Meal-Kit world dominance vs. high customer churn

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Depending on whom you ask, the HelloFresh ascent to the top of the meal-kit subscription category is either “admirable” or “brutal.” 

Contrary to the passionate founder lore that seems almost ubiquitous within the startup world, HelloFresh was not a labour of love. Its founders, Dominik Richter, Thomas Griesel, and Jessica Nilsson, have never been chefs, nor have they been characterized as particularly passionate about food. 

HelloFresh was established with one goal and one goal only: worldwide domination of the burgeoning meal-kit category. Since the beginning, HelloFresh has been all business.

Credit: Financial Times

While its roots are in Berlin, Germany, HelloFresh is now the largest meal-kit provider in the United States. The company also operates in Canada, the UK, Luxembourg, Belgium, France, the Netherlands, New Zealand, and Australia.

But the company has faced serious challenges since its start in 2011, most notably high competition, high customer churn, and reports of troubling staff incidents at some of their warehouses. In 2020, however, after years of struggling with their business model’s economics, the pandemic forced a behavioural change that triggered a 120% revenue increase in Q3 2020: staying at home and cooking your meals.

One question, however, remains: Why has HelloFresh emerged as the leader within a category known for its high customer churn rate and slim profit margins?  

Keep reading to find out more about HelloFresh’s twisty-turny, topsy-turvy rise to the top as the meal-kit delivery service giving grocery stores a run for their money. 

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Staying the (Aggressive) Course: The HelloFresh Recipe for Success

High customer churn: it’s the bane of the meal-kit category’s existence.

In 2018, an analysis of HelloFresh and Blue Apron data revealed that nearly half of subscribers cancel within a month, with only 20% keeping their subscriptions for six months or more. At the one-year mark, only 15% of subscribers retain their subscriptions.

Despite grim churn data, some reports are still (somewhat) optimistic about the growing, albeit still fragmented, category. According to a 2020 report by Technavio, meal-kit delivery is poised to grow by almost $16 billion between 2020–2024, seeing 18% growth during the forecast period.

The category, however, still has a long way to go––so how does HelloFresh thrive within such an unforgiving segment? Here are three ways HelloFresh has managed to survive the churn. 

#1 HelloFresh owns most of its supply chain. 

Have you ever wondered where meal-kit companies procure their ingredients? It may seem like HelloFresh purchases its ingredients from the grocery store to the casual observer, only to repackage them for their customers. But they don’t.

One of the ways HelloFresh has been able to grow its profit margin is bypassing much of the traditional food supply chain and purchasing ingredients directly from producers. 

At first glance, you may be thinking, So what? But when you understand how many “checkpoints” exist within the grocery store supply chain, the opportunity for improvement becomes obvious. 

Credit: CB Insights

The HelloFresh approach is two-fold: analyze customer data to forecast required ingredients, and procure those ingredients directly from local farmers. 

After ingredients have been acquired, HelloFresh fulfills the order themselves, reducing the number of checkpoints and lowering their distribution costs. 

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#2 HelloFresh is all-in on influencer marketing

With its savings on distribution, HelloFresh has funnelled a massive amount of its revenue to marketing––most notably, one of the most extensive macro- and micro-influencer strategies on record. 

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Their 2019 influencer campaign with UK television host Davina McCall won Silver in the food and drink category at the 2020 Influencer Marketing Awards. 

Given that 80% of HelloFresh customers are women, the company has gone all-in on lifestyle, motherhood, and cooking influencers to promote their meal kits across all channels. 

HelloFresh is relentless about tracking which of its influencers promo codes bring in the most customers, and they’re quick to double-down on those that are most successful––and cut those who don’t perform. 

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#3 HelloFresh is relentless about its commitment to “be everywhere” 

If you’ve been, well, anywhere on the internet, odds are you’ve seen an ad for HelloFresh. 

Credit: Jd&co. Design

HelloFresh reportedly spends a third of its revenue on marketing alone. Given its high churn rate, HelloFresh invests serious money into acquiring new customers, which it can afford to do after its 2017 IPO and cost savings on distribution. 

HelloFresh may be everywhere in digital marketing––an omnichannel approach if there ever was one––but they don’t stop there. HelloFresh spends millions on TV ads, print advertising, and direct mail. They’re on the walls of your subway station. They buy billboard space as the opportunity will soon disappear.

They’re also not afraid to try new things. They’ve tested in-app offers on Spotify to complement their robust podcast ad strategy. In Canada, they hired Annie Murphy from Schitt’s Creek to star in a mock soap opera called Hungry Hearts … with mixed results. 

While not every DTC brand can afford HelloFresh-level marketing tactics, the most important thing to remember about the HellFresh story maybe this: try new things, fail and persist. Whether or not HelloFresh can maintain its position within the saturated meal-kit delivery category, their relentless focus to dominate the category is surely a DTC 2020 success story.