HelloFresh sees growth driven by the Ready-To-Eat business

The German meal kit company HelloFresh continues on its slow path to sustained growth. The company reported its third consecutive growth quarter as many quarters of decline. Both decline and growth have been slight, low single-digits up and down. The plateauing of sales comes from the decline of the core business, meal kits.

As the main business of meal kits declines by the high single digits, the company is reaping the rewards of its investments in new businesses. In late 2020, HelloFresh acquired the RTE company Factor, establishing the Ready-To-Eat (RTE) category.

Currently, the RTE category accounts for less than a third of revenues but is driving growth. With 38.7% quarterly revenue growth, RTE is making up for the decline in the core business.

The growth of RTE is also driving the growth of Average Order Values (AOV). This helps as the number of orders is declining for an eighth consecutive quarter.

Geographically, HelloFresh saw slight growth from the more significant North American business, whereas the International business grew stronger. However, the international business significantly declined compared to a year ago, when the company reorganised its North American business unit.

In total, HelloFresh's revenues are approaching eight billion euros. In Q3/2024, the Last Twelve Months (LTM) revenue run-rate was 7,7 billion €.

Financially, the company is facing a more difficult time. The profitability is eroding slightly. Despite the increased AOV, the procurement expenses have grown faster than the revenue. This means that the Gross margin of HelloFresh has declined (64,8 % → 61,9 %). The company has been streamlining its processes as fulfilment and marketing expenses have declined (-2,5 % & -2,1 %).

Together, these have meant that the company's Operating income declined from -12,9 M€ to -23,7 M€. The more challenging profitability, along with the more efficient fulfilment and marketing, illustrates the change that HelloFresh is going through as it matures from a growth company to a big company required to generate robust profits.

The fundamentals of the new marketing strategy highlight this.