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Anyone else surprised by Blue Apron and Hellofresh making the list?

I can't imagine there are two multibillion dollar food recipe delivery subscription companies.

Is this as crazy as I think it is?

HelloFresh has a montly sales of 20 million. Lets assume they get a margin of 40% (which is just my guess). Then they can pay off these investments within 31 years. And I did not even consider their rapid growth.

40% sounds hysterically optimistic. Typical margins in the restaurant business are around 3%, and while HelloFresh's model and costs are obviously pretty different, they're still grappling with restaurants as competitors and dealing with many of the same problems: supply chain management, perishable product, hygiene and quality are a major concern, labor-intensive business, etc.

Also, given the rate at which HelloFresh is throwing around free boxes and discount coupons and special offers here in Australia, I would be astonished if they're profitable at all.

Its a massively profitable business model (at least once you've got the initial momentum building via discounts and freebies out of the way).

Lets look at their "Classic Box" (https://www.hellofresh.co.uk/food-boxes/classic-box/), which is £39 a week for three meals. I priced up what I could see of the box contents using Hubbub (https://beta.hubbub.co.uk) - largely because I work there, and so know my way around, and it came to a little over £20, and that's without any real effort to match the portion sizes they're shipping, I could probably get it down to more like £15 just by buying just the amount of each ingredient needed for the meals being made, and going direct to the producer rather than via high street shops who are going to be adding their own margin.

That leaves, pessimistically about £20 to cover delivery, and the customer's share of central costs such as recipe development, packing, and the usual business expenses of a web based company. At the sort of volume they're doing, I could see them easily making 40% profit, and potentially more than that.

So the question should now be, do they have a sustainable competitive advantage, or are these high profit margins vulnerable to being competed away?

The only real advantage they have at the moment is momentum, and lots of VC money allowing them to survive much higher customer acquisition costs than otherwise. Otherwise, they're a specialised variant of online grocery ordering, which at least in the UK is a huge and very competitive market. They even have the advantage of being able to mail orders, because they're not trying to deliver anything frozen, so logistics is essentially just a case of negotiating a decent rate with a courier.

I'd be really surprised not to see quite a few companies pop up in the same sector, there are already a couple I know of, possibly targeting particular niches such as oriental food.

"Typical margins in the restaurant business are around 3%"

But restaurants have much higher real-estate costs, typically need more staff, need to stock a wider range of product... plus, product that spoils in customers' fridges was still paid for.

"Also, given the rate at which HelloFresh is throwing around free boxes and discount coupons and special offers here in Australia, I would be astonished if they're profitable at all."

If they're a high growth company in a niche with high growth competitors and sticky customers, being profitable at all would be a horrible move.

They are not (directly) competing with restaurants, but with supermarkets. They have clear benefits above supermarkets, as they do not have to throw away food. They directly send it to their customers. Furthermore, their food prices are a lot higher than buying it yourself in a supermarket.

HelloFresh buys in bulk, so spices/nuts etc. are especially packed for one box. Which becomes really inexpensive if you serve the same kind of food world wide. This massive globalization is (or will be) their competitive advantage.

It depends if you are talking net margins or gross margins.

The previous poster's calculation of taking 31 years to earn a billion at 40% of $20m/month assumes net margins.

Hellofresh is a Rocket Internet clone, so not too surprising that it looks exactly like Blue Apron.

Not a clone. Hellofresh was founded in 2011 ( http://goo.gl/Dct4ZY ) and BlueApron in 2012 ( https://goo.gl/gCQ3SI )

"HelloFresh is actually a clone of Swedish company Middagsfrid"


Food is pretty important in people's lives.

That doesn't stop ~60% of new restaurants from failing, though.

It doesn't stop grocery stores from having something like 1% margins, either.

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