Covid-19 has accelerated the growth of meal kits and home food delivery in Australia

HelloFresh believes there is plenty of growth for the industry as Covid-19 and convenience bring more customers.

The Youfoodz board has unanimously recommended that Youfoodz shareholders vote in favour of the takeover in the absence of a superior proposal

The boss of the largest meal kits supplier in Australia, HelloFresh, believes home delivery cooking sets will eventually emerge as a multi-billion dollar industry as Covid-19 accelerates its adoption, changes consumer behaviour and delivers to meal kit and cooking ingredients operators a “greater share of stomach”.

Tom Rutledge, the CEO of HelloFresh Australia and New Zealand, told The Australian that over the last year dominated by the pandemic, lockdowns and restrictions on social activity, its meal kits business had struck a growing pool of customers willing to pay for cooking kits that were delivered weekly to the home.

“What it (Covid-19) did was it brought more people to our service, I think, earlier than they otherwise would have been brought to the service, we saw increased order sizes as more people were taking more meals at home and I think we have seen more engagement in our customer base with our product because of the role we played in their lives at that time,” he said.

“There is plenty of room, if you look at where online grocery is in terms of penetration and share of overall grocery spend in Australia, there is certainly a lot of room for more players to grow their share of online.”

The latest lockdowns across Sydney and parts of New South Wales should also help bolster that demand.

“I think we do see whenever there are restrictions on movement … there is an increase in demand as people have more meals at home.”

Competing with other food options, from buying at the supermarket, takeaways from restaurants or home delivery platforms such as Menulog and Ubereats, HelloFresh is keen to now expand its customer base that is increasingly looking for online tools and convenience.

On Tuesday, HelloFresh made a $125.3m takeover bid for the ASX-listed Youfoodz business that makes and delivers around 400,000 ready made meals a week and which will complement HelloFresh’s home cooking meal kits service.

“I reckon the meal kit industry in Australia is around $1 billion in revenue … and this (deal) is a logical next step for HelloFresh in terms of adjacent categories so we haven’t bought Youfoodz to merge it with the HelloFresh business and we will run Youfoodz as a standalone entity,” Mr Rutledge said.

“I think both, meal kits and ready made meal delivery, have the potential to be greater than billion dollar categories and just in the sense of the number of people that there are to be fed and just the benefits of a model like meal kits, it is a very efficient model in terms of being able to have a short term supply chain and give customers exactly what they need.

“And the ready eat space also has a tremendous convenience angle, and I think together and across two separate companies, we are able to meet a much broader range of meal occasions as a group of companies and it is a big step for us in terms of increasing the convenience of our offer as well.”

Youfoodz booked revenues of around $100m in the first half of 2021 as it prepared and delivered 9.5 million meals to a base of 850,000 home delivery customers as well as a stable of business customers such as supermarkets and other retailers.

Under the takeover offer, HelloFresh is offering 93 cents per share for Youfoodz stock, representing a premium of 82 per cent to the last closing price of 51 cents per share and a 109 per cent premium to the one-month volume weighted average price of 44 cents per share.

Shares in Youfoodz rallied almost 80 per cent on the bid, and on Tuesday were trading up 39.5c at 90.5c. Youfoodz, a ready made meal kit service, launched its $70m IPO late last year when its shares listed on the ASX in December. The shares were issued at $1.50 per share to give the company a then market capitalisation of just over $200m.

The Youfoodz board has unanimously recommended that Youfoodz shareholders vote in favour of the takeover in the absence of a superior proposal and subject to the Independent expert concluding that it is in the best interests of Youfoodz shareholders. RGT Capital, a holder of 57.4 per cent of Youfoodz shares, intends to vote in favour of the takeover as does the company’s founder and 15 per cent shareholder, the Giles family, also intend to accept the offer.

HelloFresh, which is listed on the Frankfurt Stock Exchange and has operations in a number of countries including Australia where it is a market leader, does not disclose the size of its revenue or profit in Australia.

Australians have warmly embraced the meal kit concept, helping operators such as HelloFresh to post accelerating sales growth, which has further sped up during the Covid-19 pandemic. Marley Spoon, which is listed on the ASX and includes supermarket giant Woolworths as a strategic investor, recently reported its active customers in Australia rose 46 per cent in the second half of calendar 2020 as the number of meal orders lifted 69 per cent to 1.01 million. Marley Spoon’s revenue in Australia for fiscal 2020 rose 76 per cent.

Mr Rutledge said Australia remained a highly competitive market for meal kits, meal deliveries and other food platforms.

“In some ways all food businesses are competing for a share of stomach, but where we see ourselves is that we are providing a service and an opportunity to make home cooking more accessible which is fundamentally a different experience and comes at a fundamentally different price point than ordinary takeaway.

“And we are really optimistic that Covid has accelerated adoption of a whole bunch of new habits including buying groceries online and we think that people who were exposed to us who otherwise may not have been will stay on and grow.”