- Nestlé secures majority stake in healthy recipe box brand Mindful Chef, following $1.5 billion deal with meal delivery startup Freshly
- Unilever invests in meal delivery service Gousto and healthy snack box subscription company Graze
- During the pandemic Mindful Chef’s business grew 350%, while the business has amassed support from over 800 crowdfund investors
- Global recipe box sales are expected to hit $19.92 billion by 2027, a compound annual growth rate of 12.8%, according to forecasts from Grand View Research
LONDON, United Kingdom — Nestlé is betting big on the direct-to-consumer recipe box and meal delivery sector, a market that has exploded under the global COVID-19 pandemic.
Last week, the Swiss food giant announced it had scooped a majority stake in UK recipe box service Mindful Chef for an undisclosed fee.
It closely follows the company’s acquisition of US meal delivery service Freshly in a whopping $1.5 billion deal, consolidating its previous Series C investment in 2017.
If that earlier involvement was a chance for Nestlé to evaluate and test the burgeoning meal delivery market, its new power play suggests the company is betting big on the D2C recipe box category.
And for good reason. Global recipe box sales are expected to hit $19.92 billion by 2027, a compound annual growth rate of 12.8%, according to forecasts from Grand View Research.
Nestlé’s portfolio of direct-to-consumer businesses now includes coffee brands Nespresso and Nescafé Dolce Gusto, as well as additions in pet care, including Tails.com and Lily’s Kitchen.
“Great tasting, healthy food is core to Nestlé’s food strategy as it looks to transform its portfolio to meet growing consumer demand in this area,” read a Nestlé statement on the Mindful Chef deal.
“Mindful Chef represents another step forward in the strategy and underlines Nestlé’s focus on investing in businesses with attractive growth prospects and acting on consumer trends.”
It’s not just Nestlé tucking into a slice of the meal delivery cake. Last year, consumer goods heavyweight Unilever invested in Gousto, helping catapult the London-based recipe subscription service to unicorn status this month.
These are clear signs that there has been a seismic shift in consumer habits towards fresh food, says Mindful Chef’s co-founder and CMO Giles Humphries.
“Customers are changing. They want more convenience and increasingly they are looking to find more healthy lifestyles, as education around nutrition continues at pace,” Humphries told Welltodo
This shift in consumer expectations, Humphries said, has been coming, with younger generations having grown up shopping on their smartphones. But he believes this shift to online shopping has been turbocharged by the pandemic.
“The penetration of online shopping took 20 years to reach a 7% share of all UK grocery spending pre-coronavirus,” he said, pointing to industry data from Reuters. “The pandemic has almost doubled this to 13%. More specifically our business has seen over 350% growth.
“It is unfathomable to think that the generation who have grown up immersed in smartphones would buy 86% of their food offline. It just won’t be the case. We are seeing seismic fundamental shifts in the way people shop.”
Need vs want
The Co-founder and CEO of bespoke meal delivery service Fresh Fitness Food thinks the pandemic has forced consumers to look online and beyond the limitations of their local supermarket.
“I believe people are now seeing the real depth and breadth of this market,” Caspar Rose told Welltodo. Rather than competing with one another, he expects there will be room – and demand – for all food delivery businesses to grow.
“Food delivery businesses aren’t positioning themselves to take market share from each other, or even from the ready meals you see in the supermarket,” he said. “We all have goals. Ours are to not just offer physical improvements but lifestyle improvements through convenience too.
“The market for Fresh Fitness Food is everyone and we are poised for international expansion, with over 30 cities identified that we can launch our healthy business model into.”
For Rose, who founded Fresh Fitness Food in 2011 with Jared Williams – and completed the company’s first seed investment round in 2016 – the real test for the sector will come post-pandemic.
“What will be interesting to see is which product in the market was used in the pandemic because it was a ‘need’ and which is a ‘want’,” he said. “The ‘wants’ will win post-pandemic.”
Last bastion to be disrupted by e-commerce
With the clout and resources of Nestlé behind it, Mindful Chef is in pole position to prosper.
Commenting on its contribution, Humphries said Mindful Chef now has the investment and knowledge to scale the company into a large lifestyle brand across multiple products.
But he expects fierce competition in a sector that is only just beginning to flex its muscles.
“The shift of larger players continuing to invest in this space demonstrates that we are only in the early stages of where the industry is moving to and what the future of food purchasing will look like,” he said.
“Fresh food has been one of the last bastions to be disrupted by e-commerce. However it is now moving fast, and when you consider it is the largest vertical of consumer spending, you can understand why interest in this space is rapidly increasing.
“Big businesses need to look forward, not backwards.”
Post-covid penny pinching
While the lockdown has led to a surge in consumer spending online, the financial constraints of the pandemic are likely to bite harder next year.
The Institute for Fiscal Studies recently predicted 2020 Q4 GDP would remain 6.2% below that of 2019 Q4, a larger fall than the UK felt following the 2008 financial crisis.
Even by the end of 2024, the IFS predicts GDP will be just 1.9% above 2019. Worldwide it’s a similar story. Mintel’s Global COVID-19 Tracker found 37% of consumers are already cutting back on non-essential spending.
“As we face the most severe economic recession in nearly a century, subscription companies will have to offer more than basic convenience and shift the perception of value to retain newly acquired consumers,” Mintel’s food and drink analyst Ayisha Koyenikan told FoodNavigator.
“The convenience of meal kit subscriptions comes at a hefty price premium, and so these services tend not to appeal to lower-income households,” she said.
One solution to this, Koyenikan suggested, was for recipe box companies to partner with foodservice and restaurant brands, to provide the eating out experience to peoples’ homes at more favourable prices.
Suggesting its already ahead of the curve on this, Mindful Chef recently launched partnerships with Leon and Nando’s, while Gousto has secured a similar deal with Wagamama.
Whatever happens to consumer habits post-pandemic, Humphries is confident Mindful Chef will be prepared to deliver for them.
“The UK consumes approximately 1 billion meals a week,” he said. “The opportunity is quite simply enormous. There is space for everyone to play in this space.”