Putting American Grocers Out of Business (Nathan Latka & Dominik Richter) | DLD New York

Yeah, so HelloFresh is all about meals. Basically what we do is if you sign up for HelloFresh, we publish a menu of ten recipes each week. You pick the three you like best, and what we do is then go out to our suppliers, go out to farmers, source all the ingredients proportioned, and ship it right to your door. So basically you get everything you have, and then within 30 minutes you can cook a great, delicious meal from scratch.

I do. I think in the very first year we shipped about 400,000 meals over the span of twelve months. And this was strictly in what market? That was back then in Germany, in the UK, in the Netherlands. Those were kind of like our European core markets when we got started. And then about three and a half years ago we actually expanded to the US, and we actually launched in the US sort of like three and a half years ago and really scaled up ever since.

Should have been something like a million, million and a half meals. And then take us forward to today. What is that number? So today, last year we did about 90 million meals per month. This year, last month we did about 11 million meals per month. So basically still experiencing super super high growth and hopefully making a lot of Americans happy.

Exactly, exactly. And just to visualize that, one meal is about in terms of weight, it's about two pounds. So basically the amount of food that we're really processing each month is really about 22 million pounds of food that goes through our hands.

Yeah, good question. I think the biggest difference is really if you look at classic grocers, what they do is basically they are connected to all those manufacturers, all the big brands, right? And they basically ship the goods, they kind of like ship the goods out to different locations all across the country and then wait for customers to pick them up. There's a huge universe of SKUs, a huge universe of goods that they sell, on average 30,000 to 50,000 in a single supermarket. Whereas what we do is actually we start with the customer. We know where the demand is. Only when we know how many meals we're going to send out, that's when we go out to our suppliers, that's when we source everything in the right quantities. And that basically means that not only do we have much much less SKUs, so about 100 compared to 30,000, but we also basically buy huge volumes of those 100, thus benefiting basically from economies of scale, and we only buy what we already know that the customer wants.

Yeah, so first and foremost, I guess HelloFresh is a tech company. So no matter whether we talk about procurement, whether we talk about demand forecasting, all of that really rests on the algorithms that we have and on the data that we generate and that we use to actually predict demand. So what that really means is basically I don't know if you as a customer will get meals next week, but given I have so much data about past customers and so much data about how customers opt into meals and getting a delivery or not getting a delivery, I have a really really high accuracy in predicting the demand that I have. So just to give you a concrete example, right? If I have 100 people that start their HelloFresh plan in January, I have a pretty good idea how many of those will buy this month, how many of those will buy this week. Like I said, I don't know if you individually will buy, but given the amount of data that I have, I can with a very very high degree of accuracy predict how many meals I will be shipping.

So in terms of the customer base, we're having roundabouts. I think the last numbers that we published were like 850,000 households that were consuming HelloFresh meals. Some of them basically buy every week, others buy once per month, others buy once per quarter. In the end, what we try to do is make it as flexible as possible, right? If you want to have it every week, great, we love that. If you only want to have it every second week or every month, we're so happy for you to be a customer.

So in the US, it's a flat price, it's always $9.99 per meal. In Europe that's a little lower, it's basically in line with the food price indices. The way it works is really for us, we have a very limited number of SKUs given that we only put 10 meals on the menu, each meal on average like 10 ingredients, something like that. So we have 100 SKUs that we source at a very very big volume, right? So we connect to all of those suppliers. We have about a universe of 400-500 suppliers. Some of those farmers, some of those manufacturers, some artisans, others which are more distributors. And given the volume that we need, we basically split out those volumes all across the different suppliers that we have, number one to basically get the best price, number two to de-risk everything. But also very important to notice is basically that all of those suppliers that we have connected to our platform, that they've basically meet certain standards, have certain certifications, all of those things. That's what we basically do. So if I take an average price of $9.99 per plan in the US market, extrapolate that internationally, and delivering about 11 million meals per month, about 100 million dollars in revenue per month, is that accurate?

I can't comment on that. Is my math wrong?

Yeah, so classic traditional food supply chain is you have certain suppliers, you have farmers, they sell to wholesale, wholesale basically ships to a supermarket hub, supermarket hub ships to an individual supermarket, where you as a consumer pick something up and take it home. So it basically goes through different pairs of hands. At each of those steps, you have a certain amount of waste that occurs naturally. How much? I would say probably like three to five percent at each of those steps. Okay, second thing is if you look at how many things actually never get bought in a supermarket, it's quite astonishing. I think in Europe it's about 10 percent, 12 percent of perishables that never get sold, that go bad before the expiration date. In the US, that number is even higher. In the US, between different sources, between 25 and 35 percent. Yeah, okay. Supermarket waste, especially, they're thrown out, they don't go back to consumers. So if you as a consumer now buy something, obviously it's priced in, then they need to throw out a lot of stuff. So given that we start with the demand, that everything that we buy we already have sold, we only buy what we need and we don't have that wastage component, right? So we basically have a 30% price advantage just by basically taking out that whole waste from the food supply chain. And that's a big, big advantage for us.

So the big advantage that we have, we sell plans. That means you can be as flexible as you want. You don't have to opt in, you don't have to basically do anything. If you only want to have one delivery, that's totally fine with us. But given the big data that we have and that we apply to our demand forecasting, with a pretty good idea how much demand we need, we now actually hold that inventory. Though we don't really hold inventory like the sort of like what we get is we don't have warehouses, we don't run warehouses. What we run are basically manufacturing sites. So that means you have all the stuff going in on one side, we basically repack it, we manufacture some of that stuff, we pick and pack it into the different meal kits which then come into the boxes, and it goes out on the other side. The stuff in our fulfillment centers, as we call them, or manufacturing sites, never sits in there longer than two or three days. That basically means we don't build up inventory. We're slightly front-loaded at the beginning of the week where we get more deliveries so we can basically match the demand pattern over the course of the week. And at the other end of the week, we basically pick to zero. End of the week, our whole distribution center is empty. Ten new meals come onto the menu.

Our waste is under 1%.

Yeah, maybe I start with the competition point. Because certainly there are some direct competitors that also offer meal kits, but then there's basically a lot of indirect competitors: takeout spots, restaurants, casual restaurants, the supermarkets per se. Basically, when we ask our customers, right before you ate HelloFresh, which kind of meals are you now replacing with HelloFresh meals? Then basically the answer that we get in the US is: for ten HelloFresh meals, for six of those I don't go to the supermarket anymore, for three of those I do takeout, and basically I also kind of like don't do one restaurant visit that I did before. Okay? If you look at the basket of meals, it's sort of like HelloFresh meals replace six meals that you would have bought at the supermarket, three takeouts, and one restaurant visit. Which then means that actually in terms of value for money, you're actually spending way, way less during HelloFresh than basically paying for those six supermarkets, three takeouts, one restaurant visit.

So generally speaking, I think the core concept that we have appeals to a lot of different segments and audiences, right? So we have customers in New York City, but we have as many customers in Texas, in California, in Middle America, etc. And I think basically, depending on where you are as a customer, there are different alternatives that you have. If you're outside New York, outside the Bay Area, then actually the on-demand options that you have are definitely not as much as in New York, right? So I think in the end, the way that we look at it is basically depending on where you sit, you have different alternatives for your weeknight dinners. We believe that the sort of things that we have on offer – great meals, great recipes, cooking times under 30 minutes, really delicious, and a recipe development process that you can't find a lot of other places – where we basically over index a little bit is always for people that have that certain predictability in their life, right? So if you have two kids, if you know you're going to be home at least three times, four times a week and will be cooking, then I think our service is absolutely perfect. Yeah, if you don't know whether you're going to be in town next week because you might be on a business trip or your social life is so busy, then you still might like HelloFresh every now and then, but you're probably not doing it every week. And we like both of those customers. And I think we can appeal to both of those customers, but they have different buying patterns.

So the framework that I tend to apply when I look at competition is really to say like, okay, in any given month there are 20 weeknight dinners. So 20 dinners from Monday to Thursday. That's where our customers are usually in the consideration set. That's where they have 20 dinners total meals between those days, 20 dinners in a month. And as I said, Monday to Thursday, we want to make sure you're feeding people. So basically, you know, about 20 weeknights per month. For which our customers are in the consideration set. Now I think definitely our customers also kind of look at other services that do similar things, but they very much also basically go to supermarkets, go to takeout, etc. And we tend to look at the overall universe of opportunities that any given customer or any given person in our target segment has. And that's really kind of where we try to stay ahead of the competition. Where we're basically thinking in terms of costs: how do we compare to the supermarket? How do we compare to takeout? How do we compare to restaurants in terms of deliciousness, in terms of transparency where stuff comes from, in terms of welfare standards, etc. So across all those dimensions, we try to get a really good sense of where do we stand and why would people pick us over other things, or where do we lose out at the moment.

Around 350 million.

So our investors include Insight Venture Partners from New York. We have Baillie Gifford, we have Rocket Internet, we have a couple of smaller early stage guys: Phenomen Ventures, Forerunner Ventures, and a couple of others.

I think we always have done and we always will do what we consider is best for the company. I think we have a very strong management team, very strong founder team. Speaking about my co-founders but myself, I don't know. And I think we're fully in line with the investors that we have. Rocket as one of them is certainly a very good investor for us. They have invested in multiple rounds, so have others. I think in the end, our investors will be happiest when there is the biggest outcome possible, not the earliest outcome possible or something like that. So basically, the way we think about it is really to think about what drives long-term success. And you know, when we build a successful company, everybody will be happy.

No.