LLC , a broker-dealer registered with the U.S. Securities
and Exchange Commission and a member of the Financial Industry Regulatory Authority ( www.finra.org) and the Securities
Investor Protection Corporation (see www.sipc.org). When this report contains an analysis of debt securities, such report is
intended for institutional investors and is not subject to all the independence and disclosure standards applicable to debt
research for retail investors under the FINRA rules.
VALUATION METHODOLOGY
European Food Retail: We value stocks in our coverage through the following steps: (1) We use a market-based approach to
valuation. We take data for a set of comparable companies and assess how multiples relevant to the sector (PE, EV/EBITDA,
EV/sales, EV/EBIT, FCF yield) change relative to expected growth rates, creating a regression of each multiple versus expected
growth; (2) We generate earnings forecasts for the company, compare those forecasts with consensus expectations, and seek
to reflect events that may happen during the 12 months that are likely to move consensus expectations; (3) We value the stock
by applying the relevant multiple (as determined by our industry valuation regressions) to our earnings forecast; and (4) Where
appropriate, we break down the company into its parts (e.g., by geography) and value it as a sum of those parts. Note that we
make several adjustments to our valuation analysis: (1) For company-specific tax rates, habits of recurring one-off charges, or
other company-specific traits; (2) To separate non-operating assets if we feel their inclusion is distorting the valuation
multiples; and (3) To include pension deficits, non-operating provisions, and seasonality of debt in our net debt calculation.
HelloFresh SE: We value HelloFresh using an average of a 15-year DCF, PE, and EV/EBITDA.
RISKS
European Food Retail: There are certain risks that are common to all the companies in our coverage: (1) Prevailing economic
conditions — in each of the territories our coverage companies operate in, the food retail spend is correlated to prevailing
economic conditions. Thus, any unexpected deterioration or improvement in the macroeconomic conditions in these countries
will likely impact the growth assumptions applied to those operations; and (2) New Entrants — all companies in our coverage
are at risk from new entrants either at a local/regional level (i.e., a new supermarket opening locally to an incumbent) or
national level (a new entrant entering a whole market). Currently, the greatest expansion is being seen at the lower (Lidl/Aldi in
the discount sector) and higher (Waitrose/Wholefoods) ends of the market or online (Amazon). These companies may continue
to outpace the sector and impact the growth of the companies in our sector. Similarly successful operators in certain
regions/countries, e.g., E.Leclerc in France, could expand beyond their current boundaries. As a lot of the non-coverage
companies are privately held, it can be difficult to assess the ability and willingness of these companies to expand further.
HelloFresh SE: The upside risks to our target price include: (1) Pandemic behavior sticks and new customers continue ordering;
(2) Cost reduction sticks post-pandemic and marketing spend stays low vs. 2019 levels; (3) Further acquisitions that grow the
business; and (4) New strategic initiatives or geographies provide material upside.
RATINGS DEFINITIONS, BENCHMARKS, AND DISTRIBUTION
Bernstein brand
The Bernstein brand rates stocks based on forecasts of relative performance for the next 6-12 months versus the S&P 500 for
stocks listed on the US and Canadian exchanges, versus the MSCI Europe Index (MSDLE15) for stocks listed on the European
exchanges (except for Russian companies), versus the MSCI Emerging Markets Index for Russian companies and stocks listed on
emerging markets exchanges outside of the Asia Pacific region, versus the MSCI Japan (MXJP) for stocks listed on the Japanese
exchanges, and versus the MSCI Asia Pacific ex-Japan Index for stocks listed on the Asian (ex-Japan) exchanges — unless
otherwise specified.
The Bernstein brand has three categories of ratings:
642734_50312053-cabc-445b-9541-3140c14c8c8d.pdf
• Outperform: Stock will outpace the market index by more than 15 pp
• Market-Perform: Stock will perform in line with the market index to within +/-15 pp
• Underperform: Stock will trail the performance of the market index by more than 15 pp
Not Rated: The stock Rating, Target Price and/or estimates (if any) have been suspended temporarily.
Autonomous brand
The Autonomous brand rates stocks as indicated below. As our benchmarks we use the SX7P and SXFP index for European
banks, the SXIP for European insurers, the S&P 500 and S&P Financials for US banks coverage, S5LIFE for US Insurance, the
SPSIINS for US Non-Life Insurers coverage, and IBOV for Brazil and H-FIN index for China banks and insurers. Ratings are stated
relative to the sector (not the market).
The Autonomous brand has three categories of ratings:
• Outperform (OP): Stock will outpace the relevant index by more than 10 pp
• Neutral (N): Stock will perform in line with the market index to within +/-10 pp
• Underperform (UP): Stock will trail the performance of the relevant index by more than 10 pp
• Coverage Suspended (CS) applies when coverage of a company under the Autonomous research brand has been
suspended. Ratings and price targets are suspended temporarily. Previously issued ratings and price targets are no
longer current and should therefore not be relied upon.
Not Rated: The stock Rating, Target Price and/or estimates (if any) have been suspended temporarily.
Those denoted as ‘Feature’ (e.g., Feature Outperform FOP, Feature Under Outperform FUP) are our core ideas. Not Rated (NR)
is applied to companies that are not under formal coverage.
For both brands, recommendations are based on a 12-month time horizon.
DISTRIBUTION OF RATINGS/INVESTMENT BANKING SERVICES
Rating
Market Abuse Regulation(MAR) and
FINRA Rule 2241 classification
Count
Percent
Count*
Percent*
Outperform
BUY
395
50.51%
0
0.00%
Market-Perform (Bernstein Brand)
Neutral (Autonomous Brand)
HOLD
261
33.38%
1
0.38%
Underperform
SELL
123
15.73%
0
0.00%
Not Rated (Bernstein Brand)
Coverage Suspended (Autonomous Brand)
NOT RATED
3
0.38%
0
0.00%
* These figures represent the number and percentage of companies in each category to whom Bernstein and Autonomous
provided investment banking services.
As of August 01, 2022. All figures are updated quarterly and represent the cumulative ratings over the previous 12 months.
PRICE CHARTS/RATINGS AND PRICE TARGET HISTORY
642734_50312053-cabc-445b-9541-3140c14c8c8d.pdf
OTHERMATTERS
ItisatthesolediscretionoftheFirmastowhentoinitiate,updateandceaseresearchcoverage.TheFirmhasestablished,
maintains,andrelieson informationbarrierstocontroltheflowofinformationcontained inoneormoreareas(i.e.,theprivate
side)withintheFirm,andintootherareas,units,groups,oraffiliates(i.e.,publicside)oftheFirm.
Thelegalentity(ies)employingtheanalyst(s)listedinthisreportcanbedeterminedbythecountrycodeoftheirphone
number,asfollows:
+1SanfordC.Bernstein&Co.,LLC
+44BernsteinAutonomousLLP
+353SanfordC.BernsteinIrelandLimited
+91SanfordC.Bernstein(India)PrivateLimited
+852SanfordC.Bernstein(HongKong)Limited盛博香港有限公司
+65AllianceBernstein(Singapore)Ltd.
CERTIFICATION
Eachresearchanalystlistedinthisreport,whoisprimarilyresponsibleforthepreparationofthecontentofthisreport,certifies
thatalloftheviewsexpressedinthispublicationaccuratelyreflectthatanalyst'spersonalviewsaboutanyandallofthesubject
securitiesorissuersandthatnopartofthatanalyst'scompensationwas,is,orwillbe,directlyorindirectly,relatedtothe
specificrecommendationsorviewsinthispublication.
II.OTHERIMPORTANTINFORMATIONANDDISCLOSURES
Referencesto"Bernstein"orthe“Firm”inthesedisclosuresrelatetothefollowingentities:SanfordC.Bernstein&Co.,LLC,
BernsteinAutonomousLLP,SanfordC.BernsteinLimited(fordatespriortoJanuary,1,2021),AutonomousResearchLLP(for
datesbetweenApril1,2019andDecember31,2020),SanfordC.Bernstein(HongKong)Limited盛博香港有限公司,SanfordC.
Bernstein(Canada)Limited,SanfordC.Bernstein(India)PrivateLimited(SEBIregistrationno.INH000006378)andSanfordC.
Bernstein(businessregistrationnumber53193989L),aunitofAllianceBernstein(Singapore)Ltd.whichisalicensedentity
undertheSecuritiesand Futures ActandregisteredwithCompanyRegistrationNo.199703364C.
Separatebrandingismaintainedfor“Bernstein”and“Autonomous”researchproducts.
Bernsteinproducesanumberofdifferenttypesofresearchproductsincluding,amongothers,fundamentalanalysis
andquantitativeanalysis,underboththe“Autonomous”and“Bernstein”brands.Recommendationscontained
withinonetypeofresearchproductmaydifferfromrecommendationscontainedwithinothertypesofresearch
products,whetherasaresultofdifferingtimehorizons,methodologiesorotherwise.Furthermore,viewsor
recommendationswithinaresearchproductissuedunderonebrandmaydifferfromviewsorrecommendations
underthesametypeofresearchproductissuedundertheotherbrand.TheResearchRatingsSystemforthetwo
brandsandotherinformationrelatedtothose RatingSystemsareincludedintheprevioussection.
Eachoperatesasaseparatebusinessunitwithinthefollowingentities:SanfordC.Bernstein&Co.,LLC,SanfordC.
Bernstein(HongKong)Limited盛博香港有限公司andBernsteinAutonomousLLP.Forinformationrelatingto
“Autonomous”brandedproducts(includingcertainSalesmaterials)pleasevisit:www.autonomous.com.For
informationrelatingtoBernsteinbrandedproductspleasevisit:www.bernsteinresearch.com.
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Information related to the acquisition of Autonomous Research:
• On and as of April 1, 2019, AllianceBernstein L.P. acquired Autonomous Research. As a result of the acquisition, the
research activities formerly conducted by Autonomous Research US LP and Autonomous Research Asia Limited were
assumed by Sanford C. Bernstein & Co., LLC and Sanford C. Bernstein (Hong Kong) Limited 盛博香港有限公司,
respectively. Both entities continue to publish research under the Autonomous brand.
• References to “Autonomous” in these disclosures relate to the Autonomous Research LLP and, with reference to
dates prior to April 1, 2019, to Autonomous Research US LP and Autonomous Research Asia Limited, and, with
reference to April 1, 2019 onwards, the Autonomous Research US unit and separate brand of Sanford C. Bernstein &
Co., LLC and the Autonomous Research Asia unit and separate brand of Sanford C. Bernstein (Hong Kong) Limited 盛
博香港有限公司, collectively.
Information related to the reorganization of Sanford C. Bernstein Limited and Autonomous Research LLP:
• On and after close of business on December 31, 2020, as part of an internal reorganization of the corporate group,
Sanford C. Bernstein Limited transferred its business to its affiliate Autonomous Research LLP. Subsequent to this
transfer, Autonomous Research LLP changed its name to Bernstein Autonomous LLP. As a result of the
reorganization, the research activities formerly conducted by Sanford C. Bernstein Limited were assumed by
Bernstein Autonomous LLP, which is authorized and regulated by the Financial Conduct Authority (FRN 500498) and
now publishes research under the Bernstein Research Brand. Please note that all price targets, recommendations,
and historical price charts are unaffected by the transfer of the business from Sanford C. Bernstein Limited and have
been carried forward unchanged to Bernstein Autonomous LLP. You can continue to find this information on the
Bernstein website at www.bernsteinresearch.com.
Analysts are compensated based on aggregate contributions to the research franchise as measured by account penetration,
productivity, and proactivity of investment ideas. No analysts are compensated based on performance in, or contributions to,
generating investment banking revenues.
This report has been produced by an independent analyst as defined in Article 3 (1)(34)(i) of EU 296/2014 Market Abuse
Regulation (“MAR”).
Where this material contains an analysis of debt product(s), such material is intended only for institutional investors and is not
subject to the independence and disclosure standards applicable to debt research prepared for retail investors.
This document may not be passed on to any person in the United Kingdom (i) who is a retail client (ii) unless that person or
entity qualifies as an authorized person or exempt person within the meaning of section 19 of the UK Financial Services and
Markets Act 2000 (the "Act"), or qualifies as a person to whom the financial promotion restriction imposed by the Act does not
apply by virtue of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, or is a person classified as an
"professional client" for the purposes of the Conduct of Business Rules of the Financial Conduct Authority.
This document may not be passed onto any person in Canada unless that person qualifies as "permitted client" as defined in
Section 1.1 of NI 31-103.
To our readers in the United States: Sanford C. Bernstein & Co., LLC, a broker-dealer registered with the U.S. Securities and
Exchange Commission (“SEC”) and a member of the U.S. Financial Industry Regulatory Authority, Inc. (“FINRA”) is distributing
this publication in the United States and accepts responsibility for its contents. Where this report has been prepared by
research analyst(s) employed by a non-US affiliate, such analyst(s), is/are (unless otherwise expressly noted) not registered as
associated persons of Sanford C. Bernstein & Co., LLC or any other SEC-registered broker-dealer and are not licensed or
qualified as research analysts with FINRA or any other US regulatory authority. Accordingly, reports prepared by such analyst(s)
may not be prepared in compliance with FINRA’s restrictions regarding (among other things) communications by research
analysts with a subject company, interactions between research analysts and investment banking personnel, participation by
research analysts in solicitation and marketing activities relating to investment banking transactions, public appearances by
research analysts, and trading securities held by a research analyst account.
To our readers in the United Kingdom: This publication has been issued or approved for issue in the United Kingdom by
Bernstein Autonomous LLP, authorized and regulated by the Financial Conduct Authority and located at 50 Berkeley Street,
London W1J 8SB, +44 (0)20-7170-5000. Registered in England & Wales No OC343985.
To our readers in Ireland and the member states of the EEA: This publication is being distributed by Sanford C. Bernstein
Ireland Limited, which is authorized and regulated by the Central Bank of Ireland.
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To our readers in Hong Kong: This publication is being distributed in Hong Kong by Sanford C. Bernstein (Hong Kong) Limited 盛
博香港有限公司, which is licensed and regulated by the Hong Kong Securities and Futures Commission (Central Entity No.
AXC846) to carry out Type 4 (Advising on Securities) regulated activities and subject to the licensing conditions mentioned in
the SFC Public Register (https://www.sfc.hk/publicregWeb/corp/AXC846/details)). This publication is solely for professional
investors only, as defined in the Securities and Futures Ordinance (Cap. 571).
To our readers in Singapore: This publication is being distributed in Singapore by Sanford C. Bernstein, a unit of
AllianceBernstein (Singapore) Ltd., only to accredited investors or institutional investors, as defined in the Securities and
Futures Act (Chapter 289). Recipients in Singapore should contact AllianceBernstein (Singapore) Ltd. in respect of matters
arising from, or in connection with, this publication. AllianceBernstein (Singapore) Ltd. is a licensed entity under the Securities
and Futures Act and registered with Company Registration No. 199703364C. It is regulated by the Monetary Authority of
Singapore and located at One Raffles Quay, #27-11 South Tower, Singapore 048583, +65-62304600. The business name
"Bernstein" is registered under business registration number 53193989L.
To our readers in the People’s Republic of China: The securities referred to in this document are not being offered or sold and
may not be offered or sold, directly or indirectly, in the People's Republic of China (for such purposes, not including the Hong
Kong and Macau Special Administrative Regions or Taiwan), except as permitted by the securities laws of the People’s Republic
of China.
To our readers in Japan: This document is not delivered to you for marketing purposes, and any information provided herein
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For the institutional client readers in Japan who have been granted access to the Bernstein website by Daiwa Securities
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Daiwa, and Bernstein has neither any contractual relationship with you nor any obligations towards you.
To our readers in Australia: Sanford C. Bernstein & Co., LLC., Bernstein Autonomous LLP, Sanford C. Bernstein Ireland Limited,
Sanford C. Bernstein (Hong Kong) Limited 盛博香港有限公司, AllianceBernstein (Singapore) Ltd., and Sanford C. Bernstein
(India) Private Limited ("Bernstein Affiliates") are regulated, respectively, by the Securities and Exchange Commission under
U.S. laws, by the Financial Conduct Authority under U.K. laws, by the Central Bank of Ireland, by the Hong Kong Securities and
Futures Commission under Hong Kong laws, by the Monetary Authority of Singapore under Singapore laws, and Securities and
Exchange Board of India, all of which differ from Australian laws. The Bernstein Affiliates are exempt from the requirement to
hold an Australian financial services license under the Corporations Act 2001 in respect of the provision of the following
financial services to wholesale clients:
• providing financial product advice;
• dealing in a financial product;
• making a market for a financial product; and
• providing a custodial or depository service.
To our readers in Canada: If this publication pertains to a Canadian domiciled company, it is being distributed in Canada by
Sanford C. Bernstein (Canada) Limited, which is licensed and regulated by the Investment Industry Regulatory Organization of
Canada ("IIROC"). If the publication pertains to a non-Canadian domiciled company, it is being distributed by Sanford C.
Bernstein & Co., LLC, which is licensed and regulated by both the SEC and FINRA, into Canada under the International Dealers
Exemption.
To our readers in India: This publication is being distributed in India by Sanford C. Bernstein (India) Private Limited (SCB India)
which is licensed and regulated by Securities and Exchange Board of India ("SEBI") as a research analyst entity under the SEBI
(Research Analyst) Regulations, 2014, having registration no. INH000006378 and as a stockbroker having registration no.
INZ000213537. SCB India is currently engaged in the business of providing research and stock broking services.
• SCB India is a Private limited company incorporated under the Companies Act, 2013, on April 12, 2017, bearing
corporate identification number U65999MH2017FTC293762, and registered office at Level 6, 4 North Avenue, Maker
Maxity, Bandra Kurla Complex, Bandra (East), Mumbai 400051 , Maharashtra, India (Phone No: +91-22-68421401).
• SCB India does not have any disciplinary history as on the date of this report.
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• The associates of SCB India or their relatives may have financial interest(s) in the subject company.
• Except as noted above, SCB India or its associates
• do not have actual/beneficial ownership of one percent or more in securities of the subject company;
• is not engaged in any investment banking activities for Indian companies, as such;
• have not managed or co-managed a public offering in the past twelve months for any Indian companies;
• have not received any compensation for investment banking services or merchant banking services from
the subject company in the past 12 months;
• have not received compensation for brokerage services from the subject company in the past twelve
months;
• have not received any compensation or other benefits from the subject company or third party related to
the specific recommendations or views in this report; and
• do not currently, but may in the future, act as a market maker in the financial instruments of the companies
covered in the report.
SCB India or its associates may have received compensation for products or services other than investment banking,
merchant banking or brokerage services from the subject company in the past twelve months.
The principal research analyst(s) who prepared this report, members of the analysts' team, and members of their
households are not an officer, director, employee, or advisory board member of the companies covered in the report.
LEGAL
This publication has been published and distributed in accordance with the Firm's policy for management of conflicts of interest
in investment research, a copy of which is available from Sanford C. Bernstein & Co., LLC, Director of Compliance, 1345 Avenue
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This publication is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of,
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an investment is not necessarily a guide to, indicator of, or assurance of, future performance.
This report is directed to and intended only for our clients who are “eligible counterparties”, “professional clients”,
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that the services of the entities noted herein are not available to them and should not rely on the material herein to make an
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noted herein are not registered/authorized/ licensed to deal with retail clients and will not enter into any contractual
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This report has been prepared for information purposes only and is based on current public information that we consider
reliable, but the entities noted herein do not warrant or represent (express or implied) as to the sources of information or data
contained herein are accurate, complete, not misleading or as to its fitness for the purpose intended even though the entities
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author(s)’ current opinions as of the date appearing on the material only. The information in this report does not constitute a
personal recommendation, as defined by any of the aforementioned regulators, or take into account the particular investment
objectives, financial situations, or needs of individual investors. The report has not been reviewed by any of the
aforementioned regulators and does not represent any official recommendation from the aforementioned regulators.
The analysis contained herein is based on numerous assumptions. Different assumptions could result in materially different
results. The information in this report does not constitute, or form part of, any offer to sell or issue, or any offer to purchase or
subscribe for shares, or to induce engage in any other investment activity. The value of any securities or financial instruments
mentioned in this report can fall as well as rise subject to market conditions. Past performance is not necessarily indicative of
future results. Estimates of future performance mentioned by the research analyst in this report are based on assumptions that
may not be realized due to unforeseen factors like market volatility/fluctuation. In relation to securities or financial instruments
denominated in a foreign currency other than the clients’ home currency, movements in exchange rates will have an effect on
the value, either favorable or unfavorable. Before acting on any recommendations in this report, recipients should consider the
appropriateness of investing in the subject securities or financial instruments mentioned in this report and, if necessary, seek
for independent professional advice.
The securities described herein may not be eligible for sale in all jurisdictions or to certain categories of investors where that
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property of their respective owners. Any unauthorized use or disclosure is strictly prohibited. The entities noted herein may
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research published under the Bernstein and Autonomous brands.
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