Few industries have been as dramatically transformed by the COVID-19 pandemic as online food shopping. And the wellness industry has not been entirely immune to the challenges.
While the hospitality sector has suffered, companies that can deliver direct to your door have swollen in popularity, with the likes of Mindful Chef in the UK and Freshly in the US, grateful beneficiaries.
That trend is likely to accelerate, given the latest research, which predicts e-commerce grocery sales will leap from 3.4% market share in 2019 to 21.5% by 2025, up from its 13.5% pre-pandemic prediction.
But rather than giving rise to a generation of unicorn companies – privately held startups valued at more than $1 billion – one founder in a position to prosper hopes the pandemic’s lasting lesson will be to usher in an era of zebras.
“Zebra companies take a more sustainable approach to business,” Lily Simpson, Founder of healthy food delivery company Detox Kitchen, tells Welltodo.
“They focus on profit, sustainability, customer retention and doing real business while helping solve a societal problem. Whereas unicorns are defined by chasing turnover and growth – often at all costs.”
Since 2012, Simpson has prided herself on running Detox Kitchen following zebra principles, and she believes it’s paying off.
Here she reveals the invaluable lessons learned over that time, and explains why she’d rather be a zebra than a unicorn.
On why zebras are the new unicorns…..
Long before COVID-19, I was thinking about why the unicorn model is broken. Knowing the complexities of owning and running a food business, I always felt it irresponsible to focus purely on growing at all costs. In a high growth company you’re moving at 100 miles per hour. You have to compromise far too much. Instead, we want to grow our business in a stable, sustainable and responsible way, for our customers, our staff and our products. You can’t do that if you’re purely focused on growth.
On why chasing growth can backfire…..
Hello Fresh is a notorious example. Its retention is really low, something like 25% [versus 80% for Detox Kitchen]. It’s continually on this treadmill trying to acquire new customers. It’s not focused on the end product and consumer experience. Blue Apron is the same. It IPO’d and its share price plummeted.
On the other hand you have a really great business like Mindful Chef, that is probably going to be a unicorn one day and has just been bought by Nestlé. The brand really cares about retention and engages with its customers. It has brilliant values. These examples show it’s not always about being the biggest and the best, it’s about what you mean to your customer.
On taking a sustainable approach to growth…..
When I started out eight years ago I wanted Detox Kitchen to be a really high growth company. But I quickly realised I needed to make the company profitable, aiming for 50% year on year growth, and to focus on retention. I knew it would take longer to get there but when we did, we’d have a company that’s going to be much stronger and have a longer lifespan.
Now, the two KPIs we focus on are profit and customer retention. Are our customers coming back to us? How much are we willing to spend to acquire them, knowing we will then retain them? That’s what leads us as a business and it’s paying off. Last year our online sales grew 80%. This year will be almost 100% due to COVID-19. But above all, it’s sustainable growth.
On the value of community…..
Instead of spending fortunes on acquisition we focus on retention. That’s served us really well, especially now given the food delivery market has become super competitive. It’s been so beneficial to have a community and customer base that we’ve nurtured over the years. If we didn’t have that we’d simply lose out to competitors who are willing to pay more to acquire them.
On building loyalty…..
Around 30% of our community are our most loyal customers who will stick with us. Another 20-30% might be straying. The challenge is engaging them. They’re the audience we don’t want to lose. How do we retain them? By personalising our message for them, creating content they love and making sure our product is perfect for them.
We also send questionnaires to our customers every week to learn what’s working, what’s not, and react to their answers. For example, we’re launching as a subscription in January because that’s been a key barrier for our customer. If you make sure customer engagement is really good, that will lead to good referral rates and that leads to good growth.
On raising capital…..
One of the biggest lessons I’ve learned is to make sure your values are aligned with your investors. I do and it gives me the freedom to know we’re aligned on our ultimate goal. At the same time you have to be hard-nosed. It can be difficult going from a founder-led business to suddenly being responsible to a board. The other issue is timing. In our case I think we raised way too early, when the company was four years old. We were a bit too small and hadn’t totally fine-tuned our offering.
In 2018 we raised £550K via a crowdfunding campaign because we knew that in a growing competitive market, the best thing to do would be to have our customers invested in our business. We have had 30 customers who all invested more than a few thousand pounds and I’m in touch with them personally. They love the brand and talk about it with everyone and that’s exactly what we want.
On the negative side, crowdfunding can be distracting for the day-to-day running of your business and you have to pay a big commission. When it comes to giving away equity, I’ve always thought I’d rather have a smaller piece of a bigger pie, as long as I have control of that pie. That’s the key with equity. Small businesses need to adapt all the time and you need to have control so you have the ability to change direction when you want.
On the long term impact of the pandemic…..
The pandemic will have taught businesses to focus more on profit and cash because if you don’t have cash in the bank you won’t survive. And if profit is key, then growth comes second. More broadly, we’ve seen huge growth in online food shopping and food delivery, which is really exciting for us. I hope a good percentage of that will be from healthy food but I worry it won’t be.
The UK and US consume a huge amount of ultra-processed food, far more than the average for the rest of Europe, and now because of lockdowns we’re having it delivered to us. We don’t even have to leave our homes to get junk food. What that means for the long term health of people in the UK is going to be devastating unless something changes.
On Detox Kitchen keeping its options open…..
We’re not looking to sell our company at the moment but we’re speaking to people and trying to understand exit opportunities. My mission is to get more people to eat healthy food. Full stop. If being bought out by Nestlé would mean more people were eating healthier food and that wouldn’t be compromised then of course I’d go for it.
Ultimately we’re showing that you can have convenient, delicious, comforting food, delivered to you as part of a lifestyle that encourages you to go for a long walk, or go for a run or do your yoga class. With Detox Kitchen it’s the lifestyle you’re buying into.