How HelloFresh Keeps Inflation in Check
At A Glance
- With the cost of goods continuously on the rise, consumers are feeling the pinch and adjusting their shopping habits to fit the new reality
- While shoppers pivot, grocers must adjust as well to avoid major price increases that can have a lasting impact on shopper loyalty
- HelloFresh has been able to keep its price increases to a minimum, pacing behind the rest of the industry thanks to its innovative business model
- The key has been the online grocer’s ability to keep procurement expenses as a percentage of revenue stable at around 35% on a year-over-year basis
- HelloFresh has seen its active customer base increase to 7.5 million and revenue increase by 18% year-over-year
With the cost of goods continuously on the rise, consumers are feeling the pinch and adjusting their shopping habits to fit the new reality. Whether it is clipping coupons, buying less, or switching brands consumers are making major changes to their shopping routines to help lessen inflation’s impact.
While shoppers pivot, grocers must adjust as well to avoid major price increases that can drive customers away and have a lasting impact on shopper loyalty. Food retailers that can absorb some of the inflationary pressure and keep price hikes in check can earn long-term consumer loyalty and win in today’s uber-competitive marketplace.
Food kit subscription retailer HelloFresh has been able to keep its price increases to a minimum, pacing behind the rest of the industry thanks to its innovative business model.
“While we have increased prices for the first time in many years across our portfolio earlier in 2022, we've done so at a much lower rate than overall grocery inflation,” CEO Dominik Richter said on a recent earnings call with analysts. “As of August, food CPI has increased between 10% and 15% year-over-year. We have increased our own prices to consumers by on average around 6% to 7%, making meal kits more affordable than any other food alternative at the same quality level.”
How has HelloFresh kept price increases to a minimum, typically below what traditional grocers and restaurants have had to pass on to customers? According to CFO Christian Gartner, the key has been the online grocer’s ability to keep procurement expenses as a percentage of revenue stable at around 35% on a year-over-year basis.
The brand has been able to keep procurement expenses in check by leveraging the “strength of our well-diversified direct supplier relationships,” Gartner said. “We are an important and trusted partner to our suppliers, and we have several alternative suppliers per SKU. This ensures that the burden of higher cost is shared equally between us and our suppliers.”
In addition, HelloFresh’s business model of providing customers all the ingredients necessary to prepare fresh food at home, allows it to keep costs grounded by focusing on ingredients that have not been greatly affected by inflation.
“Not all ingredients [have] the same degree of inflationary trends,” Gartner said. “We can use the strength of our data models to on the one hand, offer great recipes to our customers, but which on the other hand, include ingredients, which are less subject to price inflation.”
Over the past year HelloFresh has been hyper focused on limited price increases for its well-known meal kit service, while simultaneously growing its new HelloFresh Market service. The marketplace allows customers to make one-time, non-recurring purchases from a curated selection of breakfasts, lunches, snacks, desserts, and other essentials.
The offering was launched in late 2021 and over the first year in existence has seen customer uptake increase by 30% as the team increases the product offerings, pricing, and site navigation.
The addition of HelloFresh Market has contributed to an increase in average order value (AOV) of 12% year-over-year, on a constant currency basis, resulting in record AOV for the company. In addition, HelloFresh has seen its active customer base increase to 7.5 million and revenue increase by 18% year-over-year, reaching $1.9 billion.