Article from Wall St Journal MealKits Face Competition From the...

Article from Wall St Journal

MealKits Face Competition From the Microwave

WSJ, 14December 2020

Sales ofready meals are growing faster than dinner boxes, even before a vaccine rolloutlikely cuts the time consumers spend cooking from scratch.

Meal kitswere in demand this year as consumers spent more time cooking at home. When theCovid-19 vaccine rollout gradually allows normal life to resume, speedierdinner options like ready meals could eat into their growth. HelloFresh , atleast, has taken note.

The largestU.S. meal-kit provider last week raised its full-year sales and profit guidancefor the fourth time in 2020, lifting its stock to new highs. Berlin-basedHelloFresh also laid out plans to more than double its revenue to €10 billion,equivalent to around $12 billion, by the middle of the decade. The shares havegained 220% this year, making it the second-best performing name in the StoxxEurope 600 index.

However,management expects sales to slow in 2021 from their projected 110% surge in2020. Consumers are likely to spend less time cooking dinner from scratch andreturn to restaurants once the virus is under control. Ready meals that aresold directly to consumers through online subscriptions look poised to takeshare from meal kits as lives become busier. Sales of fresh dinners that can beheated in the microwave already grew faster than meal kits in the U.S. thisyear—by more than 100% compared with 60%, respectively—according to credit-carddata analytics firm Envestnet Yodlee.

Blue Apronis less prepared for the shift than its bigger rival. As its meager 7%share-price gain this year suggests, the U.S. company struggled to meet higherdemand for its products during the pandemic. HelloFresh will try to protect itsbusiness by expanding into different meals such as lunch and new products. Itrecently bought Factor75, a business that will generate $100 million this yearfrom freshly prepared meals.

Thedirect-to-consumer ready-meal market is small in the U.S. today and is valuedat less than $1 billion. But it is growing quickly. Competition from Americansupermarkets may be less intense than in categories like frozen: U.S. grocershaven’t figured out how to transport fresh meals over the long distancesrequired to reach nationwide stores within their short shelf life.

However,there is competition elsewhere. Nestlé recently bought Freshly, the biggestplayer in the U.S. fresh prepared meal market with annual sales more than fourtimes those of Factor75. Freshly was being prepared for an initial publicoffering and attracted several bidders—including HelloFresh—before the world’sbiggest food company snapped it up, people with knowledge of the industry say.

Meal kitshave had a stellar run, but it can’t last. Investors already sitting on biggains should be relieved that HelloFresh is shaking up its menu.