HelloFresh – The execution game.

HelloFresh’s ability to execute under pressure is its greatest asset.

• Far from helping food delivery, the current pandemic seems to be accelerating the consolidation with HelloFresh emerging triumphant as it has been able to execute extremely well greatly boosting its brand and reputation with its customers.
• HelloFresh reported excellent Q1 2020 results as it is one of the few companies in this space that appears to have been able to execute well enough to meet the sudden upswing in demand.
• Q1 2020 revenues / net income were €699m / €39.7m compared to consensus at €651m / €16m.
• The company has also greatly increased its expectations for growth in 2020 with 2020 revenues now expected to grow by 48% YoY (40% – 55%) up from 25% YoY (22% – 27%).
• The lockdown has had a huge effect on HelloFresh which in the absence of a vaccine, is likely to continue to a large degree even when everyone goes back to work.
• This is because many people will be less comfortable going to restaurants due to both fear of infection and the fact that social distancing is going to make it a much less enjoyable experience.
• Hence, I think that HelloFresh will see some retrenchment as the locked-down population emerges and goes back to work, but I am pretty confident that it will continue to benefit from the pandemic’s impact on dining out at least until there is a vaccine.
• The one problem it might have could be consumer demand as the economic indicators are some of the worst that have ever been recorded.
• Hence, while demand might remain robust, affordability could become an issue which would limit HelloFresh’s ability to penetrate the mass market as it can hardly be described as an essential service.
• However, at the moment I think that there is still plenty of space at the high end of the market for it to meet its near-term expectations.
• This is especially the case as its competition has failed to execute on this opportunity and continues to collapse.
• Blue Apron had a dreadful Q1 2020 missing revenue expectations by 22% stating that the lockdown had had no discernible impact on its business.
• I think that the lockdown has had a huge effect on its business in that it has significantly hastened its demise as well as the demise of many others in this space.
• Munchery has just closed its doors and intends to sell some of its assets to Gate Gourmet in a transaction that is very unlikely to close.
• This is because Gate Gourmet will be badly suffering at the moment as its main business is catering for airlines many of whom have seen a 90%+ decline in passengers.
• This will have hurt Gate Gourmet badly and I suspect that it may well have changed its mind about buying Munchery’s assets.
• Grubhub also did not have a great Q1 2020 highlighting just how crucial the ability to execute under pressure is.
• Hence, I think that although the demand for food delivery in all its forms will remain strong for a while, the pandemic has separated the men from the boys meaning that consolidation of the sector is likely to accelerate.
• At this rate, HelloFresh will be one of the few left standing at the end of the day.