New York, United States – Meal kit delivery giant HelloFresh SE faces a crucial decision amid constraints in the industry. With a soaring market share of over 75% in the US market by 2022, HelloFresh boasts healthy gross margins above 60%. However, the challenge lies in customer retention, a key issue affecting the meal kit delivery sector.

The struggle with retaining customers is evident as industry data shows that only 10-20% of customers stick with meal kit delivery services after 6 months, a stark comparison to the 70%+ retention rates seen in restaurant and food delivery industries. To counter this, HelloFresh has ramped up its marketing expenditures significantly, allocating more of its revenue to customer acquisition and retention efforts.

This pattern of increased marketing expenditures has led to inconsistent profitability for HelloFresh. While the company achieved $53 million in Normalized Net Income in 2023, it represents an 80% decrease from the $301 million generated in 2020. As a result, HelloFresh is at a crossroads, having to decide between revenue growth through scaling or a focus on achieving profitability.

Despite the challenges, HelloFresh remains undervalued with a market capitalization of just over $1 billion and a low P/S ratio of $0.14. The company’s financial performance reflects healthy margins, with Gross Profit exceeding $5 billion in the Trailing Twelve Months. However, hefty expenses in the form of “Selling General & Admin Expenses” have impacted overall profitability, resulting in negative Net Income figures.

Furthermore, HelloFresh’s heavy reliance on promotional handouts to retain and acquire customers poses a significant risk to its long-term sustainability. The company’s emphasis on scaling through increased marketing expenses has hindered its ability to translate revenue growth into steady profitability.

In light of these factors, HelloFresh’s future trajectory hinges on its ability to navigate the challenges of the meal kit delivery industry. As the market leader in the sector, HelloFresh must strategize to address the fundamental issue of customer retention while balancing the need for revenue growth and profitability.

While the industry presents challenges, HelloFresh’s cheap valuation and history of shareholder-friendly practices indicate potential for growth and sustainability. By adapting its business model to address new markets or improving customer retention rates, HelloFresh could unlock new avenues for profitability and shareholder value.