Healthier living, more time for the family, the constant walk to the supermarket and the consideration of which dish to cook are thoughts that move people more and more. The German company HelloFresh promises to solve all these challenges. Three meals per week, meat dishes for 2 persons with start date next week, all that is missing now is to place the order and the meals are organized. This is just one of the many possibilities that the company offers the customer.
The aim of the following work is to present and critically examine HelloFresh's business model and the applied internationalization strategy. On the basis the restriction to the largest market in the USA and the recent expansion goal Sweden, is to be represented like the performance in view of the enterprise strategy is and whether the enterprise can grow on the basis this strategy further.
Starting with the company's history, its goals and values and the transition to financial development and situation, the company will be presented in general. The central international market will then be examined in an introductory section. Afterwards the work focuses on the interactions of the company in the USA and Sweden. For this purpose, the individual markets will be examined in more detail. In chapter 3 the business model is described based on its core competencies and critically examined in the relevant markets with the help of a SWOT analysis. The elaboration that has progressed up to this point of the paper serves as the final analysis of the internationalization strategy. The analysis procedure according to Porter is used to weigh up how the management deals with the individual factors and embeds them in the internationalization strategy.
Table of Contents
List of illustrations
1 Introduction
2 Description of the company and its markets
2.1 Main data and history of HelloFresh
2.2 Financial Number Analysis
2.3 Market Description
2.3.1 USA
2.3.2 Sweden
3 Description and critical analysis of company’s business model
3.1 Description of HelloFresh´s business model
3.2 Critical Analysis
4 Critical reflection of company internationalization and link to strategy
5 Summary
List of References
List of illustrations
Figure 1: Expansion of HelloFresh
Figure 2: Presentation of the annual figures of HelloFresh from 2017 – 2020
Figure 3: SWOT Analysis for USA and Sweden based on the business model
1 Introduction
Healthier living, more time for the family, the constant walk to the supermarket and the consideration of which dish to cook are thoughts that move people more and more. The German company HelloFresh promises to solve all these challenges. Three meals per week, meat dishes for 2 persons with start date next week, all that is missing now is to place the order and the meals are organized. This is just one of the many possibilities that the company offers the customer.
The aim of the following work is to present and critically examine HelloFresh's business model and the applied internationalization strategy. On the basis the restriction to the largest market in the USA and the recent expansion goal Sweden, is to be represented like the performance in view of the enterprise strategy is and whether the enterprise can grow on the basis this strategy further.
Starting with the company's history, its goals and values and the transition to financial development and situation, the company will be presented in general. The central international market will then be examined in an introductory section. Afterwards the work focuses on the interactions of the company in the USA and Sweden. For this purpose, the individual markets will be examined in more detail. In chapter 3 the business model is described based on its core competencies and critically examined in the relevant markets with the help of a SWOT analysis. The elaboration that has progressed up to this point of the paper serves as the final analysis of the internationalization strategy. The analysis procedure according to Porter is used to weigh up how the management deals with the individual factors and embeds them in the internationalization strategy.
2 Description of the company and its markets
2.1 Main data and history of HelloFresh
The company, founded in 2011 in Berlin by Dominik Richter, Jessica Nilsson and Thomas Griesel, aims to enable and simplify the preparation of their own meals for their customers. With the help of personalized cooking boxes, which are delivered to the customer's home at a time of his choice, HelloFresh provides the customer with almost all ingredients needed to prepare a regional and sustainable dish.1
The issue of sustainability plays a central role here. With the help of efficient and innovative logistics processes the waste of food can be reduced. Within these processes it is also possible to minimize CO2 emissions and packaging. At the same time HelloFresh focuses on the sustainable procurement of ingredients and pays attention to the corresponding certifications of suppliers and producers.
The innovative concept of the founder trio was supported by the well-known internet incubator Rocket Internet with capital and know-how. As a result, the HelloFresh Group was created, which is supposed to make it much easier for numerous customers to access a balanced diet. The first products will be delivered in 2012 in the form of bags. Through several financing rounds, the company was able to secure an initial investment sum of 10 million euros in this capital-intensive initial phase and then 7.5 million euros in order to further develop the company structures. After extensive examination of Swedish (where the business is not profitable) and Japanese (where the concept has been in existence for 20 years) business ideas, HelloFresh's team then began to expand the business just one year later. Especially the most populous areas within Europe should be supplied from Berlin, Amsterdam and London at first.2
However, within a very short time, inquiries from interested parties outside the big cities followed, all of them wanted to use the product range of HelloFresh. In the same year, a logistics model was developed so that the business model could be further scaled internationally. Since 2013, the HelloFresh products have enjoyed great popularity, as the company solved the recurring question of what to eat with its simple business idea. HelloFresh was launched on the US East Coast in 2014.3 Through several additional venture capital financings and capital increases, the value of the company rose to over 2.6 billion euros in 2015. However, the IPO planned for the same year had to be cancelled. 2 years later, the company finally succeeded in entering the capital market. With a current market capitalization of 7.65 billion euros, the company sends out around 25 million meals per month. The subscribers come from 13 countries on three different continents.4 The following diagram shows the various stages of internationalization:
Abbildung in dieser Leseprobe nicht enthalten
Figure 1: Expansion of HelloFresh
Source: HelloFresh a (2020), p. 11.
Organic growth, internationalization and expansion are clearly the focus. One new country per year is the benchmark. The management board takes the lead: Dominik Richter, Thomas Griesel, Christian Gärtner, Edwards Boyes. In 2020, during the Corona crisis, the market entry into Denmark took place.
2.2 Financial Number Analysis
The world's largest player in the field of cooking boxes from the company's point of view structures its company segments basically in "International" and "USA". The former includes activities in Great Britain, the Netherlands, Belgium, Luxembourg, France, Australia, New Zealand, Germany, Austria, Canada, Switzerland and Sweden. "USA", on the other hand, reflects all efforts in the United States. This has resulted in a presence in 13 countries on 3 continents. With more than 7000 employees, the company was able to deliver more than 37 million orders or more than 280 million cookware boxes in 2019 and generate net sales of more than 1.8 billion euros.
The analysis of the company's key figures is based on the past data of the last 3 financial years. In addition, due to the corona crisis, which caused unexpected developments in the subsequently investigated market, the first half of the year 2020 is also to be taken into account.
The chart illustrates the company's key figures over the last 3 years including those reported for the first half of 2020. Fields with a green background represent positive values, while cells with a red background represent costs or negative figures.
Abbildung in dieser Leseprobe nicht enthalten
Figure 2: Presentation of the annual figures of HelloFresh from 2017 - 2020
Source: own illustration.
Sales revenues increased from EUR 904.9 million in 2017, via EUR 1,279.2 million in 2018 to EUR 1,809.0 million in 2019. Relatively speaking, this corresponds to growth rates of 41.3% in 2018 and 41.4% in 2019. This significant increase is due in the first step to the continuous growth in customer numbers over the years and the resulting increase in ordered cooking boxes. A further component of this growth describes the continuous optimization of the applied technology and delivery capacities.5
In addition to rising sales revenues, the increasing share of sales in the contribution margin is also becoming apparent. While the margin represented about 23% of sales in 2017 at 207.8 million, the figure rose to 349.9 million (27.4%) in 2018 and to 518.5 million (28.7%) in 2019. In relative terms, the margin increased even more than sales with 68.3% in 2018 and 48.1% in 2019. Conclusions can be drawn from the rising sales and the associated economies of scale and scope. While procurement costs still represented 40.4% of sales in 2017, these advantages enabled costs to be reduced to 37.2% of sales in 2018 and 35.4% in 2019. In addition to volume advantages, the concentration on additional direct producers, optimized menu planning and improved delivery conditions also play a role.6,7
With regard to distribution costs, a relative share of 36.7% in 2017, 35.5% in 2018 and 36% in 2019 indicates a largely stagnant development.
With regard to marketing costs, investments are decreasing with 26.4% in 2017, 25.7% in 2018 and 22.3% in 2019, while sales are nevertheless increasing. This development results in ongoing advertising effects, the expansion of the long-term customer base and the reduction of costs for new customer acquisition.8
EBITDA has continuously improved with -80.7 million Euro in 2017, -69.5 million Euro in 2018 and 15.7 million Euro in 2019, thus reaching a positive value for the first time in 2019. In summary, AEBITDA, EBITDA adjusted for special items, also increased by more than 185% and also recorded a positive result for the first time of 46.5 million Euro and a corresponding margin of 2.6%. In 2018, the company still ended the year with a negative AEBITDA of 54.5 million and a negative margin of 4.3%. The increase in performance is thus largely attributable to improved procurement prices and savings in marketing costs.
The changes in the company's capital structure have also changed. While HelloFresh financed its total capital of 396.1 million with 59.76% equity capital in 2018, in 2019 with total capital of 570.2 million only an equity ratio of 43.0% will be recorded.9
This significant increase and the changes in the structure of the company's business have an effect due to the change in the new accounting approach IFRS 16, which abolishes the categorization of leasing relationships and counteracts off-balance sheet recognition. Lessees are now obliged to report certain leases in their balance sheets.10
An observation during the year leaves a lot of room for interpretation and ignores year-round developments. Nevertheless, and particularly due to the corona crisis, a brief interpretation of the company figures from the first half of 2020 should also be made at this point. Starting with sales, a further increase of 95.1% was achieved compared to the first half of 2019. Procurement costs were reduced again due to the further increase in volumes. Distribution costs rose in relation to the previous year. This is attributable to increased efforts and restructuring in both delivery processes and personnel deployment planning due to the Corona crisis. The previously largest cost factor for marketing was reduced both in absolute and relative terms. In relative terms, however, there has been a significant reduction in relation to the sharp rise in sales. Both the EBITDA of EUR 202.7 million and the adjusted AEBITDA of EUR 216.7 million underline the enormous corporate performance in the current year 2020.11
2.3 Market Description
After the presentation of HelloFresh, the market in which the company operates is to be described. Due to the complexity, the illustration of the worldwide market, the customer attitudes and their demands, act as an introduction to this chapter. In the following the market needs to be examined and in the work further described is however delimited.
Basically, HelloFresh is located in a market for the online distribution of food. The global market for food describes a sales volume of 6,954 billion dollars in 2019, with forecasts ranging from 7,488 billion in 2020 to 8,943 billion in 2023 and related relative increases of 7.6% in 2020 and 17.8% by 2023. This shows a steady growth in the food market. The forecasts take the corona crisis into account in each case.12
The ratio for food sold online is already 1.7% in 2019. Starting at 1.2% in 2017 and rising to a forecast of 3.0% in 2023, the growth and a corresponding shift is clearly visible. Here, too, the corona crisis goes hand in hand with the forecast.13 An increasing acceptance among the global population to buy food online can be deduced.
The countries with the relatively largest populations that regularly order their food online are China, the USA and the United Kingdom.14 Looking at these three, a representative preference for global indicators can be shown why people buy their food on the Internet. High-quality products, fresh products and good price- performance ratio respectively cheap price are the most important criteria. Further reasons are great product variety, fast delivery, brand products and exact delivery time.15
Due to the variety of the markets in those HelloFresh up-to-date is represented, this work is to put the focus on the market of the USA and in Sweden. The USA represent the largest market of the enterprise and with Sweden the recent expansion country of the enterprise is to be illustrated. Additionally, at a later time the internationalization strategy of the enterprise is to be analyzed, why Sweden is suitable besides as investigation object.
2.3.1 USA
The United States of America are home to over 320 million people and is also one of the richest countries in the world. The US market offers an attractive number of customers and is one of the largest markets for e-commerce with a high Internet penetration. More than 205 million active e-commerce users have generated an annual turnover of around 523 billion US dollars in 2018. In 2019, annual sales already reached 601 billion US dollars. Forecasts predict more than 850 billion US dollars in 2022. These are gigantic potentials which are already covered or still to be raised. This shows that not only the size and maturity of the market is interesting for companies, but also the technically savvy consumers and the well-developed infrastructure contribute their share. The digital market is growing steadily and online purchases account for more than 10% of total retail sales in the US. On average, the American consumer spends more than $2,100 online.16
In the birthplace of e-commerce giants like Amazon or eBay, the vast majority of consumers are shopping online. The largest segment with annual sales of 134.5 billion euros (2018) is toys, hobbies and DIY, followed by electronics and media as well as fashion. In the food segment, the market share of food purchased online in the USA rose from 5.1% to 6.6% in Mid-April 2020.17
Also is the share of respondents who regularly use meal kit providers to buy food and products for everyday use online relatively high. In the US this market is relatively developed compared to other countries like for example Canada or Germany. This is no longer a niche.18
But HelloFresh does not operate in this attractive American market alone. With "We do the prep" Amazon is already advertising the Internet giant's patented cooking box solution, which will soon be launched.19 With "Blue Apron" another supplier of this product for the US market is to be mentioned. The company has ventured to go to stock exchange in 2017 in order to have more capital for growth.20
2.3.2 Sweden
Almost 10 million people live in Scandinavia's largest and most populous country. 90% of the Swedish population use the Internet and place orders online at least once a year. The e-commerce market in Sweden has recently started to gain importance. However, it has been growing rapidly for the past five years or so, and a number of large online retailers have paved the way for a significant increase in online shopping sales. In 2020, more than 10 billion euros will be sold online in Sweden and forecasts indicate increasing growth for the coming years. According to forecasts, sales will exceed 12.5 billion euros in 2025. This corresponds to an annual growth in turnover of 3.5%.21 The Average revenue per user is about 1,342.79€.22 Online, certain product groups are particularly interesting for Swedish buyers. 40% of Swedish buyers are particularly interested in fashion and media products, followed by beauty and care products. This is followed by furniture and decoration, toys and hobby accessories. Food occupies fifth place in this enumeration.23
However, the online market of food is growing extremely fast. Until September 2020 of this year, it was worth more than 550 million euros. This corresponds with 4.2% of total sales of food. In 2019 every fourth household has shopped online for groceries.24 All major grocery chains in Sweden, such as City Gross, Coop, Hemköp, ICA and Willys are now digital to some degree. Axfood, Bergendahls, Coop and ICA together have a market share of more than 90 percent, but they still remain relatively small online. The pioneers in the industry are still far ahead of the traditional chains. They have built up a customer base, systems and logistics and there’s no channel conflict to take into account. Almost six out of ten customers choose one of the pure online retailers.25
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1 cf. HelloFresh d (2020), [online].
2 cf. HelloFresh d (2020), [online].
3 cf. Stahl (2018), [online].
4 cf. HelloFresh b (2020), p. 5.
5 cf. HelloFresh b (2020), p. 24.
6 cf. HelloFresh b (2020), p. 24.
7 cf. HelloFresh c (2019), p. 25.
8 cf. HelloFresh b (2020), p. 6.
9 cf. HelloFresh b (2020), p. 115.
10 cf. Mammen et al. (2018), p. 52f.
11 cf. HelloFresh a (2019), p. 7ff.
12 cf. Frimpong (2020), p. 10.
13 cf. Statista b (2020), [online].
14 cf. Frimpong (2020), p. 47.
15 cf. Frimpong (2020), p. 50.
16 cf. Statista b (2020), [online].
17 cf. Tiwari (2020), [online].
18 cf. Statista b (2020), [online].
19 cf. iFun (2017), [online].
20 cf. Schade (2020), [online].
21 cf. Statista a (2020), [online].
22 cf. Ager (2020) [online].
23 cf. Statista a (2020), [online].
24 cf. eCommerceNews (2020), [online].
25 cf. Sonnenberg (2020), [online].