![]() It’s possible that someone originating the deal on the Nestle side believed in the power of the DTC database Freshly had amassed in terms of testing the reach of emerging ingredients and alternative meals not yet sold in Nestle’s vast frozen entrée system. This transaction brings together Nestlé’s deep understanding of what and how people eat at home with Freshly’s highly specialized consumer analytics platform and distribution network to fuel growth opportunities within the Freshly business and across Nestlé’s portfolio, according to financial statements. Whether this happened is also unclear, since the last two years were not ideal for frozen food bureaucracies to take on side projects beyond the core (which had grown significantly).īuried in the Nestle SA 2021 10-K is a possible clue as to the irrational side of this deal that many missed. Nestle no doubt assumed that it could boost net profit by connecting Freshly to its ingredient supply chain. Still, it would not have likely been too much better than a meal kit brand (in absolute % variance), even with the fully prepared margin advantage. There is no public source on Freshly’s operating profit. ![]() Freshly offered meals priced in 2022 at two times the price of premium frozen single-serve equivalents (e.g., Amy’s, Saffron Road, Frontera) and three times the price per unit of frozen single-serve leaders like Lean Cuisine and Healthy Choice Café Steamers (all of whom already had broad distribution at retail).Īnd fulfillment costs for Freshly would have been similarly high to the meal kit businesses that dominate the sector. But it was still an odd acquisition for Nestle SA. As food artifacts, the meals remind me of similarly packaged store label product found at your local supermarket deli (made with yesterday’s mashed potatoes and ribs from the hot bar).įreshly offered product incrementality (more later on this), something CPG acquirers value. What Excited Nestle About Freshly?įreshly was a processed CPG ready meal line featuring gluten-free recipes not present in the Nestle North American frozen portfolio. The vast buying power of a national retail chain’s produce and meat departments is equivalent to that of a large multinational CPG company with frozen food operations, probably better if you are ABSCO, Kroger, or Walmart. The meal kit portion of this sector looks an awful lot like someone ran through the produce and meat departments and dropped stuff in a box with a recipe card. The DTC meal sector’s net operating margin problems are why Plated and Home Chef sold to retail chains companies adapted to low net operating margins. The earn-out provisions of the Freshly deal reveal that even Nestle had doubts. But a public holding company expects to see a) net profit expansion and b) continued topline growth post-acquisition of a sub-$500 million revenue business to keep it. revenue (!), according to company financial statements.Ī $4B private CPG company could persist this way indefinitely with sound financial management. Hello Fresh’s stated fulfillment costs (shipping, packaging, storage) are 43% of its U.S. Q3 2022 quarterly topline with only 0.9 % EBIT (before financial alchemy increases it). Look at Hello Fresh, the largest DTC fresh meal company in the U.S. DTC distribution costs accelerated during the pandemic, so this situation only worsened. These businesses don’t generate the net profits that strategic firms expect of all their holdings, even at scale. It will be the last.Īt the time of Nestle’s 2020 acquisition of Freshly, many in the industry were confused. Nestle SA was the first strategic CPG firm to acquire one of these companies in late 2020. The recent shutdown of Freshly shocked many of its consumers, but not those following the ~$6B DTC meal sector, or experts in the demand side of convenience meals. The public markets (and strategic firms) aren’t kind to businesses that don’t make much money and then stop growing.
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