During the pandemic, meal kit companies and online grocery retailers thrived as more UK shoppers ditched the supermarket and opted to stay home.
For HelloFresh, the impact was so significant that early in the pandemic, it had to close to new customers for a month and took on 3,000 extra staff members due to the sheer rise in demand.
However, times have changed. With shoppers firmly back in the supermarket, meal kit companies like HelloFresh are back to battling competition and trying to bring in new shoppers.
This might seem a fairly tricky task at a time where shopper budgets are squeezed.
Last year, the meal delivery kit operated 4.7% fewer orders than the previous year and its shares plunged more than 40% in March after it warned of lower than expected profits in the year ahead.
HelloFresh said it expected earnings of between €350m (£298m) and €400m (£341m) this year, down from the €568m (£484m) analysts had previously estimated.
Despite the tough environment, the meal kit maker is still eyeing growth and is firmly focused on expanding its customer base and improving its product offer.
While it’s just one aspect of its strategy moving forward, HelloFresh UK CEO Adam Park says that its newest and largest European distribution centre, which opened just this month, will act as the “launch pad for future growth and innovation” in the UK.
The flagship automated production facility in Derby, which opened its doors last month, will allow HelloFresh to “produce more boxes” and will give it “the opportunity to serve more customers”.
Park says that the facility, known as The Windmill, which is located in Spondon, Derby, was carefully thought out to reach a wide consumer base, with 80% of its UK customers within a four-hour drive of where the products are being made.
Unlike its other UK facilities, this site features automated production lines which will allow for handling of greater product complexity.
Park says this means HelloFresh “can handle more variety of ingredients, a higher number of recipes, more personalisation and customisation opportunities for customers as they can choose to swap ingredients, add on new items, and even down the road, change their portion sizes”.
For example, the website will enable customers to have the choice to replace meat for plant-based alternatives.
He adds that HelloFresh is “massively expanding” its add-on items menu, which it introduced in the middle of last year.
“Not only can you add more vegetables, you can add desserts, breakfast items, juices and so on. This facility will only allow us to do more of that,” he explains.
Using best-in-class predictive algorithms and technology to improve inventory management processes, the site will deliver ingredients that “are fresher than ever” and help to reduce waste.
It also aligns with the company’s strong sustainable values, with the site, developed in partnership with SmartParc SEGRO Derby, deriving 100% of its energy from renewable sources and being one of the most sustainable production facilities in the country.
Clearing the media storm
Park’s confidence about the future comes despite a decidedly less bright start to the year. Along with the tough trading conditions, HelloFresh also found itself in hot water after it was handed a £140,000 fine by the Information Commissioner’s Office (ICO).
The ICO found HelloFresh had sent over 80 million spam messages to customers over a seven-month period which “lacked proper consent” as customers were not aware they had opted in to receive the marketing emails and texts.
It had found that the text messages were sent based on an opt-in statement that did not make any reference to the sending of marketing via text.
Despite there being a reference to receiving emails, the option to opt-in was included in an age confirmation statement which was likely to “unfairly incentivise customers to agree”.
Park says that HelloFresh “worked very closely” with the agency to “correct” this.
He explains: “Regardless of headlines in the media, I’m really glad that we went through that process to understand what we can do better and frankly, we implemented that change very quickly and in full transparency with the ICO.
“The regulatory landscape around that space is constantly evolving so a lesson for the industry is to just constantly be vigilant, constantly learn from our experience as well as their own to make sure that we work closely with the regulators and do what’s right by our customers.”
Drumming up new demand
As HelloFresh looks to moves on from the issue, it is looking to win over new shoppers .
Park says the launch of the new warehouse is central to its plans as it will increase choice for customers, and will enhance quality and service.
He adds that as a business that delivers direct to consumer, the actual delivery service is incredibly important to customers.
In 2023, the business trialled its own delivery fleet for the first time, with an initial 10 vans. This has since expanded and Park says that “the bar has been met to the point where we’re considering further expansion.”
While the company has no specific plans to do this yet, Park affirms that “it’s working really well for us”.
He also stresses the importance of connecting with the right partners and how this continues to bring in new customers and reward its most loyal ones.
Earlier this year, HelloFresh struck up a deal with Amazon to offer new or existing Prime members who sign up to its meal kit service one year of free deliveries.
Park explains that for the meal kit giant, this was a “really exciting” venture due to its exclusivity.
“Amazon is very selective in picking partners that will truly deliver value to their Prime members, so we’re really pleased to be one of those.
“For customers who use us week in week out, it’s phenomenal value which we’re really pleased to give back to our most loyal customers.”
Standing strong in the face of inflation
Park says that while the cost-of-living crisis has been at the forefront of customers minds, it has ensured its prices have not increased in line with inflation.
He cites its “very robust, resilient and global supply chain” for enabling this.
Alongside the UK, HelloFresh operates in 18 countries worldwide, including France, Spain, Germany, the Netherlands and Denmark.
“We can consolidate our buying across other geographies and leverage different parts of the global food supply chain to make sure that we get the right ingredients and also the right quality.”
Park explains that this helps during periods of unexpected weather events and as certain vegetables go through seasons.
“We can in essence ask customers if they prefer different ingredients, we can quickly adjust our menus so that we still give our customers what they like but avoid some of the items that have supply chain issues,” he explains.
“That’s how we’re able to manage and keep the costs down, even as the ingredient prices in the market have done crazy things over the last few years with double-digit inflation. If you track our prices over time, compare them to inflation, it has basically been flat which we’re really proud of.”
While the UK grocery sector is arguably one of the most competitive in the world, Park says that this “really pushes all players in the food industry to innovate and deliver more value to customers all the time”.
“Even more so than neighbouring countries,” he admits, adding that in the UK, “customers are very sophisticated, they’re used to having a lot of variety and the competitors have to work really hard to deliver that value”.
“We’re actually quite pleased to be in this environment and the [warehouse] site is part of that story,” he adds.
Park reverts back to the new facility, noting that having “invested heavily in this site for the last two years as well as our own fleet, expanding the ‘add on’ range to continue to provide more exciting choice, good quality ingredients, even more convenient service and customer experience – that’s ultimately what we exist for and to keep getting our customers back.”
It’s been a rocky journey for all in the meal kit business over the past few years, however it seems that HelloFresh UK has come out the other side as it looks to expand, improve and differentiate its offer to stand out in an ever-competitive grocery market.
