Nestlé, betting that pandemic-inspired buying habits are here to stay, says it is buying the rest of Freshly, the prepared meals service. The deal is valued at $950 million, with potential earnouts valued at up to $550 million, contingent on growth targets.
This is another sign of just how hot the recently cold meal kit business may become, as consumers continue the pandemic trend of eating in more
often than they used to.
Nestlé says it believes the online ready-meals market, now $4 billion in annual sales, is on track to reach $15 billion by 2025.
Freshly, which has been profitable since last year, delivered about 600,000 prepared weekly meals back in August. Now, it’s sending out 1 million per week, says Nestlé,
The food giant already owned a minority position in Freshly, acquired back in 2017. That was back in the heyday of the nascent category, pioneered by D2C meal-kit companies like Hello Fresh and Blue Apron, which quickly won love from I-hate-to-cook millennials and busy parents. Grocery retailers stepped into the territory, realizing many consumers would just as soon buy the kits in stores, and in 2018, Kroger acquired Home Chef for $700 million.
The field has gotten crowded, with entrants like Dinnerly, Purple Carrot, Gobble and Sun Basket. Amazon has also dabbled in the category through its Whole Food Markets.
Freshly differs in that its meals are already prepared. Customers just need a microwave and a fork. “Our mission is to make eating healthy easy by bringing nutritious, high-quality meals directly to customers’ homes,” says Freshly CEO Michael Wystrach in the announcement. “Convenience and nutrition are driving forces in the future of food, and our becoming a part of the world’s largest food company confirms that.”
The trouble is that many companies, most notably Blue Apron, churned through customers. Its performance was so poor Bloomberg once called it “one of the worst IPOs of the last decade.”
But those fortunes are improving on pandemic-changed appetites, too. Last week Blue Apron posted third-quarter revenue that rose 13% to $112.3 million. The average revenue per customer grew 22% to $314, with the value of each order gaining 2% to approximately $59. It also posted a smaller loss of $10.9 million, compared with a loss of $15.3 million in the comparable period of 2019.